Trump Says Putin, Zelenskiy Must Be Flexible as He Pushes Summit

25:59Listen live each weekday starting at 2 p.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say, Alexa, play Bloomberg 1130. It is Bloomberg Business Week Daily, and look at that, it is time to drive to the close. I wanna talk Home Depot because shares are higher. Sales returned to growth in the second quarter. Shoppers invested in smaller projects such as lighting and gardening. The CFO said customers are putting projects on hold but are not canceling them, and that most of Home Depot's merchandising departments saw sales gain.

26:36Let's bring in Abby Roach, Senior Portfolio Analyst for the Empiric LT Equity Team at Allspring Global Investment. She joins us from McLean, Virginia. The Empiric LT Equity Team, it's one of the investment teams over at Allsprings. They manage about$14 billion across three large-cap portfolios. And we want to talk to Abby because Abby handles the consumer stocks portion of this. Abby, good to have you back with us. On the Home Depot side, what did you learn about the consumer through Home Depot's earnings today? I think it was a great update from the company. I think in terms of the print, a little bit of a miss on the top and bottom lines, but I think our most positive takeaway from listening to the call was just the constructive tone from management.

27:16They really hit the nail on the head in delivering a positive message about underlying demand. They called out the best performance that they've seen in the last two years with 12 of the 16 product categories delivering positive comparable sales growth. So we were really encouraged that a lot of positive underlying fundamentals and maybe just most importantly, as it relates to the U.S. consumer, it was the third consecutive quarter of positive U.S. comp sales growth. Before that, there were eight consecutive declines. So we're really encouraged to see some positive momentum in terms of the U.S.

27:49consumer for Home Depot, just as a result of some continued momentum. Is this a Home Depot specific kind of, you know, categorization or can we draw things about the broader U.S. consumer from from your work? We think, you know, in terms of the update from Home Depot, I think there were a lot of positives in terms of their own execution, specifically around the Complex Pro, some of the recent acquisitions that they've done. In terms of this is a broader read through for the U.S. consumer as a whole. I don't know that necessarily this is indicative of something different as it relates to the consumer.

28:26I think it's more indicative of Home Depot has continued to execute. But as it relates to the health of the consumer, I think really what we've continued to hear is resiliency in terms of the U.S. consumer, not just from Home Depot, from different other consumer companies and retailers that have reported so far. But really, I think maybe the one constant message that we've heard is a bifurcation between the lower income consumers, which are continuing to be a bit pressured. But then those middle and higher income consumers are continuing to be really resilient and continuing to drive that spending.

28:56I mean, this is something we've heard, Abby, for years at this point. And, you know, the so-called K-shaped recovery that we've talked about since the pandemic. Is that enough? Then I realize it's a question that's, you know, we obviously want to take into account every consumer in the U.S., but from an economic standpoint and health of the economy standpoint, is that enough to carry the U.S. economy? I think thus far it has been. I think in terms of when you look at the dollar amount and the dollar spending, it has been enough to carry the U.S. economy so far. But again, that spending has been driven more so by those higher and middle income consumers, right?

29:34Because those lower income consumers, we just continue to hear that they're pressured. So I think as long as the consumers, those middle and higher income consumers can continue to drive that spending, I think they can continue to drive the economy. But ideally, we want to see all of those consumers be able to continue to drive incremental spending. Where else are you finding opportunity right now as the consumer stocks analyst? Do you stay in consumer stocks? Is it consumer staples, discretionary? What's exciting to you right now? I think there are definitely different pockets. I think there are pockets that we like and pockets to avoid in terms of there's a lot of different challenges as it relates to the consumer companies, whether it's the health of the consumer, how exposed they are in terms of income, whether it's related to tariffs, which continue to be a challenge in terms of impact to consumers and messaging.

30:26But really, we think sort of what we look for for companies are those companies that are able to generate excess free cash flow in excess of their peers, regardless of the business cycle. And we think those are the those are the companies that can continue to drive their own destiny, regardless of the business cycle. And I think in this case, Home Depot is one. They're continuing to invest in projects that will drive growth for the long term with the Complex Pro, with the Pro Initiative, and are doing a really good job navigating a challenging macro environment and a challenging environment from an interest rate standpoint, but continuing to execute quite well despite a less than favorable backdrop.

31:04So let's talk a little bit about Walmart. The company is set to report earnings on Thursday. Shares so far this year up 12%, which I believe is outperforming the S &P 500 so far this year up 9%. What do we need to watch for with Walmart? Because there are a lot of questions about to what extent this company is passing along costs to consumers versus absorbing them. I think, you know, first and foremost, Walmart will be an important bellwether for how the consumer, anything that they say that might suggest, you know, pockets of weakness or improvement is going to be really important just given how representative they are of consumers across this country.

31:44I think in terms of looking at the valuation of this stock, one of the really important things and what has driven this stock, you know, for not even just a year to date, but over the last year is a lot of the investments that they've made around growth for the future, specifically a lot of the e-commerce, digital, the membership side of the business. And I think it will be an important read on the health of the company as to how well those are continuing to grow. But also as it relates to the consumer is, are they continuing to gain share with higher income consumers to get a read on how the consumer more broadly is feeling?

32:19Abby Roach, Senior Portfolio Analyst for the Emperic L Team at Allspring Investments. Thank you for joining us. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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35:43Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business, IBM. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. This one's special for you because we're We're talking about New York City subway. The MTA runs New York City subways, buses and commuter trains that six million people rely on each weekday. And on Monday, board members approved close to a two billion dollar contract to expand the Second Avenue subway line into East Harlem.

36:26Jay Patel is the CFO of the MTA. She's charged with quite the task, which I think is fair to say many would find unenviable, charting a sustainable path through one of the agency's most financially trying periods in its six-decade history. She joins us here in the Bloomberg Businessweek studio. Jay, welcome. How are you? I'm good. How are you, Tim? Thank you for having me. Yeah, thanks so much for joining us. I want to start with the numbers and just ridership here. Weekday subway ridership is still 25 % below pre-COVID levels. In your modeling, Does that ever come back to where it was? You know, we have a financial plan that's a five-year period.

37:02And originally, we were projecting that we would see our subway ridership up to 90%. But a couple of years ago, we revised that because we weren't seeing that. But we're hopeful we see an 80 % by 2029 ridership recovery for subways. But on the railroads, we're seeing that recovery even higher today. day, we see 85 % ridership recovery on our railroads, which is amazing. Something that we thought was going to be slower, our railroad customers than our subway customers originally coming out of pre-pandemic. So is there a way to tap into that growth financially, perhaps with higher prices for those commuters rather than here in the city for subway and bus riders?

37:46So, you know, what we have is very small, predictable fare increases that help balance the financial plan. And so we don't want to burden one rider over another. It's really about distance based and commuters. And so we keep that equitable. You know that we do a two percent fare increase every other, you know, every other year. And that keeps our financial plan in balance. How do you plan to get that number? I think you said 80 percent ridership. ridership? How do you bring people back into the subways? We bring riders back by providing reliable on-time performance, right? Our service matters to customers and delivering the service that we promise and schedule is something that we strive for, but also safety.

38:33Our customers need to feel safe and our customers feel that, right? We've had the lowest safety numbers or crime numbers in July. And so our customers are telling us that by taking the subway, but also our customer surveys tell us that customers are satisfied with the service that we're providing. The MTA faces a combined$1.1 billion deficit over three years starting in 2027. It already owes close to$50 billion. It needs to spend$68 billion more for vital improvements. There's some federal aid that's up in the air. The Trump administration is trying to roll back congestion pricing. What's the backup plan if the aid evaporates and the president is successful in rolling back congestion pricing?

39:20You know, Tim, I would be remiss if I didn't mention that back in 2023, we were the first transit agency to solve our fiscal cliff. Thanks to Governor Hochul, Chair Lieber and the legislature, we were able to come out of a deficit unlike any other transit agency today. You've heard SEPTAs facing deep cuts, Chicago, but we were the first to say we need state, federal, and local aid. And we got our state, federal funding for us. We also, as the MTA, contributing to our solving our deficit, right? The MTA contributes 500 million to its operating efficiencies. And those deficits that we have in 27 and 28 and 29 are very small compared to our operating budget.

40:03And we are committed to doing our part in saving money to help ensure that we can balance our budget in the out years. We were talking a little bit about the base fares of subways increasing regularly. I'm wondering if there is there a set area within the MTA that that revenue goes toward because the base fare for a subway in New York City, it's expected to increased to$3 in January. Correct. So our fares help our operating budget, right? So 70 % of MTA's cost are labor and fringe. And so that pays for 70 ,000 employees. And then the small fraction is for the non-labor contract. So every fare contributes to operating cost on our side.

40:50Let's talk about fares and fare evasion. Usually when we talk fare evasion, I think of people jumping over subway turnstiles. And I know there have been some mitigation efforts in place, but I took the bus to LaGuardia on Thursday. It was a great experience. But when I got on the SBS in Queens, I got on. It was like an articulated bus. So, you know, it was a long one. I got off on in the back and out of like more than half a dozen people, I think I was the only one who paid. And I was thinking to myself, I didn't know it was optional to pay to get on the bus. What are the numbers there? So it's not optional, right, to pay the fare.

41:23We are encouraging every customer to pay their fair share to these PAMTA. But there's no enforcement on the bus. So there's a couple of things that we're doing for fair evasion. And our chair has been tackling this first when he became chair. So on the subways, you've heard of us talking about we're doing fins, sleeves, gate guards, enforcing the exit gate, which is the fair evasion highway. And so we've made great strides on the subways. We've reduced fare evasion in over a year by 30 percent. We've dropped that rate from a high of 14 percent to 9.8 percent. So we know those efforts are working on the buses.

42:02It's a little bit more difficult, but we're also working there. We've decreased fare evasion on our buses as well in the last year from 50 percent to 44 percent because all the tactics the president of New York City Transit is employing. We have Eagle teams that are on different bus routes to make sure that they are enforcing the pay your fare, right? Our bus operators do their due diligence, but really our Eagle teams are enforcement out there riding different routes and making sure customers pay their fare or they're getting a summons or they're getting off the bus. And that's how we're working towards that.

42:39How does that work? Because I heard of a friend who was on a bus and someone had come around and like scanned their phone to see if they had paid the fare. Is that how it works? Explain to us. So right now, what we are doing is if you're boarding the bus, you have to pay because there's two different ways you can pay. Right. Today is the MetroCard and the Omni. And when we go to full Omni next year, there's going to be proof of payment. And so what you can do is European style proof of payment for customers is you can tap their phones or credit cards, the method of payment to see if they paid their fare.

43:12And if they didn't pay their fare, that's something that we'll work with on a summons or, you know, you need to pay your fare for our customer. And so that's something that's coming. We're really excited about that for Omni and proof of payment. But right now there's two different methods. And so we're working on different ways to combat fare evasion. I want to talk a little bit about proposals from mayoral candidates or in Mamdani, for example, his proposal to make all New York City buses free. What do you think of that? And does it create a sort of a two tiered mass transit system where people who ride buses don't pay for it?

43:46But then people who ride the subway do and then kind of offset like people not necessarily taking the right mode of transit for their destination. So we've heard the mayoral candidates proposal for a fair free buses. What I'd like to emphasize again is Fairbox revenue is important to the operations of the MTA. It's 26 percent of our revenue. And buses is about a billion dollars in the out years of revenue for the MTA bus, for the MTA, excuse me. And that's important to us. And so we want to make sure revenues equal service. And that is something that's a hypothetical right now. But we rely on Fairbox revenue.

44:27So you said a billion dollars in revenue is what it brings in. Mamdani estimates that's about 750 million dollars annually to make buses free. Is that an accurate assessment on his part? I think there's pieces that he's he's looking at just the New York City transit bus fare. We have MTA bus that we also run that the city contributes to. And that is also fare box revenue for buses. So what would taking away that revenue from the MTA due to the authorities finances? Or would it just be I mean, look, again, it's a proposal. you said it's something that, you know, is not a plan yet. But to be fair, he is by far the favored candidate.

45:03And there are a lot of questions about what power he has to actually follow through with a campaign promise such as this. But this is certainly a central part of his campaign. So you've got to be looking at it closely. We are looking at it. But one thing that I would like to emphasize right right now in New York City, fares are affordable. We make transit and buses the most affordable at$2.90. And it's affordable with fair fares, reduced fare for our customers. But, you know, it is something that we will look into as the mayoral candidate has proposed. What about mitigating climate issues that affect particularly the subway stations?

45:40You go online, you see videos of flooding in stations. Or maybe you're trying to get home on a rainy day Right. And there's water in the subway station. Do you guys have, at least as part of the upcoming capital plan, a plan in place to update the infrastructure? Sure. A couple of points on that. Right. A couple of the issues that arise in the subway systems are not the MTA's fault. New York City. Right. Contributes to the flooding issues that we face in the subways, whether it's through DEP manholes, the sewage. So that is one aspect of the flooding that you see on the New York City transit. it.

46:17But our historic capital plan, that's$68.4 billion, does have climate resiliency of hardening the system in certain stations and proposed in there for it. Let's talk a little bit about congestion pricing. Not as hot of a topic as it was a few months ago. It seems like it's died down a little bit. In your view, is it working? Congestion pricing is working. It is reducing traffic by 11 percent. What does that mean? 170 ,000 cars are off the road every single day. What else is it doing? It's moving our buses faster. It's moving people faster. We've seen a change in ridership, but also we've seen safety increases.

47:00There's a 14 % decline in pedestrian crashes. And on top of it all, it is bringing in the revenue that we had projected originally. It's being watched very closely, not just by proponents and opponents of it, but also by other cities that might want to put this into practice. Have you or has the MTA heard from other cities about congestion pricing, about the model and about questions about implementing it in their own cities? The MTA has heard from other cities and transit properties and engaged with them to have conversations about the process that New York implemented for the successful congestion pricing program that we're having.

47:37So they're looking at us as a model. We have to ask about the Second Avenue subway expansion as well. Just walk us through some of the plans for and the timeline here, because this has been something that's been in the works, something that any New Yorker who's lived in New York for the last four. How many years? Four decades, 50 years. 50. I think I think we talked about that at our special board meeting on Monday. You know, the contract that our board just approved is almost a one point nine billion dollar contract to start boring. Right. What does that mean? It's starting the tunneling for the three stations that are vital to Second Avenue Subway Phase 2.

48:17And we are committed to expanding Second Avenue Phase 2 here at the MTA. And we think it's going to be a great service to our customers. It's going to serve about 100 ,000 customers in addition to the 200 ,000 customers that's Second Avenue Subway Phase 1 serves today. Do you have a timeline or an expected timeline? I think the 2032 was the service date that we have said publicly. It's a very like I said at the beginning, it's an unenviable task that you have ahead of you. Some people would argue. I would imagine that you spend quite a bit of time studying other transit systems around the world, what's worked and what hasn't worked.

49:05If you could wave a magic wand here in New York City to overcome some of the barriers that the MTA has experienced, whether they're financial barriers, whether they're CapEx barriers, what would those be? Like, what is the biggest obstacle to making the service even better here? So I think, Tim, one thing that I would say is MTA is a leader and being the largest agency in North America, other agencies look to us. I think I said this before, we led with the fiscal cliff. We lead with our capital program as well. We have started to do things differently since Jano Lieber took over for C &D and now Jamie Torres Springer.

49:43We do design build. We do faster, cheaper and better. But we're employing definitely different ways of doing capital programs as well as operating for us to be better. I want to go back to congestion pricing and some financial questions around that, specifically about selling debt off of revenues. Do you have plans to sell debt off of revenues from congestion pricing? So as you know, the congestion revenue is dedicated to the 20 to 24 capital program. It is expected to generate 15 billion for that program. And once we see a stable market in the revenues coming in, we do plan to issue debt. We've talked about it.

50:28That's not sometime until 2026 for us. Once we see a comfortable stream of revenue, we've projected 500 million for the next three years. And we want to make sure that we see that revenue and the markets are comfortable issuing that debt for us. You've talked about fair increases on MTA services. What about increases in congestion pricing? And what is the timeline for that? So as the governor has said to us, right, it's the toll will continue to be nine dollars for three years, then it'll increase gradually to the next three years at$12. And then in the final, the seventh year, it'll be a$15 toll.

51:07So we've already had that phased in based on the schedule we approved. Can you just bring us, I know there's litigation around this with the federal government and with the state, but can you just take us into conversations that you've had with counterparts at the Department of Transportation over the last few months about making sure that the MTA stays on a sustainable financial path? So I think, you know, what I would say is the federal government contributes two billion dollars to the MTA, and that's a revenue source that we rely on to keep the system in a state of good repair. And so we would continue to want that funding.

51:44You know, MTA moves 40 % of riders across North America, but receives only a fraction of federal dollars from Washington. And so we continue to rely on the federal dollars that we get, and it's important for us. But what's the backup plan if that evaporates? Yeah, we're confident, right, that the MTA and the federal government, the federal judge that is assigned, right, we're confident that we would win that lawsuit. You know, Judge Lyman issued a positive finding for the MTA just a few months ago. And congestion pricing is, you know, continuing to operate and we're generating the funding. Jen, thanks so much.

52:23Oh, go ahead. Well, I was just going to ask one more question. Just I mean, I imagine, you know, you get a lot of people who hear these numbers. Congestion pricing is on track to raise 500 million. They say, wow, that sounds like a lot of money. why are you know why are the subways still the way that they are delays um crime uncleanliness help us just understand i know that you said that a lot of those fares go towards paying workers but a number like this a number like 500 million what does it mean in the context for the broader mta organization is that a lot of money so i'll give you context our operating budget every every year is about$20 billion, right?

53:07That is to run subways, buses, commuter rails, and the services for 6 million commuters every day. But in order for us to keep that system running, you have to maintain it, right? And so$68.4 billion, a good majority of that funding is to keep it in a state of good repair. That means new rail cars, new buses, new signal upgrades, track maintenance and everything else that goes with operating a system that's so vast in size. So$500 million is just one stream of revenue that generates when we leverage it$15 billion to continue with the capital side of the world. But the operating side has different funding sources.

53:51But we're confident that we move 6 million customers every single day and we're happy to do that safely. Jay Patel, CFO of the Metropolitan Transit Authority, joining us here in the Bloomberg Businessweek studio. This is the Bloomberg Businessweek Daily Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5 p.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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