INSIDE ECONOMICS

Mark Zandi:                      Welcome to Inside Economics. I'm Mark Zandi, the Chief Economist of Moody's Analytics, and this is Jobs Friday, or this is the day we get the report on employment, and this is for the month of May 2022. We've got the usual cast of characters. We've got Cris, Cris deRitis, the Deputy Chief Economist. Ryan Sweet. Ryan is the Director of Real Time Economics. And Marisa. Marisa DiNatale, who joins us regularly on Jobs Friday. We're missing Dante. Where's Dante, guys?

Ryan Sweet:                      He's on vacation.

Mark Zandi:                      Oh. Do you know where he went?

Marisa DiNatale:              Good for him.

Ryan Sweet:                      He went far, far away because of ADP.

Mark Zandi:                      Ouch. Oh man. ADP was really weak, wasn't it?

Ryan Sweet:                      It was.

Mark Zandi:                      Think ADP, that's... We put together the data based on ADP payroll records. And it came in at one... What? 128,000? Something like that.

                                             Okay. That was low because the number was... Marisa. What was the number for the month of May, in employment?

Marisa DiNatale:              The non-farm payroll employment rose 390,000. Give us a sense of the report?

Marisa DiNatale:              Yeah. It was another very good one. Job growth slowed from what we've seen in previous months. But as I just said, rose 390,000 in May, which was well above, I think, what most people were expecting. For the first time in a while, the revisions to the two prior months were actually negative, combined. So, the estimate for April was revised down by 30,000 jobs. So instead of a 428,000 gain, we got a 398,000 gain. And the change for April was revised up a little bit by 8,000. So combined, March and April were 22,000 lower than they were previously reported.

                                             So on the payroll side of things, it seemed to be more that a mix of industries adding and subtracting. So, we got a very large gain in leisure hospitality, where jobs were up 84,000 in May. We got a very large decline in retail trade. So, retail jobs fell by 61,000 in May. We had an increase in construction, which was kind of big compared to the previous months. Last month we got no change in April. We got a big increase in professional business services and transportation. So, it was a pretty broad based increase on the payroll side of things.

Mark Zandi:                      Education too, right? Right, Ryan?

Marisa DiNatale:              In education, in state education payrolls rose as well.

Ryan Sweet:                      That government number surprised me. It was really strong.

Marisa DiNatale:              Yeah.

Mark Zandi:                      And that was mostly education.

Ryan Sweet:                      Correct.

Mark Zandi:                      Am I correct? Okay. And we're still down, despite it all, we're still down about 800K from the pre-pandemic peak.

Marisa DiNatale:              That's right. That's right. So, we're almost there. We're about half a percent below where we were prior to the pandemic.

Mark Zandi:                      So before you move on, so what is underlying job growth? Abstracting from the vagaries of the data, what do you think it is? Monthly job growth?

Marisa DiNatale:              Well, I think it's weakened a bit in the past few months. We've seen some cooling off in the pace of job growth. It looks like it's about 400,000, a little above 400,000. It's been about 500,000. Until...

Mark Zandi:                      More.

Marisa DiNatale:              ...the past...

Mark Zandi:                      More.

Marisa DiNatale:              ...several months. So yeah, if you just look at moving averages, it looks to be a little bit above 400,000.

Mark Zandi:                      Right.

Marisa DiNatale:              Which is incredibly strong still.

Mark Zandi:                      But it's down. I think the average monthly job growth... Take the past three months, it's about 400K. Take the preceding 12 months, that was 560K. So, that's boom-like. So, it's still boomy, but not nearly as boom.... What should I say there? Boominess, as it was before.

Marisa DiNatale:              It's less boomy.

Mark Zandi:                      Less boomy. That's the right way of saying it.

Marisa DiNatale:              Yeah.

Mark Zandi:                      Less boomy. Anything in the retail numbers? What is that? Is that seasonals? Or are we just going back to pre-pandemic, retail, brick and mortar losing jobs?

Marisa DiNatale:              I wanted to talk about that maybe. I'm sure Ryan has some thoughts on that.

Ryan Sweet:                      But if you look, not seasonally adjusted, it also fell.

Mark Zandi:                      What fell?

Ryan Sweet:                      It normally rises in May, but it fell. So, this is a really bizarre number.

Marisa DiNatale:              Maybe we can get into it a little more.

Mark Zandi:                      Well...

Marisa DiNatale:              It's the first time the not-seasonally-adjusted retail number fell in a May since the 1960s.

Mark Zandi:                      Well, maybe that's just the normalization in spending patterns, right? We're stopping...

Marisa DiNatale:              It could just be that spending was pulled forward and things just aren't happening in their usual...

Mark Zandi:                      So, in the pandemic we stayed home. We stayed at home. We bought stuff, goods, things. And now that we're reopened and traveling, we're buying less stuff. So you would expect those retailers like building material and supply stores, I didn't look at it. I'm guessing. Was that down?

Ryan Sweet:                      It's down.

Mark Zandi:                      That would be consistent with that. Right? People are...

Marisa DiNatale:              Half the decline was in the big box stores, Costco's and Target's and stuff like that. That was almost 30,000 of the 60,000 decline in retail.

Mark Zandi:                      Right.

Cris deRitis:                       And Target and Walmart reported on their quarterly earnings that they're seeing shifts in patterns that they have more inventory on the shelves than they had expected. So, it's consistent with that shifting.

Mark Zandi:                       ...spending behavior.

Ryan Sweet:                      You're going to start to see this in the retail sales numbers. They're going to start to be really, really weak. But that only tells a third of the story. Real services spending is picking up.

Mark Zandi:                      Also, you saw in today's numbers, I don't know if you mentioned it Marisa, but transportation, warehousing employment increased a lot I think. Didn't it?

Marisa DiNatale:              And a lot of it was trucking.

Mark Zandi:                      Trucking. Good. Alright. I stopped you. You were talking about one aspect of the data today. That was the non-farm payroll data, based on the survey of businesses. We also got data based on the survey of household. So, what did that have to say?

Marisa DiNatale:              [00:07:06] So, the big headline number, the unemployment rate stayed at 3.6% for the third month in a row. And if you go out three decimal places and you look at the unrounded number, it fell a tiny bit. Both the labor force participation rate and the employment population ratio ticked up by a 10th of a percentage point.

                                             Let's see what else? The number of people, this was sort of interesting. I don't want to make too big a deal out of it. But the number of people working part-time for economic reasons rose. And it was all people saying that their hours were cut back by their employer because there wasn't enough work to do. The other piece of that could be that people were looking for full-time jobs, but they could only find part-time jobs. It wasn't that. It was hours cut back.

Mark Zandi:                      What about hours? I didn't look at hours. Per weekly hours. What happened to those? To that?

Marisa DiNatale:              I think they were... Let's see.

Mark Zandi:                      Do you know, Ryan?

Ryan Sweet:                      They were unchanged.

Mark Zandi:                      Unchanged. Okay.

Ryan Sweet:                      I think it was 34.6.

Mark Zandi:                      Because that would be a leading indicator of weaker job growth dead ahead. Businesses pull back on hours before they cut jobs.

Marisa DiNatale:              And average hourly earnings rose 10 cents over the month. They were up. Do you know what the percentage change is?

Mark Zandi:                      5.2.

Ryan Sweet:                      Year-over-year.

Marisa DiNatale:              That was year-over-year.

Ryan Sweet:                      0.3% month-over-month.

Marisa DiNatale:              Month-over-month, 0.3.

Mark Zandi:                      But it's moderating though. Don't you think, wage growth?

Marisa DiNatale:              Well, yeah. But because of the composition of job growth this month, I wouldn't put tons of stock in that moderation.

Mark Zandi:                      But it feels like even, accounting for the mix affects, this thing's going to roll over on a year-over-year basis. Right? Just the base affects because we're now getting to a place where we had pretty strong wage growth a year ago. So, it feels like it's going to start to come in.

Cris deRitis:                       I think the Employment Cost Index is right around 5, 5.2.

Mark Zandi:                      It's around 5.2.

Marisa DiNatale:              It is. They're all pretty consistent with each other.

Mark Zandi:                      And the employment cost index controls for the mix of jobs for what's going on across industries and occupation. So that's the higher quality, quarterly series because it takes a while to construct it. This data we're talking about, the average hourly earnings is coming out of the monthly jobs numbers. But they're consistent now, roughly.

Marisa DiNatale:              Right.

Mark Zandi:                      Okay. Anything else you want to call out in the report, Marisa?

Marisa DiNatale:              I don't.

Mark Zandi:                      I noticed you didn't mention participation, I don't think. That picked up a little bit.

Marisa DiNatale:              It did, yeah.

Mark Zandi:                      What I found interesting is labor force growth, which is participation times working-age population. That's growing very strongly. Well over 2% year-over-year. And that's about as strong as it gets. Typically, it's well below one. So, it feels like we're getting some bump from higher participation, but also it feels like working-age population growth is kicking back and maybe that's immigration. I don't know, but I thought that was... So, it's not only about job growth slowing. It's also about labor supply growth accelerating. And both those things are positive in the context of a tight labor market and the high inflation. We want to get inflation down.

Marisa DiNatale:              Right.

Mark Zandi:                      Ryan, anything to add? You want to fill in any holes or add any color to what Marisa had to say?

Ryan Sweet:                      Well, the primary age employment to population ratio. So, it was 25 to 54, ticked up from 79.9% to 80%. There's still room for improvement, but we're headed in the right direction. Kind of the idea of are we at full employment yet? Probably not because that could go a little bit higher. I think the number is, overall, a little bit misleading. The seasonal adjustment factor was very, very favorable in May. A lot more favorable than in past Mays. So...

Mark Zandi:                      Favorable to what? To participation or?...

Ryan Sweet:                      Oh no. To the overall job growth. I'm sorry.

Mark Zandi:                      Oh. Overall job growth.

Ryan Sweet:                      So, I think what we're going to see is continued downward revisions, particularly since the response rate was really, really low. And it continues to remain low for the first print. So, it's close, but we know these numbers aren't 100% accurate on the first print.

Marisa DiNatale:              What was the response rate?

Ryan Sweet:                      I can look it up. I think it was in the 60s.

Mark Zandi:                      I think the whole world has survey fatigue. I'm just telling you.

Ryan Sweet:                      It does.

Mark Zandi:                      I think people are just tired of surveys. I get on a flight. I get off the flight. "How did we do?" I'm burnt out. I'm burnt out. I think we have our own survey of our employees. How are you feeling? The so-called BES survey? What does that stand for again?

Marisa DiNatale:              Business Effectiveness Survey.

Mark Zandi:                      Business Effectiveness Survey. And I think our survey responses are, well last I looked, they're pretty low. I think people are just burnt out from all these surveys. Which has all kinds of implications, doesn't it? For the data?

Ryan Sweet:                      For accuracy. Right.

Mark Zandi:                      I wonder what that means.

Ryan Sweet:                      The good news is that with each subsequent report, the response rate is increasing. So, by the third time, the third revision, the response rate is over 90% for the employment data.

Mark Zandi:                      Oh, is that right? It is over 90%. Okay. So, the revisions take on added importance, right, because we're getting a lot more data.

Ryan Sweet:                      Correct.

Mark Zandi:                      Okay. Very good. Cris, anything to add on the job numbers? I know you look into the bowels of this, too.

Cris deRitis:                       Not really. I think that Marisa and Ryan covered it well. Overall, pretty strong report. The retail was the one that stuck out as a point of weakness. But, construction was up. That was perhaps one thing to note. We now have construction well above what it was in February of 2020. So, just points to, again, some strength of that industry, at least for the short term here.

Mark Zandi:                      Alright, let me... Sorry. Go ahead.

Ryan Sweet:                      I was going to say that we likely aren't capturing the full impact of the recent weakness in residential investment. Housing stats are down.

Mark Zandi:                      Right.

Ryan Sweet:                      Mortgage rates are up. So construction's going to start to soften.

Cris deRitis:                       That's right. So, short term, it looked like, or historically it looked like some activity. But...

Mark Zandi:                      So, broad strokes. This is how I characterize the message, and the jobs numbers. I'm curious, do you agree or disagree, that the job market is strong. 400K per month is strong job market, but it's slowing, moderating and that's great. We need that because the economy, the job market has been too strong in the sense that we're going to blow past full employment here. Unemployment's going to decline. We're going to go past full employment, which is going to exacerbate wage and price pressure, which is exactly what we don't need. We got to get inflation down.

                                             So we need the job market to slow. In fact, by my calculation, we need to get back down to something like 150K, at most, per month to be consistent with labor force growth, and make sure that unemployment stabilizes so that we don't blow past full employment.

                                             And, it feels like that's where we're headed here. And at the same time, we are getting some improvement in labor supply. Growth and labor supply is improving. And, wage growth still strong, but moderating.

                                             So, when I look at this report, it feels pretty good to me. If I were writing the numbers, I would want... If I were king on the piece of paper, it's not exactly what I want, but it's pretty darn close within spitting distance of what I would put on piece of paper.

                                             What do you think? Anyone agree, disagree with that characterization of the report?

Marisa DiNatale:              I agree.

Mark Zandi:                      You agree? Okay. Marisa agrees. I don't care what you guys say. Marisa agrees, I'm good. So yeah.

Ryan Sweet:                      I think the Fed would agree with you too.

Mark Zandi:                      You do? You do think the Fed would agree with me?

Ryan Sweet:                      Yeah. This is what they want. They want things to slow down.

Cris deRitis:                       So is this slowing down enough though? Sounds like you're saying yes. Well I think things have changed in monetary policy.

Ryan Sweet:                      I don't think you want to a sudden, the seller, like an abrupt one. I think they want it to occur over a few months and then settle down into a sustainable pace.

Mark Zandi:                      So, Marisa likes it. Ryan, you like it. You think you're the Fed whisperer, and your Fed whispering suggests they like it. Cris, what do you think?

Cris deRitis:                       I like it. Yeah. Definitely.

Mark Zandi:                      You like it.

Cris deRitis:                       There's nothing.

Mark Zandi:                      The stock market and bond market didn't quite like it. It wasn't a big sell off.

Cris deRitis:                       They didn't hate it.

Mark Zandi:                      They didn't hate it. But long-term bond yields, 10-year treasury yields have risen back five, six basis points. Not a lot, in the grand scheme of things.

Ryan Sweet:                      But I think we're in that awkward period where good news is bad news, in the sense that it was stronger than expected. It was a solid employment report, which means the Fed might not pause in September. And I think that's what you're getting a reaction in the bond market, and in the stock market about.

Mark Zandi:                      You think bond investors were anticipating a pause in September?

Ryan Sweet:                      They strongly hinted at a pause. And then yesterday, you saw yields go up a lot. And that was because Fed Governor Brainard said it's going to be a hard case to make for a pause in September.

                                             So, it doesn't mean 50 basis points in September. But maybe they dial back down to 25. But, I think, if you look at Fed funds futures, they were starting to price in a pause.

Mark Zandi:                      Right. I want to go to the statistics game very shortly, but one other thing I want to talk about before we get to the statistics game, is I'm getting a little confused about the actual strength of the economy.

                                             We've been talking about the job market. The jobs data says the economy is strong. Right? If you create 400,000 jobs a month, when that typically it's 150, maybe 100, that's a strong job market. Unemployment is low. 3.6%. The employment-to-population ratio for working age workers 80%. That's a strong economy.

                                             But then I look at the GDP numbers, and I go, "Well what the heck's going on?"

                                             So, GDP, that's the value of all the things that we produce. Which was kind of the headline number, what economists look at to gauge "Well, how's the economy doing?" Well, they talk about GDP, and then they talk about jobs.

                                             The GDP declined in the first quarter of this year. It's quarterly data. And, if you look at our tracking estimate that you put together Ryan, for the second quarter, that tracking estimate is based on all the monthly data that's coming in. And based on that, we make an estimate of what we think GDP will be in the current quarter, the second quarter.

                                             It's now only 1.5% positive. 1.5. It's positive, but it's within spitting distance of negative, and it's not, correct me if I'm wrong, I'm going to stop in a second and ask your opinion, Ryan, of all this. It's very possible we could get a negative GDP print in Q2. Which would mean two quarters of consecutive, negative GDP, which historically has been... It's not accurate, but sort of the rule of thumb for a recession. Right?

                                             So Ryan, did I characterize the data yet? What the heck is going on, and how concerned about that, and how do you square all this? Is the economy strong or not?

Ryan Sweet:                      No, it's really strong. It's really strong. The decline in GDP in the first quarter was a smaller inventory accumulation, and a drag from net exports. And net exports were an enormous drag because we're buying a lot of stuff. And a lot of that stuff is imported. And that caused the trade deficit to really widen out a lot in the first quarter.

                                             Second quarter GDP, it came down, it was north of 2% earlier this week, but then we got vehicle sales, and vehicle sales really softened in May.

                                             So, that dinged GDP a little bit. But again, when you look at the domestic economy, so if you strip out inventories and you strip out net exports, growth is still pretty solid.

Mark Zandi:                      So you're saying, "Ignore the GDP number."

Ryan Sweet:                      Correct.

Mark Zandi:                      That is not representative of the health of the economy.

Ryan Sweet:                      One thing I do every quarter when GDP comes out is look at the contributions to the volatility in GDP. And inventories and net exports are really climbing. So they're kind of causing the data to be a little bit fuzzier than normal.

Mark Zandi:                      Well, you could take a darker perspective on that. Right? On the inventory side. We had Gene Seroka, who's the Executive Director of the L.A. Ports on. He made the point that in the surrounding L.A. Basin, there's more warehouse space than anywhere on the planet. And, those warehouses are packed to the gills with stuff. Inventories are very, very heavy. We're overladen with inventory. At least based on that.

                                             And that would suggest that, that would mean the producers, manufacturers are going to have to cut back at some point. That they have...

Ryan Sweet:                      Correct.

Mark Zandi:                      ...done too much, and we're going to cut back. And that's a negative for the economists. That's why you get declines in GDP. Less output. You're not worried about that? Or you are worried...

Ryan Sweet:                      No, I am worried about it.

Mark Zandi:                      Okay.

Ryan Sweet:                      If you go back several podcasts, probably this time last year we were talking about risks to the economy this year. And we all talked about inventories. Cris brought up the cobweb theorem. And you heard on the podcast about, where the head of the Port of L.A., he mentioned that businesses over-ordered. They double, triple-booked.

                                             So I think inventories will be a drag. But I think the rest of the economy will start to improve. I think trade can't subtract this much from GDP going forward because, just like in the retail sales, or the retail employment numbers, the mix of spending is shifting away from stuff to services. And that's going to help narrow the trade deficit.

Mark Zandi:                      He said, inventory management has gone from "just in time," to "just in case." So hold excess inventory. But the inventory situation would suggest that the economy is actually... That argues for softness. Adds to the concern about the economy. Alright.

Marisa DiNatale:              I kind of wonder if that's going on a bit in the labor market too. Kind of...

Mark Zandi:                      Exactly.

Marisa DiNatale:              ...employers panicking that they're not going to be able to find people, and hiring and holding onto people, and then having to cut back on hours, because there isn't actually the work to support that labor. There's some evidence that that's happening in some segments of the economy.

Mark Zandi:                      Right. It feels like you can see it in the close to record number of unfilled job positions. We're still what, over 11, I think it was 11.4 million unfilled positions. Pretty close to record highs. That feels like businesses just... If I'm worried about long-run staffing my business, I'm going to keep those unfilled... Even though I'm not hiring, I'm going to keep those positions open. Out there, and continue the process of talking to people.

Ryan Sweet:                      There's nearly two unfilled positions per unemployed worker.

Mark Zandi:                      Which I'm sure is a record high.

Ryan Sweet:                      Yeah. It's like double what it usually is.

Mark Zandi:                      Okay. So going back to my question, is the economy strong or is the economy weak? You're saying the economy's strong, but, this inventory situation is the reason for some nervousness about what's going on.

Ryan Sweet:                      It's somewhere in between the two. It's not as weak as the GDP numbers would suggest. It's probably not as strong as the labor market would suggest. So, it's somewhere in between.

Mark Zandi:                      Cris, what do you...

Ryan Sweet:                      It's softening.

Marisa DiNatale:              He's sliding it back a little bit.

Ryan Sweet:                      Yeah.

Mark Zandi:                      Well, I'm pushing him a little bit. So he's taking a little step back. I'm just...

Ryan Sweet:                      He's trash talking.

Mark Zandi:                      I'm a little confused by it. That's why I'm asking. Cris, what do you think about all this? Is the economy strong? Is it weak? Depends on which part of the elephant you touch? What's going on? How do you characterize it?

Cris deRitis:                       I wouldn't say strong. I'd say the economy's in transition. Which is what sounds like we've all agree on. That we're moving away from goods to more services. Unwinding some of the pandemic effects here, on top of all the supply chain, and energy, and everything else that's going on.

                                             So, for that reason, you have all these forces going on. I think you can't categorize the economy as being particularly strong during this period.

                                             I don't know that it's collapsing, or the GDP is representing the true picture. I think that's overstating the case. So I would say it's growing. Underlying growth is there. But certainly it's vulnerable to remember these forces during the transition.

Mark Zandi:                      You're on the National Bureau of Economic Research business cycle dating committee. This is the group of academic economists that decide whether you're in a recession or not. And, let's say it's now September. Late September of this year and you just got the number for Q2 GDP.

                                             You came in at negative 1.3%. On top of the, what was it down in Q1? Minus one and half?

Cris deRitis:                       1.5.

Mark Zandi:                      1.5. Recession? No recession? How would you characterize it?

Cris deRitis:                       Labor market is still strong. Three and a half. 3-6. Unemployment.

Mark Zandi:                      Oh yeah. The job market is...

Cris deRitis:                       The job market is sailing along. No...

Mark Zandi:                      The job market is doing what it's doing right now.

Cris deRitis:                       Yeah.

Mark Zandi:                      Exactly. Sorry.

Cris deRitis:                       Yeah. And everything else is kind of hunky dory as well.

Mark Zandi:                      Well...

Cris deRitis:                       Industrial production.

Mark Zandi:                      Well, it depends on, again, where you touch the elephant. And the housing market is hunky dory? I'm not sure.

Cris deRitis:                       It's not collapsing.

Mark Zandi:                      If you're an equity investor, is it hunky dory? I'm not sure. Okay. But you characterize it the way you want to characterize it. But, what do you think?

Cris deRitis:                       I would say if it's weak, if GDP is negative solely because of the inventories and trade, but everything else looks relatively positive, I'm not going to call recession quite yet. You can. A recession's a broad-based decline in economic activity.

Ryan Sweet:                      Right.

Mark Zandi:                      Broad-based, persistent decline. Just to say it. But I'm not even sure that's the right words, but those are my words. Marisa. If you're on the business cycle dating committee of the NBER, two quarters of negative GDP, what do you say? No.

Marisa DiNatale:              I'm with Cris. I think as long as other components of GDP, like what is consumption doing, and investment and, how's the job market doing? How are asset prices doing, particularly housing. We're all expecting some sort of correction or cooling off in the housing market. Which is warranted, given what we saw over the past few years.

                                             I think the labor market and spending growth would count a lot more to me than just looking at inventories. Or...

Mark Zandi:                      Yeah.

Marisa DiNatale:              ...trade.

Ryan Sweet:                      Yeah. Right. How about you Mark? You agree?

Mark Zandi:                      Definitely, I would agree with that. I don't think you can call a recession with job growth.

Marisa DiNatale:              Right.

Mark Zandi:                      [inaudible 00:26:35] creating jobs.

Cris deRitis:                       It's tough.

Mark Zandi:                      How can that be a recession? It doesn't make any sense. With low unemployment, three and a half percent, or 3.6% unemployment. No, I don't. But it's an interesting situation. How do you articulate that?

Marisa DiNatale:              That we could be in.

Mark Zandi:                      That we certainly could be in. Certainly, because, remember back for Q1, our tracking estimate was positive one and a half, and we got negative one and a half. The tracking estimates are very difficult to measure what's going on with inventory and trade, because that data is lagged, and not quite as good.

                                             So, we were at one and a half positive, and we got negative one and a half. Same deal could happen here.

                                             We can get a negative course. So we could have two quarters of negative growth. So, economists and NBR are going to have some explaining to do... Exactly what it means.

                                             The other implication is that productivity growth is getting crushed. Right? Because productivity growth is output per hour of work. So, if you've got people being hired and more hours, but GDP is falling output, then productivity is taking it on the chin. Which is not good, but interesting.

                                             Fair enough. Let's play the game. The statistics game. Just to remind everyone. This game, each of us put forward a statistic or two. And the rest of us try to figure that out using questioning, and guesswork, and deductive reasoning.

                                             And, the best statistic is one where it's not so easy that we slam dunk it. Everyone gets it quickly. Not so hard that no one can get it at all. And bonus if it's related to the topic at hand, which is the labor market, or is something that's been released recently over the last week, maybe couple weeks.

                                             I cheat a little bit every once in a while. You guys are pretty good at sticking to that rule. I'm not quite as good. That's the game.

Ryan Sweet:                      Did you just admit you cheat?

Mark Zandi:                      I didn't say cheat. I said I don't subscribe to the rules as closely as you.

Marisa DiNatale:              Like [inaudible 00:28:44].

Mark Zandi:                      Hey. By the way, shout out to some of our listeners who are really into this game. The whole cowbell thing. Tim Daley, our colleague, he gave us some cowbells. Right? Who's got them now?

Cris deRitis:                       He did?

Mark Zandi:                      I thought he did.

Ryan Sweet:                      Cris has them.

Mark Zandi:                      Or maybe he's just taking credit for giving them to us and we didn't get them. I don't know. Where are they? Where are these cowbells? Ben? You're going to have to...

Cris deRitis:                       Got one right here.

Mark Zandi:                      Is that from Tim?

Cris deRitis:                       Yeah.

Mark Zandi:                      Oh. There you go. Very cool.

Ryan Sweet:                      Look how cool that is. That's cool.

Mark Zandi:                      Oh man. I look like, you know the guy from, what's that show? The scary show. I can't remember the name of it. Remember Lurch?

Marisa DiNatale:              The Addams family?

Mark Zandi:                      Addams family. We look like we're from the Addams family.

Cris deRitis:                       Got it, Marisa.

Mark Zandi:                      Can you do that again? Can you ring that again? I thought it was a high quality. Okay. That's high quality. That's high quality compared to what Ryan's got. That's high quality. High quality.

                                             Also, I have a good friend VJ, this is a call out VJ because VJ is a avid listener of the podcast. He gave me a cowbell. Unfortunately I don't have it here. It's the highest quality cowbell. The sound is beautiful.

                                             So, it is the kind of cowbell you hear in the Swiss Alps.

Marisa DiNatale:              Wow.

Mark Zandi:                      That kind of cow bell. Really nice. You know what I'm talking about, Marisa?

Marisa DiNatale:              I do.

Mark Zandi:                      You heard cowbells in Switzerland? It's just...

Marisa DiNatale:              No. But I can imagine.

Mark Zandi:                      Oh.

Ryan Sweet:                      It sounds like the cowbell industry.

Mark Zandi:                      I have to tell you. It's Heidi-like. It's Heidi-like.

Marisa DiNatale:              That's what [inaudible 00:30:29].

Mark Zandi:                      It's very nice. He also gave me a Thumper. A T-shirt Thumper?

Cris deRitis:                       Oh wow.

Mark Zandi:                      Yeah. I thought that was really nice of him to do that. So, very, very nice.

Cris deRitis:                       It's good reminder.

Mark Zandi:                      But I need to get my cowbell from the Tim Daily cowbell because that looked pretty cool.

                                             Alright. Who wants to go first? Actually, I'm going to pick, Let's go with Cris first. Cris, what's your statistic?

Cris deRitis:                       Alright. 13.1 million.

Mark Zandi:                      13.1 million. Is it related to the job market?

Cris deRitis:                       No.

Mark Zandi:                      It is not related to the job market.

Ryan Sweet:                      Yep. No that's not vehicle sales. Because vehicle sales went south 13 million.

Mark Zandi:                      That was 12.9 million, right? Or 12.8.

Ryan Sweet:                      Wait, vehicle sales?

Cris deRitis:                       It's total vehicle sales.

Ryan Sweet:                      What?

Cris deRitis:                       12.7 was light of vehicles.

Mark Zandi:                      Oh, that's really tricky. Oh, so it is vehicle sales.

Cris deRitis:                       He got it. He got it.

Mark Zandi:                      All the way. Okay. So, light vehicle sales were 12... I thought it was 12.8. But you're saying it was 12.7 million?

Cris deRitis:                       12.7.

Mark Zandi:                      Okay. And then, total vehicle sales, which includes heavy...

Cris deRitis:                       Heavier trucks.

Mark Zandi:                      ... Heavier trucks that came in at what?

Cris deRitis:                       13.1.

Mark Zandi:                      That was weak.

Cris deRitis:                       That was weak.

Ryan Sweet:                      That was very weak.

Cris deRitis:                       Both were weak. Both were very weak.

Mark Zandi:                      Going back, is the economy strong or weak?

Cris deRitis:                       Exactly.

Mark Zandi:                      Depends on which part of the elephant you're touching. That's a weak number. 13.1.

Cris deRitis:                       It is. It is. The drop in truck and SUV sales was the largest since March of 2020.

Mark Zandi:                      Okay.

Ryan Sweet:                      That's people hesitating, because of gas prices.

Mark Zandi:                      Oh. Well that's a good question. Is this a supply chain issue?

Cris deRitis:                       Yeah. You can't just build enough. Which had been the case. Or is it people now changing behavior?

Mark Zandi:                      Well I get more nervous. If you're telling me that's demand. You're saying gas prices are up. Because you're saying it could hit the heavy vehicles, the gas guzzler more. That's an indication that this is about demand.

Cris deRitis:                       Right. There was this nice write up from Michael Brisson. Our colleague. I'll give him a plug. He pulled out this interesting statistic that, in terms of expectations of purchasing a vehicle over the next year from the conference board, 56% of people plan to buy a new vehicle within the next six months. And that's less than what it was back in May of 2019.

                                             So, it does seem like people are at least indicating that they are hesitant to buy.

Mark Zandi:                      That actually makes me a little nervous. Because the month before, we were at almost 15 million. Weren't we? In the month of April?

Cris deRitis:                       Yeah. 15 million... 14.9.

Mark Zandi:                      14.9. And, that dropped to 13.1.

Cris deRitis:                       Yes.

Mark Zandi:                      And we're saying that's not supply chain issues or production that's demand? That's a big deal. If we think that's the case.

Cris deRitis:                       It was 13 at the end of last year, it dropped as well, but that was... I chalked that up more to the supply chain issues.

Ryan Sweet:                      Yeah. Now it seems like demand is...

Mark Zandi:                      Okay. Does that make you more nervous about, the question about how the economy's doing?

Marisa DiNatale:              Well what about light vehicles? What was the...

Mark Zandi:                      What was light vehicles?

Marisa DiNatale:              ...change there? The trajectory look like?

Cris deRitis:                       Oh. It's so similar. Right? Light vehicles also went from 14 and a half last month to 12.7 million this month.

Marisa DiNatale:              I was just wondering if people are substituting. Not buying an SUV...

Ryan Sweet:                      Trading down, or... Less gas guzzling.

Cris deRitis:                       Well, the drop in autos was smaller than the drop in trucks, light trucks and SUVs. So that would suggest that's the case. Although production, I think has also shifted more towards light trucks and SUVs. So maybe the supply chain effects are larger there as well.

                                             So I don't know that we can read too much into that. But it does suggest certainly that people are sensitive to the price of gas.

                                             Pulling back one way or the other.

Mark Zandi:                      So Ryan, how do you interpret that? Does that make you any more nervous?

Ryan Sweet:                      A little bit more nervous, but I think consumers are just being rational.

Mark Zandi:                      I guess they're just responding to price effects. Which is what we need to happen, I guess, to bring in inflation.

Ryan Sweet:                      My kids play a game. When I fill up the car, they try to guess how much it's going to be. And now their guesses are over a hundred dollars. It was $119 the other day.

Mark Zandi:                      Really? Ouch. You got to stop driving that big van you're driving. What do you drive?

Cris deRitis:                       Are you still going with the premium?

Mark Zandi:                      Oh yeah. That's it. He's buying premium. Why buy premium?

Ryan Sweet:                      You have to in this... I don't want to go down this road.

Mark Zandi:                      Alright. Okay. Very good. That was a good statistic. Oh. We didn't hear a cowbell. Ryan nailed that one.

Marisa DiNatale:              Yeah.

Ryan Sweet:                      I did.

Cris deRitis:                       You want another one?

Mark Zandi:                      Oh. Beautiful. Well done. Well done. Alright. Okay. Marisa, you're up.

Marisa DiNatale:              76.6%.

Mark Zandi:                      Is that...

Ryan Sweet:                      Is that from the employment, or is it job market-related?

Marisa DiNatale:              It is.

Mark Zandi:                      The payroll survey, or the household survey?

Marisa DiNatale:              Household.

Mark Zandi:                      76.6. That's a percent, right?

Marisa DiNatale:              Mm-hmm.

Cris deRitis:                       Not a growth rate, or...

Ryan Sweet:                      Female labor force participation?

Mark Zandi:                      He said female labor force participation.

Marisa DiNatale:              They're almost there.

Ryan Sweet:                      Prime age?

Marisa DiNatale:              Yes!

Mark Zandi:                      Oh my God! Oh! Way to go, Ryan. Excellent job. So female labor force participation is 76 point...

Marisa DiNatale:              It's prime age women.

Mark Zandi:                      Prime age.

Marisa DiNatale:              25 to 54, 76.6% that rose over the month. And it's risen quite a bit in the past few months. And now it's only three-tenths of a percentage point away from where it was in February of 2020. And it's actually closer now to the pre-pandemic rate than men's is to their pre-pandemic rate. Which we hadn't seen in a while.

                                             So I thought it was interesting because, also, if you look at labor market flows, you can look at people moving into the various categories. There was a very large uptick in women coming from out of the labor force into unemployment.

                                             So entering the labor force and looking for jobs, and this is, this is a group, right? That was disproportionately hurt during the pandemic. A lot of prime age women left the labor force because somebody had to stay at home with kids who were unable to go to school or daycare. And that still is usually women that have to do that. And that this has represented, I think, a big chunk of labor supply that's been out there and it's really coming back. To the point where, we're going to be back to where we were pretty soon, I think.

Mark Zandi:                      Good sign. That's a good sign. And also we're seeing... No, go ahead. Go ahead, Cris.

Cris deRitis:                       Are we seeing improvement in childcare employment? Is that driving this?

Marisa DiNatale:              That's a good question. I haven't looked at that.

Mark Zandi:                      It stands to reason though, right?

Marisa DiNatale:              It would stand to reason. Yeah.

Mark Zandi:                      Maybe, Ryan, you can take a look and see what happened to employment at childcare centers.

Ryan Sweet:                      I can take a look.

Mark Zandi:                      Take a look. I'm just curious what happened there?

Ryan Sweet:                      Just around here and in Chester County, there's long waits to get kids into daycares because they can't find workers.

Mark Zandi:                      Right. But maybe this suggests some of those constraints are abating in some parts of the country.

Ryan Sweet:                      Maybe.

Mark Zandi:                      Allowing women to go back to work. Well that's, that's very interesting. So you're saying that the female prime age participation rate is recovered more than the male participation prime age.

Marisa DiNatale:              It's now closer to its pre-pandemic rate than the men's is to their side, a little bit.

Mark Zandi:                      Okay. Interesting. That was a good statistic. And Ryan's on a roll now I'm getting a little nervous. Fortunately, he's got to give us the statistic now. What's your statistic Ryan?

Ryan Sweet:                      455,000. And this is down from 586,000, but this is a good sign.

Marisa DiNatale:              This is from the household survey as well?

Ryan Sweet:                      No comment.

Mark Zandi:                      No comment?

Cris deRitis:                       No comment?

Ryan Sweet:                      No, can't no. It'll give it away. You guys will jump on this in two seconds. If I say.

Mark Zandi:                      Is it household employment? I know what it is. I think it's the household employment growth rate put on the payroll survey measure.

Marisa DiNatale:              Definition?

Mark Zandi:                      Definition. No?

Marisa DiNatale:              Is it marginally attached?

Ryan Sweet:                      It is not. It's labor supply-related.

Mark Zandi:                      Labor supply.

Marisa DiNatale:              Want? No, not want a job...

Mark Zandi:                      Oh, is it the number of people who weren't working because of the pandemic that are still out because of the pandemic?

Ryan Sweet:                      I'll give it to you. That was good. So it's the number of the labor...

Mark Zandi:                      You know what I'm saying though?

Ryan Sweet:                      Yeah. 455,000 people were not in the labor force because they were prevented from looking for work because of the pandemic.

                                             So this gets back to the idea that labor supply is really critical to future job growth. And this is declining, which is a good sign. That more people are able to go out and look for work because the pandemic's kind of fading.

Mark Zandi:                      So does that deserve a cowbell? Just saying... No one?...

Ryan Sweet:                      Yeah. Cris has got the cowbell going.

Mark Zandi:                      Okay. Well okay. I'm very happy to get that because I'm still trailing Ryan, but feel good about that one. So, but there's still four 55,000 people out there that are not in the labor force because of the pandemic that could come back in.

Ryan Sweet:                      They're prevented from look looking for work because of the pandemic. So that should continue to fall in that, our labor, our employment forecast is really sensitive to changes in labor force. As long as we get more supply, we should...

Marisa DiNatale:              ... Do you think that actually means?

Mark Zandi:                      Yeah. Why aren't they?

Marisa DiNatale:              They're invented from looking for work because of the pandemic. because these are people not in the labor force. So that means they haven't looked for a job in the past month and they wouldn't or couldn't take one.

Mark Zandi:                      Maybe they're still sick. Maybe they're sick.

Marisa DiNatale:              Does it mean they're sick? Does it mean they're...

Mark Zandi:                      Taking care of sick people?

Ryan Sweet:                      Temporary layoff.

Mark Zandi:                      I haven't looked at the Pulse survey from census recently. Have you guys have they? I'm not even sure they've released one recently, a survey. We should take a look because that gives it more insight into why people aren't in the labor force. [inaudible 00:42:01] Survey fatigue. That's another good example. Survey fatigue, taking it and looking at them.

Ryan Sweet:                      Look at looking at it.

Mark Zandi:                      Look again. Survey fatigue. Looking at them.

Marisa DiNatale:              It's not good for our jobs.

Mark Zandi:                      No, no, no we can't get tired of that. Interesting. Okay. Well that's very good. That was a good one. I'll give you mine. You ready? $598.50.

Cris deRitis:                       Lumber.

Mark Zandi:                      Oh, very good. Cris, that was flawless. Well actually, I guess that was too easy.

Ryan Sweet:                      That was good.

Cris deRitis:                       That's a good one. That was a good one.

Ryan Sweet:                      It's come down a lot.

Mark Zandi:                      I think that's really a big deal, right? Because just for context, at the worst of the lumber shortages back a year ago, it's hard to believe it was a year ago. Lumber was going for six over $1,600 per board square foot.

                                             So we're down to $600 and prior to the pandemic, just before the pandemic hit, it was $450. So we're not quite back to pre-pandemic, but we're pretty darn close. Right?

Ryan Sweet:                      That's falling fast. Right?

Mark Zandi:                      And falling really fast. And inventories are apparently very high. We've got a lot of inventory of lumber now. So, does feel like that... And this is how it's supposed to work. Right? The reserve has raised interest rates and trying to slow the economy's growth rate. It works primarily through financial conditions and the most rate-sensitive sectors of the economy. Housing, and housing is definitively slowing and that's now being reflected in lumber prices.

                                             So that's a good bellwether for what's going on in the housing market. And that's not just only new construction. That's probably more importantly repair, and remodeling, and renovation, going back to those building materials supply retailers that are laying off at this point. So it does feel like things are happening the way, at least so far, at least the way they should.

                                             We're starting to see some slowing there and it's having an impact on commodity prices, lumber prices. And that's the first leading edge of a more broader moderation and inflation. Remember it was a commodity prices that led the way. And then we saw inflation pick up more broadly. And now we're starting to see the opposite occur, the exception being oil, obviously related to the Russian invasion, the European's decision to sanction the Russian oil that caused oil prices rise. But it feels like commodity prices are starting to come in and that's a really good sign.

Cris deRitis:                       So the rising construction workers that we saw in the employment assessment today, do you think that's just a temporary?

Mark Zandi:                      I took that as a good sign, too. More supply.

Cris deRitis:                       They're finally able to hire people.

Mark Zandi:                      They're finally able... Talk about unfilled positions. They couldn't find people and they had all these properties, these homes in the pipeline for completion are not even started. And they couldn't because they had building material supply issues, but also labor market issues.

                                             So my instinct was that's a good thing, more supply and that'll help support getting those homes built and taking some of the pressure off of broader inflation. Anything else you want to say about the housing market, Cris, while we're on the topic? Because that is clearly on the front lines here with regard to the slowdown. Again, talking about which part of the elephant you're touching, this is a part of the economy that is clearly weakening. Do you want to give us any more color there?

Cris deRitis:                       Well, we got a couple other indicators this week from Case-Shiller in terms of home prices, both from Case-Shiller 20-City Composite, and FHFA. The Case-Shiller continues to accelerate, I think was 20.2% year-over-year, if I recall. So even faster than the prior quarter and that FHFA decelerated a bit, but still, I think right around 19% year-over-year.

                                             So still very, very high. I see that as still as just lagging. We're looking the rear view mirror here. Other indications suggest that things are slowing down in terms of listings and activities.

                                             So I still expect to see some deceleration, but, on the other hand, there's still lots of demand out there. So stick by the forecast that we have in terms of slowing, but not collapsing prices in the housing market.

Mark Zandi:                      I was on a panel for Fiasi which is like one of these research trade groups for bond investors and it was this panel on housing. Laurie Goodman on from the Urban Institute and Ed Pinto from AEI, really good housing economist. And Ed does something interesting. He looks at transactions from Optimal Blue. Optimal Blue is this platform that collects data on housing transactions. And based on that...

Ryan Sweet:                      Mortgages, right?

Mark Zandi:                      Oh, excuse me. On mortgages. And you can see what prices homes are transacting for with a little bit of lead, because it reports on Optimal Blue and then the closing occurs a couple three months later.

                                             So he's looking at, he can tell us what, based on the properties that are on Optimal Blue, what price growth looks like in July of this year, and it's year-over-year, 14.7%. So that sounds really high. And it is, but that's, that's rolling over though. That's definitely rolling over.

                                             So sequentially, it suggests maybe flat pricing, maybe even down pricing some markets. And I think we're starting to see that in some of the transaction data we're looking at too, right?

Ryan Sweet:                      Yes. Yes we are. So it's very similar pattern to that FHFA.

Mark Zandi:                      Alright. A couple other topics I want address before we call it a podcast.

Ryan Sweet:                      Do you want childcare employment?

Mark Zandi:                      Oh yeah. What was that?

Ryan Sweet:                      It was up a little bit more than a thousand in may to 937,000 pre-pandemic. It was a little bit north of a million. So, gap is closing, but very slowly.

Mark Zandi:                      Slowly. Interesting.

Cris deRitis:                       Guess another factor I'm hearing though is that there were a lot of restrictions during code in terms of the number of childcare providers you could have, and that those may be relaxed.

                                             So you might be getting some relief in terms of the supply of childcare spots.

Mark Zandi:                      I don't understand, what's that?

Cris deRitis:                       There are some rules in terms of how many childcare workers you need for per... Or how many children can be supervised by a childcare worker.

Mark Zandi:                      Oh, I see.

Cris deRitis:                       It was really restricted during the pandemic. There were lots of restrictions in terms of how many you could have and could one childcare worker substitute for another's shift? They were worried about transmission and all that. But so now it looks as though some of those restrictions are being relaxed.

                                             So you might be able to see more spots opening up in childcare centers, even if the employment doesn't accelerate appreciably.

Mark Zandi:                      Got it. Alright. Here's something else has been bothering me. I don't know if you've noticed, but in the last few days, weeks I hear more CEOs, big name CEOs coming out and saying... You saw Jamie Dimon, who's the CEO of JP Morgan chase, largest financial institution in the U.S. come out and talk about hurricanes dead ahead. I'm paraphrasing obviously, but it was pretty dark.

Ryan Sweet:                      Economic hurricanes.

Mark Zandi:                      Sorry. Economic hurricanes, meaning recession dead ahead. And then you saw Elon Musk who just said he's very nervous about the economy and he's going to... Potential layoffs of Tesla and hiring freezes and that kind of thing. And of course this, going back to surveys, all the consumer sentiment surveys, not all of them, but like the University of Michigan survey, very, very weak. Business surveys, very weak, the small business survey from the National Federation of Independent Business, very weak. People are very, very pessimistic. Can we cause a recession just because we lose faith that we talk ourselves into recession? Is that a possibility? What do you think, Marisa? Do you have a view on that?

Marisa DiNatale:              Yeah, I do. I do think that I think ultimately a recession, as you said, is a crisis of confidence. And if people think we're in a recession, or we're imminently headed into a recession, then people will batten down the hatches and stop spending, start saving, put off large purchases, become really circumspect in everything that they're doing. And I think that stifling of demand is what ultimately causes a recession. Whether that's manufactured by the Fed or it's exacerbated by what the Fed's doing. If people think, well, I'm not going to buy a car because car prices are up 50% compared to what they were prior to the pandemic. And I'm not going to take out a loan and take on another expense and increase my debt burden if there's a possibility that six months, a year from now, I might lose my job, or someone in my household might lose a job. I think it could. I think it could. I think there has to be something fundamental though that is also happening in the economy, something real. But I think if enough people are yelling, "Fire," people are going to start running.

Mark Zandi:                      Yeah. What do you think Ryan is? Is it... In the current context, in the current environment? Give me everything that's going on. Do you sense that we could talk ourselves into this?

Ryan Sweet:                      I agree with everything Marisa said.

Mark Zandi:                      You do.

Ryan Sweet:                      I think we can definitely talk ourselves into a recession. And I think that's one reason why when yield curve inverts you hear everyone saying, "Oh, here comes the recessions because..."

Mark Zandi:                      You've been saying that a long time.

Ryan Sweet:                      And you just talk yourself into an economic downturn.

Mark Zandi:                      Yeah. Cris?

Cris deRitis:                       I'd agree. And in certain points in the business cycle, I think there is that vulnerability. I think it's hard to say you could talk from a very rip-roaring type of economy and suddenly move the entire economy into recession. To Marisa's point, I think there has to be something else out there, but we do have plenty of fissures here, potential cracks in the pavement that could be exacerbated by confidence and psychology here.

                                             So, I think we're vulnerable.

Mark Zandi:                      But there may be another take on it. And that is, this is exactly what you'd want to see. You want CEOs saying this. At this point, right? Because you want the economy's growth rate to slow. You want less job growth. Because otherwise we're going to blow past full employment and inflation is going to become more endemic. So we need business people to hire less.

                                             Right? Layoffs are incredibly low. Either you saw the initial claims from unemployment insurance, 200K. That's not consistent, I don't think with stable unemployment. Right? You need something closer... Cris, your benchmark has always been 250, I believe, right?

Cris deRitis:                       250K.

Mark Zandi:                      So we need to see slowing. And that means that you would expect some CEOs to say, "Hey, I'm nervous. I got to be more cautious." Right?

                                             So the fact that Jamie Dimon and Elon Musk and a few others are out there talking about this, maybe that's exactly what needs to happen to get to where we need to go. No?

Cris deRitis:                       The risk is that it's hyperbole, right? It's one thing to say, I'm worried about slowing to your point and therefore we're not going to be as aggressive in our investment plans, whatever. But then to, I don't know, hurricane, and some of the other language seems as though it's imminent that it's, there's nothing we can do. It's coming.

Mark Zandi:                      Well, that's the other weird thing. When you talk like that, it's like recession is next month, this summer, maybe the fall, but very few economists, even the ones calling for a recession would say that. Right? They're saying next year.

Cris deRitis:                       Next year, next year.

Mark Zandi:                      Ryan, you're saying next year. Right? At the end of the day, a recession is a loss of faith. So, people run for the bunker. The other point though is, no one's running for the bunker yet. Right? Because a good benchmark of running for the bunker is the saving rate, the personal saving rate. Right? If you're running for the bunker, let me just stop spending, saving goes up. Right? But right now we're seeing saving rates go down. Right?

                                             So that's not consistent at all with the... Consumers are upset. They're nervous. They're pessimistic. They don't like the inflation. Understandably so. But it's not like they're acting based on that. They're acting just the opposite.

Cris deRitis:                       Vehicle sales is the exception, I guess. But we saw personal saving rates, decline, other sector, other discretionary spending is up, right? Travel. Restaurant.

Mark Zandi:                      Exactly. Right. all very strong.

Cris deRitis:                       It's not like people are not Spending.

Mark Zandi:                      Alright. In terms of this idea that we can talk ourselves into it in sentiment. The one measure I look at to gauge that the one I find the best, most useful is The Conference Board survey of consumer confidence because that's more labor market oriented and that goes to the job market. And I think that's more dollars and cents than what people ultimately do in terms of their spending and saving behavior. Do you guys have a favorite statistic, or is there other statistics you look at to gauge this sentiment? Whether we are losing faith, anything in particular? You may not. I'm just asking if there's anything else you look at Ryan?

Ryan Sweet:                      I look at The Conference Board.

Mark Zandi:                      You do look at...

Ryan Sweet:                      But I think it's important to mention that the relationship and the causal relationship between confidence and spending is very loose in the short run. So consumers can be down in the dumps, but they're going to keep spending like we've seen over the last few months.

                                             So it doesn't mean when confidence drops it, you're automatically going to see spending just tank. Because Michigan survey, that's gasoline prices, that's the stock market. So that one I'm not surprised is falling very quickly.

Mark Zandi:                      Right. Cris, Marisa, any measures you look at?

Cris deRitis:                       I've actually come to rely less and less on the sentiment measures. On the sentiment survey, I guess we've been talking survey fatigue. I think that's definitely a case. I've mentioned the political differences as well. That just makes me believe that those surveys aren't really capturing underlying sentiment perhaps of consumer... a lot of other factors that are people are using when they answer there. So I tend to rely much more on the harder data, right? Whether it's market movements or spending itself. That ultimately is the true test of confidence.

Mark Zandi:                      Alright.

Ryan Sweet:                      I'll give you an unusual one. I look at Google Trends for recession. So if people are searching Google for, "what is a recession," or, "recession," then they're really thinking about it and it's on their mind, and it's likely affecting their behavior. So I look at a lot of Google Trends' search data.

Marisa DiNatale:              And what does that look like? Right now?

Ryan Sweet:                      It's gone up. But it's not surprising. It's not to the point where you'd be like, oh, there's a problem because now you can't read a news article or turn on the TV without someone mentioning Jamie Dimon, for example, saying recession. So there some group-think coming in.

Mark Zandi:                      I've got another one for you. It's not exactly sentiment, but sort of is. It's how much people sell their plasma for money. That you can go donate plasma, or you can sell plasma. And you got companies that buy the plasma. In fact, don't ask me how I know all this stuff, from a reliable source. Apparently the U.S. is the largest source of plasma in the world. About 75% of all plasma comes from the United States because in the emerging world, they're very nervous about allowing people to sell plasma for I think obvious reasons.

                                             So we are the predominant source. And in good times, people don't sell their plasma as much, but in difficult times they do. And that's picked up quite a bit since beginning of the year, a lot more people selling plasma, which is an indicator that maybe things are starting to go off the rails here a little bit.

                                             So just another reason to be a little nervous.

Ryan Sweet:                      It's your Greenspan men's underwear indicator.

Mark Zandi:                      Yeah, exactly. I want to do a couple more, two more things before we call it a podcast. First is, and we can speed this up a little bit. First is I want each of you to give me one indicator that you're looking at that is really most upbeat, and most downbeat. Because there's so many cross-currents going on, what indicator is really saying, "Hey, things look really good." And what indicator is saying, "Hey, things really look bad." And then we're going to end by each of us giving our recession odds for the next 12 months and the next 24 months. And each of these podcasts we do going forward, I'm going to do this for each of them going forward and see how that changes over time.

                                             Let the listener know how our think... Bottom line, how's our thinking changing around recession risks. Does that sound reasonable? Alright, Cris, can I begin with you? Do you want to give me a up indicator, down indicator and your recession odds?

Cris deRitis:                       Sure. So up indicator we've been talking about all day, it's job market. Jobs, unemployment rate, employment population ratio, whatever you like. They're all saying very healthy situation here. There's plenty of negatives, but probably real income itself. Just inflation, adjust incomes. Real wages. Exactly.

Mark Zandi:                      So that's that's nominal wage growth of 5% less the inflation rate of eight. So real wages are negative three, something like that.

Cris deRitis:                       Right? That's right. So that's certainly very negative. And then written my recession odds. Haven't changed all that much, but maybe a shade higher. I Think I was at 55 now I'm closer to 60% within the next, by the end of 2023. I think that's...

Mark Zandi:                      Oh, oh, oh, wait a second. So next 12 months is what your recession odds?

Cris deRitis:                       Next 12 months?

Mark Zandi:                      Yeah.

Cris deRitis:                       I thought you were going through the end of 23.

Mark Zandi:                      No. Well would be okay for you next 12 and next 24. I think that's just easier to get our minds around.

Cris deRitis:                       Okay. Next 12, probably closer to 40%.

Mark Zandi:                      40%? Four zero?

Cris deRitis:                       Four zero.

Mark Zandi:                      Ben, are you writing this down? You got to write this down. Four zero. Okay, go ahead. Ben is our producer and he's listening in. Presumably he's listening in. He actually is listening. He's a very good producer. Go ahead.

Ben Gotwald:                   Yes, I'm listening, Mark. I'm here.

Mark Zandi:                      There you go. I almost paid that.

Ben Gotwald:                   Man behind the curtain.

Cris deRitis:                       Odd and I'll go 60% in 24.

Mark Zandi:                      Okay. 40% recession odds in the next 12 months. 60% in the next 24 months.

Cris deRitis:                       Yeah.

Mark Zandi:                      Okay. Alright. Very good. Marisa, you want to go next? Your down all around.

Marisa DiNatale:              So indicator that tells me things are really good is unemployment insurance claims. It had been like edging a little bit higher until this past week, but they're still incredibly low and it's a good leading indicator for a weakening job market when you start to see layoffs pick up. So there's just no sign that, as you said, it's hard to talk about an imminent recession when you have an unemployment rate that's 3.6% moving lower, and jobless claims that low.

Mark Zandi:                      Right.

Marisa DiNatale:              Something that doesn't look good. I don't know. We already mentioned them. I think vehicle sales, just because that is such a huge chunk of consumer spending and it can really move the needle on overall GDP growth. And it's also, I think something that people plan for generally. So it does kind of give you some insight into consumers and what they're thinking, let's say several months, a year out in terms of their own large-scale spending.

                                             I'm not hugely convicted on that just because there are these supply chain issues that are still messing with behavior. So, I do think that appears to be abating, but vehicle sales are pretty big in terms of consumer spending. So I'll say that. Recession odds in the next year, I'd put at 33%.

Mark Zandi:                      33. Okay.

Marisa DiNatale:              In the next two years, 50.

Mark Zandi:                      50%. Okay. Very good. And Ryan, what's you're up and down and recession odds?

Ryan Sweet:                      One indicator that points up is quits. So a lot of people are still quitting their job and normally, you don't quit your job if you're worried about your employment situation in the near term. So I think that's an encouraging sign. Down, I would say kind of similar to Cris' real disposable income, and real disposable income is what matters for consumer spending. That's dropping like a stone and a lot of it's inflation-related, but that's an issue.

Mark Zandi:                      And your recession odds.

Ryan Sweet:                      Alright. Next 12 months, I would say 45%, next two years, 80%.

Mark Zandi:                      Oh, you've gone up?

Ryan Sweet:                      Gone up. Two years. That's 24 months. A lot to go wrong in 24 months.

Mark Zandi:                      You're right. That's long time. The odds would be high regardless.

Ryan Sweet:                      In the next 12 months, I just don't see... That's a short horizon. So I think it's hard to see a recession by June of next year.

Mark Zandi:                      Well, you said 40%. That's pretty high the next 12 months, starting.

Ryan Sweet:                      Starting in the next 12 months is four years.

Mark Zandi:                      Well, am I right? Given the lengths of business cycles, historically the typical odds of a recession in a given year, on average, would be close to 15%, right? So two years out, you can do the arithmetic. Even if it's typical, the recession odd would be pretty high. Alright. I'd say on the upside excess savings, we have a lot of excess cash, two and a half trillion by our count, even with it peaked at 2.6, it came in because saving rates have come down, and people are now having to shell more of their excess cash to meet the higher gas prices, food.

                                             So that's down, but two and a trillion that's that's lot cash. That's over 10% of GDP and yes, most of it is sitting with high-income households, but it's pretty much across the board. So low-income, middle-income, high-income.

                                             So that makes me feel... That feels like a pretty significant cushion. For a lot of bad stuff that could happen. Consumers keep on spending. So I'd keep an eye on that. We should continue to watch that there.

                                             And by the way, we are going to get an estimate for Q1 of excess saving by income group in the next week or so. We'll get all the data we need to do that. So that'll be very telling, with what's going on with excess saving among low-income groups, because that would be the most vulnerable group here. Obviously, given what's going on with inflation.

Cris deRitis:                       I don't think they have that buffer. They're borrowing aggressively now personal loans.

Mark Zandi:                      By our estimate... Well, through the fourth quarter they did, they still had a lot of excess saving.

Cris deRitis:                       I think since then they've blown through. most of them.

Mark Zandi:                      Well how could they, we went from two, six to two, five. Even if all of that came out of low-income households, they still have excess saving. Not as much, but they still do. I guess you're saying you don't believe the data, our data, the way we constructed it.

Cris deRitis:                       Maybe.

Mark Zandi:                      I don't know your because you're pointing to...

Cris deRitis:                       It's not consistent with some of those other data points. I'm saying.

Mark Zandi:                      You mean though the increase in credit card...

Marisa DiNatale:              Credit card spending.

Cris deRitis:                       Credit card, personal loans...

Mark Zandi:                      But that's... Can't that be just transactions, and gas. It's just transactions, transaction demand. I'm traveling more. So I'm putting more on my card.

Cris deRitis:                       That's at the higher end. Sure. I believe that. But not at the lower end. I think that's... They going to credit because they can't...

Mark Zandi:                      When I saw it, if you look at our data, because this goes to the Fed's data, which I thought we figured out was bogus because of bad seasonals. If you look at our data based on credit files from Equifax, it's increasing, but not didn't feel like it was an untoward amount of borrowing. Do I have that wrong?

Cris deRitis:                       Personal loan is growing very fast at the bottom end. Well, there we have it by credit score. So it's not perfectly aligned, but the lowest credit score bands are increasing their balances very quickly.

Mark Zandi:                      Let's talk about that in next podcast. I'm more curious about that. Take a closer look at that. And on the downside, gasoline prices. Holy cow, we're headed towards $5 a gallon now. Price of oil is at $117 per barrel. I think we're right on the edge of what's tolerable. If it goes much higher, we get over five consistently over $5 a gallon nationwide. That means... I was out in California. What are you paying out there, Marisa? I don't know.

Marisa DiNatale:              Well, I just noticed it jumped 20 cents just in one day yesterday. So I paid $6.08 two days ago and now it's $6.30 as of yesterday.

Mark Zandi:                      And gas place prices play such an outside role going back to, can we talk ourselves under a recession? That is really... In fact, I don't drive much at all now, but I did fill up my gas tank the other day, I only need half a gallon, or half a tank, but I filled it up. The woman across the way was just going on and on about your at $100 to fill a gas tank. That resonates with people, that really makes them... I got to pay a hundred bucks to fill my gas tank. So I think that's a that's a key indicator to watch here if that keeps moving up.

Ryan Sweet:                      Do you have a threshold of what gasoline prices would be to cause a recession?

Mark Zandi:                      I think it's got to be at least five, probably if it's nationwide, closing on six, that means...

Ryan Sweet:                      That's it...

Mark Zandi:                      That means that oil prices are probably closing on $150 a barrel. I think recession at that point, I don't see any way out. So you can see why the president's going to Saudi Arabia, get those guys to pump more oil because we need more oil. And the other thing is, interestingly enough, oil consumption is actually coming in. There's some demand [inaudible 01:11:07] because the higher price, people are traveling less. In fact, we consume about 20 million barrels here in the U.S., 20 million barrels a day of oil. That it's come down about a million barrels almost from where it should be, because of the higher oil prices. And that goes back to the vehicle sales that we were talking about earlier. So, I think that's really critical there. So recession odds, they have not changed for me, a one-third probability over the next 12 months and close to even odds, not quite, over the next 24. So that's about where I've been.

                                             I will end by saying I am actually... I haven't changed my recession odds, but I am more optimistic today about recession prospects than I was six, eight weeks ago. And the reason is that the fed has been successful in nailing down inflation expectations. They're tough talk and their half point move on interest rates. And what Lael Brainard said yesterday about no pause in September, that has worked inflation expectations, at least is measured in the bond market, which I think is the most valid, important way of looking at it have come in and they're consistent with what the Fed is saying. And that makes it much more likely that the Fed will actually succeed in bringing inflation down close to something that we're more comfortable with.

                                             So, we have the green arrows up, there as the risks to our risks. I think there's a lot of risk out there, but it feels a little less risky to me today, just the opposite of Ryan. Ryan went up on his recession odds. Okay. Ben copied those down. We're going to come back to this if not every week, every so often to because I think that's a good way of gauging our collective thinking around how things are going here. Okay. With that, we're going to call it a podcast, just a couple reminders. One, @markzandi, obviously Twitter handle, please follow me and Ryan, what's your Twitter handle?

Ryan Sweet:                      @realtime_econ.

Mark Zandi:                      Okay. There you go. Marisa, do you have a Twitter handle? I think I asked that before. No.

Marisa DiNatale:              Yeah, but I don't tweet.

Mark Zandi:                      You follow. You're following both of us religiously. You are very good. And Dr. deRitis has his LinkedIn page. I know that's a happening place. At least I've heard that. Please give us a rating. We need ratings on our podcast. That really is helpful. Any ideas for future podcasts, please? You can tweet them at us, tweet ideas. You can...

Ryan Sweet:                      Do another survey.

Mark Zandi:                      You can fill out another survey on economy.com If you've not completely fatigued out here. Oh, and I did want to mention, we have a number of great guests coming on. We have Sheila Bair. She was the former head of the FDIC during the financial crisis, and actually, just a sidebar, I think she did the single-most important step during the crisis to bring an end to the crisis.

                                             So I'm not going to tell you what that is. You got to come to the podcast and listen to what that is. We have Julia Coronado. Julia is a great macroeconomist, formerly with the Fed, has her own firm and is out there quite a bit and be good to have her on. And Anna Stansbury, she's an academic professor from MIT. Is that right, Cris? I think she's from MIT.

Cris deRitis:                       MIT.

Mark Zandi:                      And she has a lot to say about women in economics. And, obviously the economics community has not been all that great about getting female participation. So I want to talk to her about what's going on there and what can be done about it. So with that, we're going to call it a podcast. Thank you, everyone.