INSIDE ECONOMICS

Mark Zandi:                      Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by, I've got a few of my colleagues here. My two trustee co-hosts, Marisa DiNatale, Cris deRitis, and also Gaurav Ganguly. Gaurav, good to have you back.

Gaurav Ganguly:             Good to be back. Mark,

Mark Zandi:                      I understand you-

Gaurav Ganguly:             I'm from cold, gray, and fairly unimpressive, London.

Mark Zandi:                      Well, that's kind of typical this time of year though, no?

Gaurav Ganguly:             That's typical this time of year, exactly.

Mark Zandi:                      Yeah. I understand you've a bit of a cold though?

Gaurav Ganguly:             It's good to be typical.

Mark Zandi:                      Good to be typical. Typical is not bad in this day and age.

Gaurav Ganguly:             Typical is not bad in this day and age, not at all.

Mark Zandi:                      I go for typical.

Gaurav Ganguly:             Yeah. Me too.

Mark Zandi:                      Yeah. Well, you may have noticed that I didn't have my typical Wawa coffee this morning.

Marisa DiNatale:              Oh.

Mark Zandi:                      Yeah.

Cris deRitis:                       What is that?

Mark Zandi:                      I know. It's 7-Eleven. Remember 7-Eleven?

Marisa DiNatale:              Oh.

Cris deRitis:                       Are you doing corporate sponsorships now? Are you switching over?

Mark Zandi:                      On the side, yeah. No, the thing is I'm down in Florida. Wawa has come to Florida, I guess because so many folks from our neck of the woods in Pennsylvania have come to Florida, and it is so popular that, at seven in the morning, usually I'm there well below before seven in the morning. Today I was a little late, seven in the morning. It is so crowded. I couldn't even find a parking spot. I'm not kidding you. It was like going to a rock concert or something.

Cris deRitis:                       Wow.

Mark Zandi:                      Yeah. So I said, "I can't do this, because I have to prepare for this podcast." So I had to come back and had to settle. Well, not settle. Not settle. It's good coffee from 7-11, but Wawa coffee. Wawa coffee. You don't know what I'm talking about, Gaurav, do you? You have no idea what I'm talking talk.

Gaurav Ganguly:             Well, you're talking about coffee, right?

Mark Zandi:                      Yeah.

Marisa DiNatale:              It's all you need to know.

Mark Zandi:                      Okay.

Gaurav Ganguly:             Coffee. Coffee in Florida.

Mark Zandi:                      Do you have a place to go in the morning. Do you get coffee, or do you do it at home? What are you doing?

Gaurav Ganguly:             Yeah. It's called my kitchen.

Mark Zandi:                      Your kitchen, okay.

Gaurav Ganguly:             Just trips downstairs, turn on the machine, get myself a cup of coffee, trips back upstairs, and switch on my computer.

Mark Zandi:                      You're in fine form for not feeling so well. You seem like you're in a good mood.

Gaurav Ganguly:             Yeah. It's this podcast. It brings out the best in me.

Mark Zandi:                      That's what it is. Well, we've got an action packed. We just completed, or we're in the process of completing an action-packed week when it comes to economic data, information, and events. So I thought the headline number here in the US, let's start there. GDP came out for the 4th quarter of 2022, the Gross Domestic Product valuable, the services that we produce, goods and services that we produce, and maybe to give us a rundown on that, I'll turn to you, Marissa? You want to give us a sense of that report?

Marisa DiNatale:              Sure.

Mark Zandi:                      And anything else you want to talk about? What your coffee habits are.

Marisa DiNatale:              Oh. It's free form.

Mark Zandi:                      Free form.

Cris deRitis:                       The Eagles.

Mark Zandi:                      That, we could definitely talk about.

Marisa DiNatale:              I don't really have much to contribute on the Eagles front.

Mark Zandi:                      Okay.

Marisa DiNatale:              Sorry.

Mark Zandi:                      Fair enough, fair enough. Oh, now you're drinking coffee when you're on the-

Marisa DiNatale:              Well, yeah. I mean, it's six o'clock in the morning. Of course, I'm drinking coffee.

Mark Zandi:                      What's that all about? Come on. Yeah. All right. Here we go. She's preparing.

Marisa DiNatale:              I'm ready.

Mark Zandi:                      It was like an aria. She's going to sing an aria to us now. Go ahead. Go ahead.

Marisa DiNatale:              Okay. GDP came out yesterday morning. It's the preliminary release for the fourth quarter.

Mark Zandi:                      Wait, wait, wait, wait. Yesterday morning? Oh, yeah. It was yesterday morning.

Marisa DiNatale:              Yeah.

Mark Zandi:                      Go ahead. Go ahead, go ahead.

Cris deRitis:                       Take another sip, Mark.

Mark Zandi:                      All right. Go ahead.

Marisa DiNatale:              In the 4th quarter, GDP grew 2.9% annualized. This was a little bit under what we were anticipating and a little bit more than consensus, so kind of split the difference. Over the year, GDP was up 1% if you do 4th quarter '21 to 4th quarter '22. If you take the average of the entire year, 2022, GDP rose 2.1%, and that follows an annual average in 2021 of 5.9%, so we are seeing some slowdown here. If you look-

Mark Zandi:                      Can I just say, just to interject, to put context, so the economy's so-called potential rate of growth, that rate of growth consistent with enough jobs to maintain stable unemployment is most people estimate to be about 2%. In calendar year 2022, the economy grew pretty consistent with its potential, and you saw job growth, pretty solid job growth, but sufficient to absorb the growth in the labor force. Unemployment for the year was basically stable, maybe down a little bit through the year, but on a 4th quarter-to 4th quarter basis, you got that 1%, which is half the potential growth of the economy. And if that kind of growth rate continues around 1% or less, you would expect to see steady further slowing in job growth and unemployment starting to notch higher, just for context.

Marisa DiNatale:              And I guess we should also say, for context, that GDP fell in the first half of 2022, so the first 2 quarters of the year, GDP was negative, and then in the 3rd and the 4th quarters, it was positive. In terms of the components of GDP consumption, so spending by consumers contributed positively in the 4th quarter. It grew at a 2.1% annualized pace, which is kind of on par of where it's been the past 3 quarters or so. Government spending, government consumption expenditures, also contributed positively, actually, for the first time in a couple quarters. Investment, so the notable drags on GDP growth were residential fixed investment.

                                             So this is the housing markets, not surprising, given what we know is going on in the housing market with rising interest rates, so residential fixed investment was a drag on GDP growth, whereas non-res fixed investment contributed positively. Inventories. So the inventory swing, the change in inventories in the 4th quarter contributed almost 1.5 percentage points to that growth rate, so that was a big contribution to GDP growth in the 4th quarter. Net exports also contributed positively to growth, so both imports and exports fell over the quarter, but imports fell a bit more. The value of the dollar's been quite strong, so that's been herding exports.

                                             Let's see. What else? The personal consumption expenditures, deflator, so that came out this morning. That is derived from the same dataset, the National Income and Product Accounts dataset. So that showed a 0.1% increase over the month in December, that this was for the month of December. This is related. It's not in the GDP report, but we got a fourth quarter read on PCE and the GDP report, but I just wanted to mention this. That's the same increase in December as we got in November, but the core PCE, so when you strip out energy, increased 0.3%

Mark Zandi:                      And energy and food

Marisa DiNatale:              And food.

Mark Zandi:                      Yeah.

Marisa DiNatale:              Sorry, increased 0.3% in December, which was a slight acceleration over the 0.2% increase in November. Let's see. Anything else to add on GDP?

Mark Zandi:                      Well, that's a great rundown, kind of nuts and bolts of it. Chris, what's your interpretation of it? How did it make you feel about where the economy is in and where it's headed?

Cris deRitis:                       Concerning, right? Top line looks good, 2.9% growth, but as Marisa mentioned, a lot of that is in inventories, exports, and government spending. You strip that out, and you look at just private demand, and it's 0.2%, right? I think for earlier in 2022, we put the caveats about inventories and exports when we had those negatives, saying, "Oh, no. The economy is fundamentally stronger than that if you look at consumption investment."

                                             So I think we have to keep that same caveat here, and if you do that, you can see that there is weakness here. The inventory build, for me, is a bit of a red flag. I think that is consumers pulling back on their potential spending here, and we're also seeing some of those bullwhip effects still playing a role here. The weaker imports that Marisa mentioned, I also view that as consumers being more cautious in their spending. It's okay. I mean, 4th quarter, fine. We performed, but going forward, I'm certainly a bit nervous about the future here in terms of what this means for the ongoing trend,

Mark Zandi:                      Not surprisingly, I disagree.

Cris deRitis:                       Disagree?

Mark Zandi:                      Yeah, yeah. I think, as I would say, right down the strike zone, right? It's weak, but weak is what we want. I mean, if the underlying trend in GDP is 1%, Q4 to Q4, and in the 4th quarter for you, abstract from the inventory gain and the trade, because as you say, that swings up and down and all around, it's still 1%. I think it was 1 to 1.5% final demand. Isn't that what we want? We want below potential growth, because we want inflation to sit. We want unemployment to notch higher. We want to get wage growth down and for inflation to subside, so if you were the Federal Reserve trying to write it, again, what do I want? Exactly, what do I want in terms of growth? Wouldn't you want 1%? No?

Gaurav Ganguly:             Well, again, it's about the trend and the speed.

Mark Zandi:                      Yeah.

Gaurav Ganguly:             Right?

Mark Zandi:                      Yeah.

Gaurav Ganguly:             Things are coming in here pretty fast, in my opinion.

Marisa DiNatale:              Pretty fast.

Mark Zandi:                      Really? Oh, okay. I mean, I go, "Man, this is just what I want, exactly what I want." Now, it feels like, going into 2023, it's going to be soft growth or the economy is going to struggle, no doubt about it, but again, isn't that kind of what we want? I mean, to get inflation back down. If the economy continues to grow at 2 or more than 2, then that means unemployment's not going to notch higher. It means it's going to be much harder to get wage growth down. It means that inflation's going to be more difficult to get back in the bottle. I know. It feels like we're threading the needle. I mean, it's almost like you couldn't ask for a better number. What do you think, Gaurav? I mean, from the perspective of Europe, if you have a perspective on this?

Gaurav Ganguly:             So I'd be concerned about things that's sliding pretty rapidly at this point.

Mark Zandi:                      Oh, so you're on Chris's side? God damn. Okay.

Gaurav Ganguly:             No, no. I'm just going to take a European view of it, because it looks like things have just started looking a bit better for Europe. Confidence was just so low in August, September, October, over the summer months. Everybody was so concerned about Europe not even being able to make it through the winter without having to ration gas supplies, so things have just started to turn up. So what Europe needs now is to get through winter. Weak growth is just fine. Weak growth, moderating price pressures, that'll all be good, and it'll help Central Bank. It'll help the ECB. Now, the US being such a big support to global growth, if the US starts to slide, that is pretty negative for Europe.

Mark Zandi:                      Yeah. If it goes into recession. I mean, yeah.

Gaurav Ganguly:             Yeah, exactly. I mean, 1%. I mean, if it just motors along at 1-ish percent, that's fine, I think.

Mark Zandi:                      Right, right. In all fairness, I guess there are parts of the numbers we got last week that make me a little nervous. I should say not surprisingly nervous, because all along, even under the most optimistic scenario, 2022 is a difficult year. '23 is going to be a tough year, so under any scenario, and in that kind of environment, there are going to be points in time where you're going to think, "Oh my gosh. This thing has fallen apart, and we're going to go into a recession," so it's not surprising to me that we're starting to see those kinds of numbers, but those are the kinds of numbers we actually have to see to avoid recession, because we got to get inflation down without the fed having to jack up interest rates more significantly.

                                             But there are a couple numbers that made me a little nervous about the way things are going. For example, a good example of that would be in the data on today, this is now Friday, we got the income spending and consumer expenditure deflator information that, Marisa, you were talking about, but the one thing you didn't mention was spending by consumers, on a real, after inflation basis, actually fell in December on top of another decline, but smaller decline in November, and basically flat in October. So it feels like consumers were starting to pull back as the year came to a close, and so that means coming into 2023, we're starting from a kind of spot spot.

                                             The key to avoiding recession here is consumers hanging tough. The other interesting thing though, the positive I saw was that real, disposable income, which that's after-tax income, after inflation, that got creamed last year when inflation took off. It completely undermined people's purchasing power, and that was represented in decline in real disposable income. That's actually now turned definitively positive over the past three, four, five, I think even six months, because inflation's now coming back in, and we are getting still solid wage growth, so we're starting to see some real gains in incomes. That augers well as we go into 2023, that consumers purchasing power is no longer being eroded and is actually turning positive again.

                                             The other thing I saw, and I think also important, is the personal saving rate. That actually rose in December. It's still three, four, but it feels like the decline in saving is over. Actually, the saving rate for November got revised higher from 2.4 to 2.9, so it feels like kind of the drawdown in the saving rate that we've been experiencing here, for most of the past year as consumers have tapped into their saving to supplement their well weakened disposable income to continue spending, that feels like it's now at hand or behind us. There's some things to be nervous about here, but again, that shouldn't be a surprise. I mean, this feels like exactly what you would expect to happen, but I hear ya.

                                             Anything else in the data this week that supports or doesn't support your view, Chris, about the economy? I guess just to level set, obviously, and listeners to the podcast know, but if you haven't been listening, you're very bearish on the economy in 2023, recession in 2023. So anything else in the data that would be consistent with that kind of forecast? And, of course, I'm looking for things that aren't consistent with that forecast in the week's data.

Cris deRitis:                       Yeah. It's mixed. I agree. We are on a knife edge here in terms of the direction, and to your point, the data we're seeing would be what you would want in terms of a soft landing. It would also be consistent with an economy that is slowing down.

Mark Zandi:                      Slow session. Slow session.

Cris deRitis:                       Slow session.

Mark Zandi:                      That's your term. Slow session.

Cris deRitis:                       It also would be consistent with an economy that's about to go in recession as well, right? So that's where it's tricky, but a couple other numbers that came out this week were the leading economic indicators from the conference board. Still down 1%. Clearly, that is consistent with previous recessions, so that's concerning. That's largely due to new orders, consumer confidence, or expectations I should say, manufacturing, employment. Those are all dragging on those leading economic indicators. The Chicago Fed National Activity Index came out this week as well, also down negative 0.49.

                                             That's also in recessionary territory as well and, again, points to some of the weaknesses we have in terms of new orders and some production consumption. There certainly are some signals out there. On the more positive side, I'd point to UI claims, Unemployment Insurance claims, new Unemployment Insurance claims, still down at very low levels. 186,000, so that is not consistent with recession, but on the flip side, continuing UI claims actually rose, so a bit. I'm not saying they're in recessionary territory, but it does suggest that, maybe there are not a lot of layoffs, but people who are losing their jobs aren't finding new jobs right away. They are lingering a bit longer than they were just a few months ago, so again, I view it as kind of mixed signals there.

Mark Zandi:                      Yeah. I guess we should get used to this. I mean, I think for while we're going to be in this world of lots of economic cross-currents. It's hard to interpret which way the winds are actually blowing. Marisa, I did want to ask you about the UI claims, initial claims for unemployment insurance. They're just so low. I mean, of course that's a window into layoffs, and we've heard all these announced layoffs in tech, media, financial services, housing, and now I see it in retail. Just a lot of announced layoffs. There's always a lot of announced layoffs, but maybe we're hypersensitive to it now.

Cris deRitis:                       Probably.

Mark Zandi:                      I'm not sure. Probably, but nonetheless, it does feel like a lot. It's just not showing up in the UI claims data, and that would be definitive, wouldn't it? Is there any reason why the UI claims would not be representative of the reality of what's going on in the labor market? I mean, we're below 200,000 easily in initial claims of weekly unemployment insurance claims, and that's consistent with just a really strong, really strong labor market, no layoffs. Is there anything out there that would suggest that maybe the data is misrepresenting what's going on?

Marisa DiNatale:              If people are filing for unemployment insurance, it should show up right away. Now, there may be in certain parts of the economy where people get severance packages, and that's probably true in tech and finance. Depending on the law in each state, each state runs its own unemployment insurance program, it could be that people aren't able to file for UI until their severance is depleted, or for a certain amount of time after they've received severance, so this could be a delayed reaction. I was looking yesterday, though. I mean, could it just be that the job market generally is, we're hearing about all these announced layoffs.

                                             Of course, they make headlines, but it could also be that the job market is strong enough that people getting laid off are able to find work quickly enough that they're not having to file for UI. I was looking at the flows, the labor force flows data, which breaks down the household survey between people moving between various statuses of employment, unemployment, and out of the labor force each month, and the number of people moving from employed to employed each month, right? So they're just changing jobs. We don't know if they quit or they got laid off. That's still incredibly high, relative. I mean, it's back above or near where it was prior to the pandemic, so that's the largest share of employed people, is people that are switching jobs, not leaving the labor force, not being employed. So it could be that people are getting laid off, but they're finding work really quickly.

Mark Zandi:                      I guess that makes sense. I mean, that's intuitive, and it's certainly in the tech sector, right? I mean, because most companies, that are not in the technology industry, have the need for tech workers, couldn't fill those open positions because the demand for those workers was so extraordinary from the likes of Google, Meta, Microsoft, Amazon, so forth, and so on. And now that they're laying off, they're just quickly finding jobs in other companies, like a Moody's or something. Other companies that need those type of-

Marisa DiNatale:              Yeah. The number of people moving from employment to unemployment is very low. It's actually, I believe, fallen in the past few months.

Mark Zandi:                      Is that right?

Marisa DiNatale:              So despite all these layoff announcements, it's not showing up in the UI claims, and it's not showing up in the household survey unemployment data either. That's not to say it won't, right? I mean, maybe there's just a bit of a delayed reaction here, and as you have an accumulation of more and more layoffs, it's going, as Chris's point, with continuing claims, if employers are pulling back on hiring, then eventually you have this backlog of people out there looking for work, and not enough hiring to keep pace with this. So it certainly, I think, could be a harbinger of things to come this year.

Mark Zandi:                      But, to some degree, again, we want to see that, right? I mean, anything below 200K suggests the labor market's not going to cool off sufficiently to get the wage growth down to be consistent with inflation back in the bottle, back to the fed's target. It's almost like I'm rooting for UI. It's weird. I don't like layoffs, but we don't want to overheat and actually go into recession. Then, we get a lot of layoffs. So in kind of a typical, well-functioning economy, my rule of thumb is weekly unemployment insurance claims about 250, so we're sub 200. That's rip roaring. We need something closer to 250. That's a pretty significant increase.

Marisa DiNatale:              It is, yeah.

Mark Zandi:                      I would expect it to increase. Chris, let me ask you. Gaurav, we're going to come back to Europe in just a second, and also play the statistics game here. If the adjustment in the labor market to the slowing that we need in the economy, in the labor market primarily, and right now exclusively, we're getting less job growth. Job growth is slowing. We know that, and it's not happening because of layoffs. We think we know that from the data, so that would ergo suggest that the slowing and job creation that we're observing is less hiring. Businesses aren't hiring like they were.

                                             In fact, there's some evidence in the data too, if you look at the Job Openings and Labor Turnover Survey data, that does show hirings have come down, and they're back to, last I looked, close to pre pandemic. If that's the way the labor market adjusts, does that give you any more comfort that we may be able to avoid recession? In my mind, it feels like there's a palpable difference between whether the labor market adjusts because of higher layoffs or because of less hiring. If it's layoffs, that scares everybody and they pull back on their spending. If it's like their companies aren't hiring as much, that doesn't feel as scary or spooky, and consumers hang in there. Does that resonate with you, or do you have a different perspective on that?

Cris deRitis:                       Yeah. It's certainly consistent or more consistent with the soft landing scenario. If we just pull back.

Mark Zandi:                      Slow session, Chris? Slow session.

Cris deRitis:                       Slow session.

Mark Zandi:                      The irony is that's your term. Slow session.

Cris deRitis:                       Slow session. Yes, yes. It is consistent with the slow session. We pull all the openings, slow down the hiring, and we kind of make our way through this, and then open our slows up for some additional hiring in the future, and that would be good for confidence; however, I do think, if new labor market entrances are not able to get in because the hiring slows substantially, you will have some negative confidence impact. So there's a balance here as well, right? You don't want to go too far, right? If no one can get a job, but there's no layoffs, that's still not a great situation to be in either, so I think we still need to be nervous.

Mark Zandi:                      Oh. Yeah, yeah, yeah.

Cris deRitis:                       And we're one shock away still from going right in, so that's the basis of my outlook here. But yeah, definitely better to not have layoffs and just pull back on hiring than the opposite.

Mark Zandi:                      Okay.

Marisa DiNatale:              But you do always have layoffs. I mean, it's all about magnitude and balance, right?

Cris deRitis:                       Magnitude. That's right.

Marisa DiNatale:              There's always churn going on. There's always layoffs. There's always employers pulling back on hiring. It becomes a problem when the hiring can't keep pace with the layoffs, so even if it's a small-ish number of layoffs, if hiring slows below where it normally would be at that point in the business cycle, you're going to have net-negative job loss. It's just about, these things have to be in balance, I think, right? I mean, you always have this sort of churn in the economy. It's just, can the hiring absorb the people that are being laid off, regardless of how many people there are?

Cris deRitis:                       Yeah, yeah. That's a question of degree, right?

Marisa DiNatale:              Yeah.

Mark Zandi:                      Hey, Gaurav. One thing that I've always found kind of fascinating is the conversations that we're having here in the US around the economy are almost always similar to the conversations you're having there in the UK. Are these conversations we're having similar to the kinds of conversations you're having there about the economy and what's going on in the economy?

Gaurav Ganguly:             Probably a bit more somber, but I think before I even-

Mark Zandi:                      A bit more somber.

Gaurav Ganguly:             Before I pick up on that question, I will just tell you what I'm thinking right now.

Mark Zandi:                      Yeah, sure.

Gaurav Ganguly:             Give you a bit of emotional outpouring from listening to you guys speak almost. I spent all of last year worrying about NATO being dragged into a war about geopolitical fallout from the Russian conflict into mainland Europe, about changing political tides, and a new Cold War emerging. I worried about Putin weaponizing gas, Europe actually running out of gas, a really cold winter, people freezing at homes. I'm now worrying about, what's that word again? Slow session?

Mark Zandi:                      Slow session.

Gaurav Ganguly:             Slow session. Slow session. I've got to try and see if I can-

Mark Zandi:                      No recession. No recession. We're not going backwards. We're not a broad-based decline in activity, but the economy's really not going anywhere fast. Therefore, slow session.

Gaurav Ganguly:             Slow session. So if I now have to worry about slow session perhaps getting a little bit worse, and those winds buffeting Europe, I think that's okay.

Mark Zandi:                      Yeah, yeah.

Gaurav Ganguly:             It's all relative, right?

Mark Zandi:                      Yeah, yeah.

Gaurav Ganguly:             So that's what I wanted to say. That was really the emotional outpouring from listening to you guys speak, that I think that's actually quite a positive.

Mark Zandi:                      Well, I expected tears or something. I mean, that wasn't that emotional. That's a British emotional. Maybe that's British emotional.

Gaurav Ganguly:             Yeah. That's British emotional. Yes, exactly.

Marisa DiNatale:              You're crying on the inside.

Gaurav Ganguly:             I'm just an understated sort of guy.

Mark Zandi:                      Yeah. He's crying on the inside.

Gaurav Ganguly:             I'm crying on the inside, exactly. I'm just choking up. I'm just choking up.

Mark Zandi:                      That's funny.

Gaurav Ganguly:             But yeah, you're right. Going back to your question about the similarity between, I guess, the UK and the US, it's a bit more somber here, right? That also relates to the legacy of previous administrations and the messes they've left behind. The policy mistakes that have occurred, not just in 2022, but going back to the Brexit referendum, all of that sort of really taken a bit of a sledge hammer to the structure of the UK economy and knocked a bit of potential growth and made the UK that much weaker.

                                             So right now, looking at what's going on, on the one hand it feels, yes, it's a bit similar to the US. We could survive all of this without too much damage, so it's not so much a slow session as perhaps it's a bit south of slow session, if you like. It may not be terribly bad. The Bank of England, for instance, in its November Monetary Policy Report, was just forecasting doom and gloom. It's going to be an eight-quarter recession from end of last year out to sometime in 2024.

Mark Zandi:                      Can I say? That's just an amazing thing, that the central bank, the Bank of England, has an explicit, "We're in recession, and we're going to be there for a long time."

Gaurav Ganguly:             For a long period of time, exactly. It actually made that call. Now, part of it was probably communication about other policy actions that it would prefer to have seen, but that was the kind of message coming out. In fact, I was in a client call just this week, and people were asking me if I was still thinking about a two-year recession. I said, "Well, I'd never been in that camp." I don't think it was ever going to be that bad. Certainly, not after the administration changed. It sort of became pretty apparent, pretty quickly, that a two-year recession was perhaps not on the guards.

                                             But I did think that the UK would have a fairly shallow recession that could last about three to four quarters, starting from the third quarter of last year, and surely enough in the third quarter, GDP contracted. I thought GDP would contract again in the fourth quarter, maybe then slightly start to stage a comeback in Q1 and Q2, be marginally negative. So that kind of a recession, and now it looks like, "Well, we might just escape some of that." Q4 might be flat. Q1 might still be negative. PMIs came out earlier this week, and UK PMI showed the service sector plummeting again. People are still feeling the strain from the very high energy bills over winter, so possibly Q1 will be negative, but that just means sort of a bumpy economy bumping up and down. Q3 negative, Q4 probably flat, Q1 a bit negative. That's a lot better.

Mark Zandi:                      Can I say, Gaurav, that sounds like a slow session to me.

Gaurav Ganguly:             That sounds like a slow session, yes.

Mark Zandi:                      Right, Chris?

Cris deRitis:                       It does.

Mark Zandi:                      It sounds like a slow session. That's kind of what you're thinking for the US, isn't it, Chris? Something like that.

Cris deRitis:                       Yeah, yeah.

Mark Zandi:                      Yeah, kind of bumping along, maybe a little bit more negative than positive, but at the end of the day, if it's a recession, as defined by the National Bureau of Economic Research, it'll be a very modest one, by historical standards.

                                             Hey, Gaurav. One thing, though, that I have felt now, and this is Zandi emotion, is that the European economic scene feels a lot better than it did just a month, two, three, four ago, that we're not even thinking that continental Europe may not even actually go into recession, right? Do I have that right? I mean, that things are feeling a lot better. I mean, they're not great, obviously. It's a struggle, but it's definitely not kind of the doom and gloom that seemed to be pervasive just a few months ago. Is that a fair characterization?

Gaurav Ganguly:             Yeah. The sort of doom and gloom we saw in August, September, October, that's really exceptional, the falls in consumer confidence, business confidence, tightening of credit standards, the plummeting of people's intentions to buy houses a year ahead, all that kind of stuff. Every month, we were thinking DCB would be more and more aggressive, would need to be more and more aggressive, and peaks and inflation were being pushed out every month and were higher.

                                             So that's changed. That's changed. I mean, inflation looks like it really has peaked. Energy price declines have been tremendous. It's just absolutely meteoric decline in energy prices. In fact, I looked at European gas prices this morning. The day-ahead price was trading at roughly 55 euros of megawatt hour, and that's below 75 euros per megawatt hour, two days before the Russian invasion of Ukraine.

Mark Zandi:                      Wow.

Gaurav Ganguly:             And that's well below the 350 euros per megawatt hour at the peak in July, when North Stream won a principle pipeline from Russia into Germany, was shut down by Russia, so that's a tremendous decline in gas prices in Europe. Of course, as you know, the gas price in Europe trades quite differently to the gas price in North America, because the regionalization of these markets in Europe has traditionally relied so much more on Russia for gas, so Europe's managed to turn itself around. It's pretty much offset the entire decline in imported Russian gas over the course of 2022 with LNG imports, so much so, that right now it has a lot of gas in storage. It pumps all that extra gas in summer into storage and draws down over winter, and it's got a lot of gas in storage. So yes, things get better.

Mark Zandi:                      We all got a little lucky, because the winter has been warm so far, not only in Europe but here in North America as well, and that really helped out quite a bit, I think

Gaurav Ganguly:             At this point, I'm not going to complain about a little bit of luck. November was pretty mild. There was a cold snap in December, another cold snap just now, but none of that's dented gas storage. In fact, the way it looks right now, I would forecast that Europe will get through winter, so by the time it emerges from into spring in the middle of April, there could well be 40 to 45% of gas left in the buffers, and that will make next year's replenishment so much easier.

Mark Zandi:                      Right.

Cris deRitis:                       We also got lucky with China, right?

Mark Zandi:                      Good point.

Gaurav Ganguly:             Yeah.

Cris deRitis:                       Bad for them. Good for everyone else. As China reopens here and goes into gear, do you see that having impact on those energy prices once again? Are we just delaying some?

Gaurav Ganguly:             To some extent, yes, but it would be much worse if Europe emerged with 25% gas in storage.

Cris deRitis:                       Fair enough. Yeah.

Mark Zandi:                      Well, one other, and I think Chris has put his finger on the thing that makes me most nervous here in the near term, is energy prices going back up. One way that could happen is China gets back online, maybe the spring/summer, if they get through this round of illness that they're suffering, through the COVID illness that they're suffering through. Of course, China's a huge consumer of oil and all commodities, and that would lift price, so I worry about that.

                                             Then, on top of that, Russia's still a problem. The EU, the European Union, UK, US, Canada, other developed economies, are still imposing different types of sanctions on Russia and Russian oil and natural gas. What's coming up next, correct me if I'm wrong, but is this cap on prices for refined products. So we now have a cap in place on crude that Russia produces, and that really has been digested by global markets, at least so far, reasonably gracefully, and again, that might go back to the lack of Chinese demand, but it seems so far that's worked pretty well. Any concern, because this affects Europe more than it does the US, about refined product? Diesel comes to mind immediately.

Gaurav Ganguly:             Yeah. Diesel comes to mind immediately. On the mitigating side, Europe's been buying a lot of diesel, stockpiling a lot of diesel for the last few months. Actually, from Russia, well ahead in anticipation of the embargo coming in, in early Feb. So that does give some cushion, and from what I can see, it's been buying diesel from other parts of the world as well, from Asia, from the US, and refining throughput seems to be up.

                                             So again, there's hope that actually this will be fairly graceful. Russian diesel might go to other places, and diesel from other places might come to Europe. That said, I've noticed in recent weeks that diesel spreads have started to raise. Now, some of that might also be to do with dissipating nervousness around the European recession and the view changing to the European, what was that again? Slow session?

Mark Zandi:                      Slow session.

Gaurav Ganguly:             Slow session. So it could be because of that, but it's not raising fast enough, so far to cause immediate concern.

Mark Zandi:                      Okay. So Europe, slow session UK may be ultimately defined as a recession. The continent, the Euro zone, at this point, do you think we actually go into a full-blown recession or not? We're going to sort of skirt along here and avoid an outright economic downturn?

Gaurav Ganguly:             Well, I've actually reduced my subjective probability of eurozone recession quite a bit. I think two months ago, I would have said it's close to 75% that the eurozone goes into recession over the next 12 months. I'd say that's come down by roughly 10 percentage points.

Mark Zandi:                      Okay, so still more likely than not, a recession,

Gaurav Ganguly:             Still more likely than not. I was looking at credit conditions in the eurozone this morning. They're still pretty negative. Credit standards for loads to corporates, housing related loans, unsecured credit, all getting tighter, so that's still the case. ECB is likely to set a terminal rate of 3.75%, at least that's what we think, but it could easily be 4%. That's going to take a knock out of housing later on in 2023, early '24, so there are still a lot of headwinds to confront.

Mark Zandi:                      Yeah. Hey, let's play the game, the statistics game. Of course, the game is we all put forward a statistic. The rest of us tries to figure that out: questions, clues, deductive reasoning. The best statistic is one that's not so easy. We all get it immediately. Not so hard that we never get it, and bonus if it's apropos to the conversation at hand, the recent economic data. With that as a preface, I think it's tradition for me to call on Marisa first. Marisa, you're up.

Marisa DiNatale:              Is it tradition?

Mark Zandi:                      I think I made it tradition.

Marisa DiNatale:              Oh, okay.

Mark Zandi:                      It's tradition now. Yeah.

Marisa DiNatale:              All right, so my number is -287,000.

Mark Zandi:                      I know what it is. Do you want me to tell you?

Marisa DiNatale:              Yeah. That's the game.

Mark Zandi:                      And I want multiple cowbells when I tell you what this number is. Are you ready? Chris, do you want a bow to me right now before I even tell you what the number is?

Marisa DiNatale:              Oh, I hope you get it wrong. I.

Mark Zandi:                       Can see. What are you doing over there, Chris?

Cris deRitis:                       I'm getting the cow bell.

Mark Zandi:                      Oh, getting cow bell.

Marisa DiNatale:              I have one too.

Mark Zandi:                      Oh, you've got cowbell. Gaurav, do you have a cow bell?

Gaurav Ganguly:             I have-

Mark Zandi:                      No cowbell?

Gaurav Ganguly:             I'm not that fortunate. I don't have a cow bell.

Mark Zandi:                      What the heck?

Marisa DiNatale:              Unfortunately.

Mark Zandi:                      We've got to export one to him.

Gaurav Ganguly:             I can play a tune on my phone.

Mark Zandi:                      Okay. It's the Business Employment Dynamic survey, decline in employment in Q2, 2022.

Marisa DiNatale:              You got it.

Mark Zandi:                      I don't hear cheers. I don't hear.

Marisa DiNatale:              I just...

Mark Zandi:                      Okay, okay. There you go. There you go. Actually, that's a really good statistic, because that's been bothering me all week, as you can imagine, but go ahead. Let the group know what that's all about.

Marisa DiNatale:              Yeah, so this is the Business Employment Dynamics survey. It's taken from unemployment insurance records, so we've talked a lot on the podcast about when we talk about the benchmark revisions, that the payroll, the monthly payroll survey gets, those benchmark revisions come from a complete count of employment based on employers filing unemployment insurance tax records with the government. The bed data are a subset of that, so it's pretty much the entire universe, except it excludes some categories, like personal households, and it's just the private sector. It doesn't include government.

                                             It showed that, on net, employment fell by 287,000 in the second quarter of 2022, so this was a while ago, right? This is a lag data point, but it's interesting because we talk a lot about this, how do we make sense of what's going on in the job market? Are the numbers really reflecting what's actually going on? I know the layoff conversation we just had is more about recent data, but this also is consistent with what we've seen from state QCW data, if you recall. We talked about this a few weeks ago, that I think it was the Philly fed that did a report on Philly state data from this data set.

                                             They also showed a decline in employment in the middle of last year, so this basically is a June 2022 count of employment. If this is indicative of the way the job market had played out in the middle of last year, this would be the first net decline in employment that we've seen since the worst of the pandemic, since March or April of 2020, so it's definitely something that makes me a bit worried about what the data will look like when it's revised. Maybe the job market isn't quite as strong as we think that it is.

Mark Zandi:                      Yeah. I'm so confused by it. I mean, I think the evidence is clear that the payroll employment data that we look at every month, the rate of growth has been slowing. The monthly increase has been slowing, but still very strong, that that will be revised lower. I think that feels like very likely.

Marisa DiNatale:              For 2022? Yeah.

Mark Zandi:                      Well, in that period that you're talking about, kind of summer of '22. By the way, that kind of lines up sort of consistent with the decline in GDP in the first quarter of last year. You saw that decline, and typically you would see employment weakness reflecting that, although this seems inordinate relative to the small decline in GDP, but nonetheless. If you look at how the BEDS data, the Employment Dynamic Survey data, gets to that number, it's because of a large increase in gross job loss.

                                             So the net change in jobs is gross job creation at new companies and at existing companies, and then less gross job loss at companies that are going out of business and ones that are contracting. The number of gross job gains did not change in the quarter. That was typically strong. It's just that we saw this big jump in gross job loss, both at firms that are failing, but also at existing firms that are contracting their labor force, but then with no layoffs? Do you explain how do you square that circle?

                                             Here's the other thing. The unemployment rate continued to decline through that period, so how do you square that circle? It goes back to what we were saying earlier. There's so many crosscurrents in the data, so I'm almost wondering, and I'm sure there's data problems. Every single data point we're looking at now has got a problem. There's a problem. There's a seasonal adjustment problem. There's a survey-based problem. There's a problem, and so we got to take everything with a grain of salt. But that particular number, I can't square it with what all the other information in the labor market. Wrong? Right? Am I missing something?

Marisa DiNatale:              Well, just to add a little bit about what you said about the gross job gains, gross job losses. So actually, the number of job gains at new establishments rose over the quarter, and the hiring or the job gains at existing companies fell. The job losses were widespread among-

Mark Zandi:                      There was still a gain. It just wasn't as big a gain as the previous quarter.

Marisa DiNatale:              That's right. That's right. It's a slow-down, I guess.

Mark Zandi:                      Slow down. Getting job creation.

Marisa DiNatale:              In hiring, in job creation. That's right. Still a gain. Six-and-a-half million jobs, right? The thing I wonder about, and I haven't dug into this, and maybe we should, is the count of establishments. This opening and closing of new businesses, that takes a little while to show up in the official government data, could that be part of the puzzle more? Has there been a slowdown in new business creation or a pickup in closing businesses that's not being captured? The BLS has this birth-death model, is what they call it, where they try to impute the number of closing and new businesses every month in the payroll survey, and we know that during changes in the business cycle, that can be trickier to do.

                                             Another thing I think about is we talk about construction. Why don't we see job losses happening in the construction industry, given what we know about the massive decline in residential construction on the housing side, right? That's also an industry that, again, in recessions, is notoriously, has huge benchmark revisions because there's a lot of undocumented work, there's people working at multiple job sites, the record keeping in that industry can be bad. So there's things that we know that we've seen in past business cycles with the data, that is sort of notoriously difficult to pinpoint. And maybe, at some point next year, this will all come out in the wash, but I don't know, I wonder if it's something about tracking openings and closings.

Mark Zandi:                      Yeah. I mean, I'm sure that's part of it, and of course the unemployment rate comes from a totally different survey, the household survey, but nonetheless. Anyway.

Marisa DiNatale:              Yeah, yeah. I know. That seems marginal, right?

Mark Zandi:                      No layoffs?

Marisa DiNatale:              Yeah.

Mark Zandi:                      I mean, I don't know how to square all the data. I will say, though, if I were at the Federal Reserve looking at all this data, I'd be saying to myself, "Hey, I've been waiting for job growth to slow," and it probably has slowed pretty significantly here, and wage growth, the slowing and wage growth does now feel more consistent with this downward revision that we're going to get in the employment data.

                                             That makes sense to me, so if I were sitting at the Fed, I'd be saying, "Hey, I'm pretty close to wanting to pause on interest rate hikes, because it does feel like this economy is starting to come in here, and we don't want it to slow, and we don't want it to go into negative territory." Anyway, that was a really good one. Gaurav, can I turn to you next? I have a bad feeling about your statistic, that it's just going to be way too hard for us to figure out. You're on mute, by the way.

Gaurav Ganguly:             Well, I can't give you the one I really wanted to give you, because I've given the game away already by talking about European gas prices.

Mark Zandi:                      It was $55?

Gaurav Ganguly:             That's 55 Euros.

Mark Zandi:                      Yeah. Excuse me. They're euros. Yeah.

Gaurav Ganguly:             Yeah. I could have made some points on currency. So I was going to give you that one, but how about 50.22? That's the number that came out.

Mark Zandi:                      50?

Gaurav Ganguly:             50.22.

Mark Zandi:                      Is that a PMI number?

Gaurav Ganguly:             It's a PMI number, exactly. Spot on.

Mark Zandi:                      I just want everyone to recognize.

                                             Anyway, go ahead. Actually, that's not that hard. Anything that is around 50-

Gaurav Ganguly:             Yeah. It's not that hard.

Mark Zandi:                      Is usually PMI.

Gaurav Ganguly:             Yeah, exactly.

Mark Zandi:                      Okay. Explain.

Gaurav Ganguly:             I should have given it a natural logs or something.

Mark Zandi:                      Yeah. You should have. That's right. Elucidate us. Why? What's going on? What is that number, and what is it saying?

Gaurav Ganguly:             So that's the eurozone composite PMI, which came out earlier this week.

Mark Zandi:                      PMI, being Purchasing Managers-

Gaurav Ganguly:             Purchasing Managers Index, and composite meaning the sort of the combination of manufacturing and services, so it's a forward-looking view, or rather a mostly coincident view of where the economy's at right now and somewhat of a forward-looking view of people's expectations. The fact that it came in at 50.22 was notable because it declined below 50 in July of last year. In fact, for the second half of last year, it stayed below 50, so this just goes back to that story I've been narrating about how things seem to be on the up in the eurozone. Maybe not hugely up, but possibly [inaudible 00:51:23] understanding.

Mark Zandi:                      Can I ask? That 50.22, is that both manufacturing and service combined? Yeah, right.

Gaurav Ganguly:             That is manufacturing and service, yeah.

Mark Zandi:                      Because manufacturing is still in recession, I assume.

Gaurav Ganguly:             Manufacturing is still in recession. Exactly. I mean, interestingly, if I talk about the UK very briefly, what service sector PMI improved in the eurozone, it actually fell in the UK, and so pointing to perhaps harder times ahead for the UK compared relative to the eurozone, but yeah, manufacturing is still definitely negative in the eurozone. Things like car production, they're doing better. Definitely doing a lot better, but still quite far below the averages, so monthly car production in Germany, for instance, and it's still reasonably below the pre-pandemic average, still backlogs that have to be sorted out.

Mark Zandi:                      Chris, because you've pointed to this statistic for the US, and it's actually weaker in the US than it is in Europe, right?

Cris deRitis:                       Yeah.

Mark Zandi:                      I mean, it's below 50, which is the threshold, right? Below 50, that's recession, historically. And we're below 50 on this index, right?

Cris deRitis:                       Correct, yeah.

Mark Zandi:                      In the US. Boy, that feels weird too, doesn't it? No?

Cris deRitis:                       Yeah.

Mark Zandi:                      It just feels weird. There's so much weirdness. Maybe that's the title of this podcast. We got to get weird in there somehow. That's all weird. Anyway, let's do one more. This part of the podcast was supposed to be short, but it turned out to be a lengthy podcast, so let's do one more. Chris, you're up.

Cris deRitis:                       2.3%.

Mark Zandi:                      Okay.

Cris deRitis:                       I got to make it hard for you, right?

Mark Zandi:                      Oh, you're making it hard for me.

Cris deRitis:                       Yeah.

Mark Zandi:                      Oh, okay.

Cris deRitis:                       Well, it's a reported number.

Mark Zandi:                      It's a reported number.

Cris deRitis:                       Yes.

Mark Zandi:                      Is it related to GDP?

Cris deRitis:                       No.

Mark Zandi:                      Is it related to the data that came out on Friday morning, the consumer spending income data?

Cris deRitis:                       Nope.

Mark Zandi:                      No. Ooh.

Cris deRitis:                       It came out yesterday.

Mark Zandi:                      It came out yesterday. Marisa, do you know what came up yesterday?

Marisa DiNatale:              No.

Mark Zandi:                      At 2.3, it's not in the GDP number. UI claims, it's not anything related to UI that I can think of, right? Chris?

Cris deRitis:                       Nope.

Mark Zandi:                      No?

Marisa DiNatale:              2.3.

Cris deRitis:                       Think of me.

Mark Zandi:                      The housing?

Marisa DiNatale:              Housing.

Cris deRitis:                       Yes, housing.

Mark Zandi:                      New home. Something related to new home sales?

Cris deRitis:                       New home sales. Monthly increase.

Mark Zandi:                      Month of, what is it?

Cris deRitis:                       Monthly increase in new home sales.

Mark Zandi:                      New home sales. Percentage increase.

Cris deRitis:                       Percentage increase.

Mark Zandi:                      It's funny. I never look at the percentage increase in sales. Do you?

Cris deRitis:                       I know. That's why I do.

Mark Zandi:                      Oh, yeah. There you go. You know me well. You know me well.

Cris deRitis:                       If I said 616,000-

Mark Zandi:                      That, I would've gotten.

Cris deRitis:                       You would have got it right away.

Mark Zandi:                      Yeah. Excellent.

Cris deRitis:                       So it's positive. It's the third consecutive month of a positive gain. It's not huge, and year-over-year, new home sales are still way down, 27%, but maybe it's a sign of some stabilization here. Maybe we're reaching bottom here, and again, we'll bump along for a while, but perhaps it won't get much worse than this.

Mark Zandi:                      Yeah. Hey, that reminds me. We got the Moody's Analytics repeat sales house price index. This is a new index that we construct based on actual transactions, and we've got it early for the month of December. So we were looking at transactions, home sales through month of December. Do you want to let people in on that one? That, I found a bit surprising.

Cris deRitis:                       Yeah. Positive. 0.1%, month over month. So again, we're seeing a little bit of, perhaps, consolidation in the housing market there. It's always a bit of a push pull, right? Buyers and sellers react to each other as the market goes forward, so you wouldn't expect prices to go straight down or straight up. There's always this tug of war that goes on, but perhaps some improvement in the mortgage rates spurred some buying as well, but housing is clearly in recession, but the damage may be slowing down here.

Mark Zandi:                      So our index, and is consistent with other house price measures, peaked in July, fell pretty significantly in August, and even more in September, but since then, October, November, December, it's been basically flat. The December number was a small 0.1, is basically not going anywhere, and it's down only one, not even quite, but one percentage point since the peak in July. In our baseline outlook, which doesn't even include a recession, we have house prices coming down, I think not quite 10% peak to trough. Does this recent data make you think that maybe, perhaps we're overly pessimistic about what kind of house price declines we're going to get?

Cris deRitis:                       Possibly, but I'm not ready to make a revision, because you do see certain states are, California and Arizona are falling pretty fast here. Texas had a bit of a bump in December. That's part of the reason why US, as a whole, improved. I still subscribe to this tug of war story here. There's still a lot of script to be written here. Rates are moving around, right? They've got some relief here, but there's a pretty good chance that rates may bump back up for a while here.

                                             If you look at our overvaluation, that index, the US as a whole remains quite overvalued with prices substantially higher than incomes, or that ratio is substantially higher than usual, so I still think we're going to get some corrections here, but it is possible that they're not quite as large. I would think 5% to 10% range, peak to trough, makes sense. It's possible that we are on the lower end of that range, but there's still a lot of a script to be written here. As we get into the spring selling season in particular, we'll get a better handle of what the underlying demand and supply truly is.

Mark Zandi:                      Yeah. I mean, I keep coming back to affordability. I mean, if you calculate the monthly payment on a home, if I'm buying the median priced home, and I'm the household earning the median income at prevailing mortgage rates, the current monthly payment is still really high as a share of my total income. To kind of restore affordability so that we get a pickup in demand, home sales are rock bottom, one of three things or a combination of three things has to happen. Interest rates have to go down, and maybe they go down a little bit, but they're not too far away from where we'd expect them to be in the long run. Second, incomes have to rise, but that's a pretty heavy lift in the current environment with the job market slowing and wage growth rolling over. If we're go into recession, incomes decline. If we don't go into recession, even then it's going to be weak.

                                             So that leaves you with lower house prices, right? I mean, now it could take a while because there's no inventory, because you got homeowners out there that have mortgages with a coup of mortgage rate of, say, 3.5%, 4%. It doesn't make much economic sense for them to move and go get a mortgage at 6% or 6.5%. But life happens, right? People do become unemployed. People do get divorced. There's death. You've got to change because of life's circumstance. You're getting older. At some point, those sales have to occur, and once that starts to happen and accumulate, and it may be even pen-up life. Oh, that's a great term, I think. You know what I mean by that? Pen-up life? Life events are happening, but people don't want to put the home on the market now in this environment, so they're waiting, they're waiting, they're waiting, and you've got this pen-up life happening. At some point, they say, "Oh my gosh. I've got to move," and you could see inventories pick up and prices decline. Does that logic kind of resonate?

Cris deRitis:                       It does.

Mark Zandi:                      Yeah, okay.

Cris deRitis:                       If you look at our forecast, that peak-to-trough decline you mentioned is not immediate, right? We have it extending out over the course of the next two years, right? So it's a process.

Mark Zandi:                      Yeah. It's a process. It's a process, so we're sticking to our guns here. It's still down, depending on the index, 5% to 10% peak-to-trough, something like that.

Cris deRitis:                       Right, right.

Mark Zandi:                      Yeah. Okay. All right. Let's end the conversation with our probabilities of recession. Just quickly, Gaurav, you gave us yours for Europe. You're at 65%. I said probability of eurozone is-

Gaurav Ganguly:             65, 66, 67. Yes.

Mark Zandi:                      Of eurozone?

Gaurav Ganguly:             Yeah.

Mark Zandi:                      UK, we're kind of already in recession, sort of, I guess.

Gaurav Ganguly:             So sort of, yes. Exactly. I'm not going to change that yet.

Mark Zandi:                      And do you have a view on the US, and you can't have a view on the US if it's 50% or lower probability in the US? If it's over 50%, you can't have a view. I'm just, sorry.

Gaurav Ganguly:             All right. I think it's over 50%.

Mark Zandi:                      Okay.

Gaurav Ganguly:             I've got to see it. I've got to see it.

Mark Zandi:                      Okay, fair enough. Do you have a view? Do you have a view?

Gaurav Ganguly:             Yeah. Well, I'd place it at maybe 10 percentage points below the eurozone.

Mark Zandi:                      So 55 then?

Gaurav Ganguly:             Yeah.

Mark Zandi:                      Okay. Yeah, fair enough. Anything you want to add, any color on that you want to add, or just leave it as is?

Gaurav Ganguly:             I'll leave it as is.

Mark Zandi:                      Microphone drop. It was pretty good. All right. 55, because I think that's where, Marisa, you are. Are you still at 55?

Marisa DiNatale:              I'm at 50. I've been at 50 the past few weeks.

Mark Zandi:                      Oh, you're 50. Oh, I'm sorry. Yeah. Yeah. Okay. You're back down to 50, because at your peak you were at 65, I believe, and now you're down to 50.

Marisa DiNatale:              Yeah.

Mark Zandi:                      And nothing changed in this last week or so, because you weren't here last week as well, or last couple of weeks your views have not changed?

Marisa DiNatale:              No. I mean, this week doesn't make me feel great, but I'm going to stick with 50. I'm not going to let one week of data [inaudible 01:01:29] me.

Mark Zandi:                      Okay. Fair enough. And Chris, you are at 66%. 65.

Cris deRitis:                       Yeah. Two thirds, one third.

Mark Zandi:                      Two thirds, one third. And you've not deviated from that?

Cris deRitis:                       Not budging there, but maybe I'll throw a wrinkle for next time. We're out of time here, but I would say let's go with three categories: recession, slow session, and potential growth or normal growth.

Mark Zandi:                      Okay. I don't know. Yeah, because you're going to say-

Cris deRitis:                       The slow session, recession, I think that...

Mark Zandi:                      Yeah. It's hard. You see how he's trying to blur things here? I feel it. I feel it's coming.

Cris deRitis:                       It's more precision. I'm trying to get more precision.

Mark Zandi:                      Well, let's talk that over, because maybe we should do something like that. And of course, I'm still at 50% with a bias towards below 50, because our baseline continues to hold slow session, economy going nowhere, unemployment notching higher, but no outright downturn, at least as defined by the National Bureau of Economic Research. Anything else, guys, you want to bring up before we call it a podcast? Rob, anything? Very good. Well, thanks everyone for joining, and we'll talk to you next week. Take care now.