CNBC's full interview with National Economic Council Director Larry Kudlow

[00:00:00] Speaker 1: So, Larry, how does the U.S. economy stop itself from being intertwined with an economy, the world's second largest economy, that truly is paralyzed right now? [00:00:11] Speaker 2: Well, look, I don't think, you know, we're not going to decouple. Everybody knows that. And the tragedy here, I see it in human tolls. You know, people catching this virus, many people dying. I guess new numbers out today were not good. That's, you know, most regrettable. Incidentally, we've done what we can to help them. And I announced this two or three weeks ago. But finally, as you probably know, China has allowed U.S. CDC experts to go in with the World Health Organization experts. That's a good thing. And I hope it works. Now, coming back to our story here, I just want to raise this point. If you look at the Atlanta Fed GDP now, they're predicting a 2.6% increase in the first quarter. And that's a pretty big number because of what we've seen in China, 2.6%. Now, whether that number holds remains to be seen. I understand it fluctuates. But I think that's very promising. Second point, Jimmy, yesterday, as you know, we had very positive reports from the Philly Fed manufacturing and the New York Empire State manufacturing. And here's the key point. In both of those mid-month surveys, they did not find any major high-chain problems. Now, again, I know this could change. The first quarter has, you know, month-plus to go. But nonetheless, as early indicators, the GDP now and these ISM reports, and of course, at home, we're in a housing boom, as you well know. So I just think we should be very calm about the U.S. side of this story, which is actually looking pretty good. On the other hand, the Chinese side of the story is very difficult. It's a human tragedy. It will come to pass at some point. But I'm not smart enough to know when that is. Larry, it's David. What is the 30-year [00:02:21] Speaker 3: all-time low yield of 1.89% say about this economy and the perception of it? [00:02:30] Speaker 2: Well, look, I have to think, David, that is a run to safety. I have to think that. With respect to the outbreak of the virus in China, perhaps the worsening of the virus, I'm not an expert on that. Asia is obviously on red alert regarding the virus. We don't see too much in Europe. But I just think, in general, I would be very careful to put too much emphasis on what bond rates are doing or interest rates are doing, or even in the short, short run, the stock market. I think you've got a lot of mood swings here, and I don't think it reflects the fundamentals. [00:03:09] Speaker 1: All right, Larry, just as something that I'm very concerned about, can you go to the president and tell him that it's possible to have as much as 80% of the pill of the pharma business, ingredients and actual pills that are made in China, 48 plants in the Wuhan area, can you tell him we do not have enough medicine, we do not have enough supply in this country, this is going to be a problem in three weeks, and we've got to do something about it. And it may come down to the president doing something about it. [00:03:42] Speaker 2: Jimmy, when you say we're not going to have enough supply in this country, do you mean the USA or China? [00:03:48] Speaker 1: USA, because unfortunately, we somehow let the Chinese become so important in the actual manufacturing of our medicine, Larry, and I know you and I are not happy about this. We can't, that they became so important. We used to have it made India. We had it made Canada. We made it here. But we have let the Chinese be so powerful in the actual supply chain of our pharmaceuticals that a lot of the doctors I talk to, Larry, are concerned, and we just want to be sure that we do not have shortages in medicine, which you know would then cause inflation. [00:04:19] Speaker 2: Well, yeah, inflation, or perhaps even worse, human suffering. Yes, I'm not so worried about the inflation. But look, President Trump, from day one, let me just go back a second, from day one in a meeting in the Oval Office, instructed us to engage with China in every way possible to help China to send our exports to China. It took a while to send our experts to China. It took a while to get that done, but it's getting done. As a humanitarian gesture, now, that doesn't answer your question precisely, but I'm just saying that's been his attitude. Just help China. Engage. We have good relations with them now. With respect to pharmaceutical products here at home, Jimmy, I'm sure the president, I have not spoken to him since he got back last night from his West Coast swing. I'm sure he will want to do whatever it takes with respect to Secretary Azar at HHS, with respect to the FDA and so forth, to make sure we have sufficient supplies to take care of business illnesses here at home. I'm sure he will do what he can to expedite that, whether that means special deregulatory efforts, whether that means executive orders remains to be seen. I don't want to get ahead of the story. I don't want to get out in front of my skis, but we will do whatever it takes. Now, as you well know, the virus story is not an American story. I mean, we've been very, very, very well contained. And so I think, and I've talked to Dr. Fauci about this, who's a genius, and we're, you know, fingers crossed, God willing, we're in pretty good shape here at home. And the other point I'll make, and this is not a cynical point, it's just a factual point, in a typical flu season in which we find ourselves, these, you know, deaths in the USA can run upwards of 20, 40, 60,000. And that's an ongoing issue. And I'm pretty certain we have enough supplies, vaccinations and whatnot to deal with that. But I, without speaking to the president yet, and I will within the hour or so, he will do whatever it takes, Jimmy, to make sure we have the right medicines available. Believe me, he will. Thank you. It's very important for people's lives. Thank you. [00:06:50] Speaker 4: Hey, Larry, it's Carl. You talk about bond yields not reflecting fundamentals. I mean, it was 10 days ago, the president pulled out a list of four companies that have trillion dollar market caps. The macronym was MAGA. Did fundamentals, were they reflected in prices then? I mean, we're heavily reliant in terms of the market indices on four big names. [00:07:11] Speaker 2: Well, Carl, I can't, I'm not going to dig in here. Look, we've had a fabulous stock market. And that fabulous stock market. I mean, just in the last 12 or 13 months is up over 30%, including today's correction. I, by the way, view that good market as a sign of business and consumer confidence and a sign that business conditions in 2020 will get better, not worse. Going all the way back to president's election, I believe the S&P 500 is up close to 58% or 60%. So it's been a terrific, terrific market. And I think the fundamentals of this economy are very solid. All right? Very solid. I mean, even with headwinds, we've had very tough Fed tightening, which they hadn't, but they had. Now they're beginning to unwind that, add to the balance sheet. That's good. But that hurt us a lot. The Boeing shutdown hurt us a lot, Carl, as you know. We'll see about the virus somehow at this point. It doesn't seem like a problem. Here's where I'm going to. In the three years under policies of lower tax rates, deregulation, independent energy, and better trade deals to open up an export boom, we have managed a 2.5% growth rate on average for three years. That is significantly better than the prior administration. It is also significantly better than what the CBO has forecasted. And I'm going to add to that in the area of fundamentals. America is working and there's a blue collar boom. We've created 7 million jobs. CBO said we'd only get 2 million. We've created 7 million jobs. And the wonderful part of the blue collar boom is that the bottom half, the bottom quarter, and the worst 10%, the plant workers, if you will, the assembly line workers and related white collar are outperforming their managers by substantial amounts. I mean, one little factoid. I know there's a million numbers here. Average weekly earnings for production workers up about 5%. Okay. Overall, I believe the number is 3%. And that is not only true for the blue color boom, but I want to add to this, there is a women's boom. Women participation rate, women now the majority in the labor force. I think three quarters of the new jobs last year came from women, something like that. There's a women's boom. And then finally, I know I don't have any millennials here on the panel, but the snowflakes, the snowflakes and the millennials are working. Okay. Their participation rates are going sky high and their wages are rising at close to 5%. So this is a fundamentally very sound economy. [00:10:19] Speaker 3: All right. Let's get back to the economy, though, and the virus itself. You just said, Larry, that it doesn't seem like a problem. And certainly from a health perspective, at least here in the U.S., thankfully, it doesn't. But you also said at the very beginning, we are not decoupled from China. Right. Their economy has essentially been shut down, you know, for a month or so now. There are a lot of supply chains, despite the trade war that raged for two years, that still are interconnected into that economy. What are your expectations when it comes to supply chains, when it comes to a virtual halt in the world's second largest economy on the impact here? I mean, there's got to be a significant impact, doesn't there, Larry? [00:10:56] Speaker 2: Well, it's a good question. It's a good point. Now, the word significant, David, I don't know. Our views here at the NEC and the CA are very close to the private sector views. We were looking to clip two or three tenths of one percent of GDP off of the first quarter because of the issues that you raised, supply chains and other things. Okay. So that's just guesswork, if you want to know the truth. We don't really know. I don't know how accurate the information is out of China. Now, look, to try to focus in on specifics, which is what you're asking me, it's not easy. But I'll repeat what I mentioned to Jimmy earlier. Some of the indications, we're in mid-February right now, February 19th or February 20th, whatever day is today. So far, it does not look like, whether it be supply chain or other problems, that the U.S. economy is getting hurt in any significant way, in a small way, yes, in a significant way, no. Again, I go back to these two points. The Atlanta Fed GDP now number through February 19th is 2.6% for the quarter. That's a good number because, you know, we lost half a point on Boeing, so it could have been over three. That's one point. I know that can move. I get that. But I'm just giving you, here's the only info I know. Second point, on the manufacturing indexes yesterday from the Philly Fed and the New York Fed, both were much stronger than anyone thought, and neither of them saw a supply chain problem. Now, that's the middle of February, okay? So this could change, could change for the better or the worse, all right? All I'm saying is what we now know does not seem to be a major blow to the American economy. That's what we know. The other point I want to make is because of strong job creation, I mean, our job story objectively has been fantastic with low unemployment across the board and the lower income wages doing better than the high income wages. The housing market is very strong. Now, you have low mortgage rates, that's a good thing, but you have more people working and their incomes are rising, and I think there's a housing boom out there that's going to really boost the economy. By the way, you know, I've seen some of this back and forth politically. Let's not forget, we did the calculations on this up and down from the Census Bureau and the Bureau of Labor Statistics. In three years, and I'm proud of this, in three Trump years, with low taxes and regulations and energy and better trade, average family incomes after tax, after inflation, are up $5,000. Nothing like this has been seen. This is just in three years, in the last 20 years, under Republicans and Democrats, and on top of that, the savings from low energy prices, from the fracking revolution, we calculate $2,500 per family, and on the deregulation, which is probably the most underrated thing. Deregulation is so important, particularly for small businesses, we calculate a $3,100 savings for the average family. Now, those are numbers we haven't seen in over 20 years. It shows the health of the economy, it shows the health of the worker and the consumer and the family, and it shows that some very good things are happening inside the economy. So, I just will leave it at that. I am not saying we decouple from China. Look, even phase one, let's go to that for a second. Give me a moment on this. I know you're always tight, but just real quick, okay? You are a little tighter. China has cut tariffs three times, if I'm not mistaken, at least twice, I believe. They just did a third time last night. That was not specifically part of phase one. The $200 billion increase in U.S. exports to China was predicated on exclusions and waivers. They are cutting tariffs, which is a permanent, efficient way to do it. That's an awfully good thing. And President Xi assured President Trump a couple weeks ago that China, even if there's some delays, intends to meet their obligations. Now, what does this mean? It means we are looking at a potential export boom, the likes of which we have not seen in I don't know how long. An export boom, whether it's farming, manufacturing, autos, technology, pharmaceuticals, you know what? Export booms, that's the highest wage people. [00:16:09] Speaker ?: Thank you.