Listen On:
Moody's Talks - Inside Economics
Ukrainian Conflict and U.S. Confidence
John Leer, Chief Economist of Morning Consult, joins Mark, Cris, and Ryan to discuss consumers perception of the geopolitical tensions in Eastern Europe and also the state of U.S. consumer sentiment. Cris sneaks his statistic in at the last minute.
Recommended Read:
Morning Consult - Economic Outlook
Mark Zandi: Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics. And got an action packed podcast for you. I'm joined by my two co-hosts and colleagues, Ryan Sweet. Ryan, good to see you.
Ryan Sweet: Good to see you, Mark. How are you?
Mark Zandi: Good. You sound good. And of course, Ryan is the director of Real Time Economics. And then we've got the deputy chief of economics, Cris deRitis. Hey, Cris. How are you?
Cris deRitis: Doing well.
Mark Zandi: Good. [crosstalk 00:00:41] office, I see.
Cris deRitis: Yep. Yep.
Mark Zandi: Good.
Cris deRitis: I'm alone here, but-
Mark Zandi: Are you all alone? Really?
Cris deRitis: Yeah.
Mark Zandi: No one's there?
Cris deRitis: Yeah.
Mark Zandi: No.
Cris deRitis: [crosstalk 00:00:48], maybe there's one other person, but we'll see.
Mark Zandi: Well, you're getting a lot of work done, I assume.
Cris deRitis: Yep.
Mark Zandi: Good. It's the way it should be. And John Leer. John, welcome.
John Leer: Hi, Mark. Yeah. Great to be here.
Mark Zandi: You're the chief economist?
John Leer: Chief economist, at Morning Consult.
Mark Zandi: Morning Consult. Yeah, it's fantastic. We're very excited to have you. We gotten to know each other during the pandemic, we did some work together, survey-based work, back in the beginning of the pandemic.
John Leer: Yep. Yeah, I was looking through that recently actually, that holds up pretty well.
Mark Zandi: Does it? I can't remember what we say.
John Leer: Well, we highlighted a lot of the really dramatic income differences, that the pandemic was disproportionately affecting low income people. That women and women parents in particular, were disproportionately affected, they were dropping out of the labor force at higher rates. I think the surprising result was, how robust entrepreneurism remained in the face of rising cases that we saw a lot of people still wanting to start businesses, and a lot of that has poured out over the last year.
Mark Zandi: And as I recall, we were surprised by that when we saw survey.
John Leer: Yeah. Yeah. Correct.
Mark Zandi: I was in question, is something wrong with their survey? But no, you're right. That's right, that came out in the survey results. But it's wonderful to have you, great to have you. Maybe you could take a minute, and just give the listener a sense of Morning Consult, because that might be new to folks.
John Leer: Sure.
Mark Zandi: And then, I'd love to hear your path to, how'd you become chief economist at Morning Consult? How'd that happen?
John Leer: Yeah. Sure. So I'll start with Morning Consult. Morning Consult is a global data intelligence company. So every day, we're conducting 35,000 interviews across, I think we're in 45 countries now, every day. And the surveys cover a range of topics. So I focus on our economic surveys, confidence, employment, personal finances, inflation, but then a lot of our business focuses on brand intelligence. So, what do consumers think about different brands, different issues, and how is that likely to impact their spending activities? So it's a really exciting company, because we're pairing this real-time data analysis. Sorry, I should say we're pairing this real-time data with cutting-edge analysis. So bringing on a team of machine learning experts, and economic attritions, and artificial intelligence to try to pair the two together.
Mark Zandi: Great. And you guys, you're a privately held company? I can't remember. Or did you go public, or something?
John Leer: We are a privately held company.
Mark Zandi: Okay.
John Leer: We raised our series B last year, a billion dollar valuation, so that was really exciting. And we continued to grow, we started the pandemic with 120 employees, and we just passed 500 recently.
Mark Zandi: Cool.
John Leer: So it's been this, crazy growth, and there's a lot of room to expand. So folks are interested. We still have a lot of job openings.
Mark Zandi: Yeah. Well, you know what? I remember, John called me when the series B was going out, because he knew he was going to be expanding. And basically he said, "I need to hire people." And I said to him, "John don't hire my people."
John Leer: That's right. I remember that.
Mark Zandi: I remember that John, "I'll help you out here, but buddy, but don't hire my people." Thank you, John. You've been very gracious in that regard, but it's great.
John Leer: No, it's been great. Yeah. We just recently hired Scott Brave, who was at the Chicago Fed for a long time doing... Yeah, he does a lot of nowcasting work, real-time nowcasting. And then we brought on Lori Heller from Point72, to do a lot of our Wall Street analysis and financial services analysis.
Mark Zandi: Oh, Point72. That's the hedge fund, Cohen. Steve Cohen, right?
John Leer: Correct. Yeah.
Mark Zandi: Right. Interesting. Yeah. I visited them once, and I'll tell you, it was high intensity.
John Leer: Yes. Yes.
Mark Zandi: It was high intensity. Yeah, interesting place. Oh, that's fantastic. And so, how did you find your way to a Morning Consult?
John Leer: Yeah. I think through a somewhat circuitous route, as is the case with a lot of people when they find a start-up. So before working at Morning Consult, I was living in Germany, I lived in Berlin for four years, and I studied economics there, I was getting my masters. I was on the fence about coming back to the US. I previously worked for a company called Promontory, doing a lot of credit-risk analysis, [crosstalk 00:05:01]. Yeah. It's a great company. 2009, 2010 banks were failing as... It is not that long ago, when we had all those troubles in the financial services sector. And I was thinking about, is now a good time to come back to the US? And I happen to know, the CEO of Morning Consult, and he reached out and I said, "We've got some data, we've been running the exact same five questions as the University of Michigan. Instead of doing it 600 per month, we're doing 6,000 a day across, I think at that time, it was 15 countries. What do you think? Is there something here? Is there a there, basically?"
And so I said, "Okay, this seems like a good enough reason for me to pack my bags, and come back over to the US, and I'll spend a few months diving in, and figuring out what the data looks like." I think, somewhat skeptically, thinking, wow, I don't know what... At the time, the company really wasn't doing a lot of economic research. So for me, it was a change of pace, a change of tone. And the data that I saw, just helped us predict a couple really important events, particularly in late 2018 and 19. I don't know if you remember, but the Fed had this start-and-stop approach, where they totally changed gears.
And I think there was an instance where they had seen, maybe some of that data right before their meeting, maybe they would've seen things a little differently. And so it's like, okay, this could be really valuable. And I think that high-frequency, cross country macro data, is going to be more valuable over time. And I think probably, some of this volatility that we see now with the pandemic, I think that's probably more a feature than it has been historically. And so I thought, "Yeah, let me attach myself to this rising star."
Mark Zandi: Cool. When was that? How long ago was that?
John Leer: So I did this initial data analysis work in the summer of 2019, and I joined full-time in the fall of 2018.
Mark Zandi: Oh, so not that long ago. That's great.
John Leer: Not that long ago. That's right.
Mark Zandi: Yeah. Yeah. The thing I found that attracted me quickly to Morning Consult was, the fact that you take the University of Michigan survey, does it twice a month, I believe 500 respondents [Inaudible 00:07:09]. And you do it every single day, and you have 5,000 respondents, and I go with... And then you can break down the results into all kinds of demographics.
John Leer: Yeah. So we dive in deep income, geography generation, and there's certain points, political affiliation. There are points in time, where different demographics matter more than others, and you just have to have the large sample sizes, and that demographic depths to be able to do that work. One of the things that's been really exciting for us is just, starting to use the features of the high-frequency data, to start doing more and more forecasting, and nowcasting.
Mark Zandi: Now, it's great to have you. Well, here's the game plan, John. So I want to talk about Russia, Ukraine, because that's top of mind. And I know you guys-
John Leer: Yes.
Mark Zandi: Cris, you passed around your survey for attitudes towards, I think Russia, across the world. And I'd like to dive into that a little bit, and then we're going to play our statistics game, we'll describe that when we get to it. Always a lot of fun. I'm usually the winner of this game, john, you should know.
[crosstalk 00:08:16] special [Al Bell 00:08:17] for me. [inaudible 00:08:19], but we'll play that game. And then, I do want to dive into more of your survey work. Obviously, consumer sentiment is very dour.
John Leer: Yes.
Mark Zandi: At least by the University of Michigan survey, it's very dour, and I assume you're showing the same results, but I want to talk about that, why? And, what's going on? And, what does it mean? I know you're doing lots of other surveys, and we can dive into that. I think we could talk for three days, but we'll keep it to an hour, hour and 15 minutes, something like that.
So with that, let's talk about Russia, Ukraine. Maybe I'll turn to Cris first. Cris, what is your sense of this? We're doing economic forecasting, we have to make assumptions around events like this, and what it means, what should be in our baseline scenario. By the way, we had a podcast a couple days ago with [Gaurav Ganguly 00:09:14], the guy who runs our operations in Europe. Around this issue, I thought it was very informative, but Cris, do you want to just give people a sense of, how we're thinking about things, and how this might play out, and what it might mean for the economy, we can then turn to John's survey results.
Cris deRitis: Sure. So I guess, first and foremost, the situation continues to evolve, right? So our views continue to evolve as well. But from a baseline view, I believe I'd sum up the US status-quo, that they will continue to be this tension, certainly between Russia, Ukraine, Europe, and the rest of the world, around the status of Ukraine. The troop build ups and movements will continue for a while, but we fall short of an actual full scale invasion by Russia, of Ukraine. A whole good chance that they do take over the Eastern parting of the country, that the [inaudible 00:10:18], which are already under their influence to a large degree, but unlikely that they would go much beyond that. That's at least our baseline working assumption.
Mark Zandi: So there is an invasion? Or [inaudible 00:10:32], and pick your word.
Cris deRitis: Conflict. Yes.
Mark Zandi: But it's limited to Eastern provinces, where the Russian-speaking population is large, and they do not go all the way to Kiev, the capital of Ukraine.
Cris deRitis: Correct. At least in terms of military force. Right? There will continue to be provocations, Russia is very likely to continue to insert itself in Ukrainian politics, winning the information campaign, if you will. But in terms of a military effort, our baseline suggest that they will not go beyond that region.
Mark Zandi: And in the baseline, what's the macro impact of that, on the Russian economy, on the European economy, on our US economy?
John Leer: So then we get into the question of the European response or Western response, do you expect sanctions? If this does occur, the only way there would be no sanctions, or tree of sanctions, at this point would be some type of peace agreement, or if Russian troops back off entirely. So there will be some response, but under this scenario, it's likely to be somewhat targeted. Right? Certain individuals, certain banks, perhaps, certain parts of the financial system, but nothing full-scale, in terms of a strong response, unless there was a full-scale inversion. So we expect that the Russian banks, for example, will continue to be members of the SWIFT network, they will continue to be able to conduct financial transactions across borders, but certain individuals are likely to be sanctioned, much as was done after the Crimean conflict.
The price of oil, price of gas, is likely to remain quite volatile, elevated. Especially, if there is this initial incursion, as I have to described. Undoubtedly, oil and gas prices will rise. If it stops though, if again, if Russia doesn't go beyond that region, it's likely that we will see things stabilize and calm over time, but unlikely that all prices would retreat to levels that we had prior to the last couple of months, unless we have other coming online. So there might be supply responses from the US, Middle East, that could increase and lower the price of oil. But in terms of the conflict itself, the impact on prices is like likely to remain high. We expect that the Nord Stream 2 project will continue to move forward. Very important, of course, for [crosstalk 00:13:15].
Mark Zandi: That's the pipeline from Russia to Europe, that is-
John Leer: Correct.
Mark Zandi: I think it's been built, it just hasn't been actually opened yet.
John Leer: Turned on.
Mark Zandi: Yeah. Turned on.
John Leer: So again, because of the importance to Europe, and how vulnerable Europe is from an energy standpoint, they really can't afford not to import that gas. So that's likely to move ahead. And as I said there, in terms of financial markets, there's likely to be this risk premium, the Russian economy will continue to remain under stress, but over time that impact should be lessened.
Mark Zandi: So it sounds pretty modest. I mean, obviously in Europe, it'll be more of a deal because of the higher natural gas prices, and one third of their natural gas comes from Russia. But for the US, rest of the global economy, not that big a deal, in this scenario, where they [inaudible 00:14:12].
John Leer: Correct. In this very specific baseline scenario, we could certainly paint a darker picture, and we have.
Mark Zandi: Yeah. My sense is that, and I'm curious, Ryan, what you think of this, that the conflict is already embedded in oil price, to some degree, that about-
John Leer: To some degree, yes.
Mark Zandi: Yeah. We're sitting at $90 a barrel, let's say on WTI, West Texas Intermediate, if this had not had happened. And the timing also matters, because there was... Inventories were already very low, because of the demand supply dynamics and the energy, and oil market. So you have no inventory, then you get an event like this, it amplifies the price effects. My guess is, about $10 a barrel. We'd be closer to 80, maybe, if we had not seen this. And translate that, Ryan, does that sound right to you? And can you translate that into, what it means for gasoline prices, and what it means for how much Americans are paying at the gas pump? I mean, I've got some heuristics in my mind, you have heuristic is a rule-of-thumb that can help you answer that question. Or do you want me to take a crack at that? Or do you have a view on that? Have you thought about it?
Ryan Sweet: Yeah. I mean, the thing that I pay really close attention to, is wholesale gasoline prices. They lead prices that you and I pay at the pump by two weeks, and they point towards higher gasoline prices over the next, a couple of weeks. I mean, what's your rule-of-thumb?
Mark Zandi: Well, for every 10 bucks, it's about 30 cents a gallon of gasoline, sustained.
Ryan Sweet: Sounds about right. Yeah.
Mark Zandi: Every penny is about rounding, 1.5 billion in additional consumer spending over a year, so you do the arithmetic-
Ryan Sweet: Reduction. Reduction.
Mark Zandi: Oh yeah, reduction in consumer spend. So that gets you to no more than 50 billion, 50 billion is 20.2%, point two, five percentage points of GDP, a quarter point of GDP. How about that, for-
Ryan Sweet: I'll throw some stuff on top of that. So the impact might be muted by a 2.6 trillion that we have in excess savings.
Mark Zandi: True.
Ryan Sweet: Which is that additional savings that occurred, if we had kept pre-pandemic saving trends. And then also, oil could be a net positive for other parts of the economy. So you're going to see mining in... Or investment in mining shafts and wells, which is about 10% of non-residential structures investment. That's going to pop. So you could see that part offset, be dragged from consumer spending.
Mark Zandi: So the bottom line here is that, under the scenario where Russia invades, and stops in the Eastern provinces, that this is no big deal, in the grand scheme of things. I mean, it's not helpful obviously, inflation's already high, we're just adding to it, but it's not like a game changing event, in any respect.
Ryan Sweet: No, I think one thing that you, Cris, and I would probably have to sit down, if this thing does escalate, we get a supply shock for oil. Typically, the Fed eases into supply shocks, this time around they won't. So that could magnify the impact on financial market conditions, and then spill over into the economy.
Mark Zandi: So, John-
John Leer: [inaudible 00:17:20] asked earlier, Mark, about whether or not financial markets had baked in this risk premium. And I can tell you that, consumers definitely are baking it in already, so we're starting to see pretty dramatic changes from November's, through January with a growing share of Germans, Italians, saying that they expect prices to continue to rise, that they think that they're going to have a hard time meeting their energy and utility bills. As it so happens, those are also the countries that are more dependent on Russian gas, than let's say France, which is gone a different direction, and maintained a lot of this nuclear energy. So I think, one of the things is, it just exposes how volatile the energy situation in Europe, even prior to this escalation.
Mark Zandi: Oh, that's interesting. So in your surveys across the world, you're seeing-
John Leer: That's right.
Mark Zandi: In those places that are more dependent on Russian oil, gas, that people know this.
John Leer: Correct.
Mark Zandi: And their expectation is that, I'm going to be paying a lot more than compared to places like the United States, or you mentioned France, where they're not quite as reliant. Interesting.
John Leer: Right. Yeah. I mean, you could use that as a simple test, compared to German and France, some sort of a shock, and see how two different countries respond differently to the shock.
Mark Zandi: Yeah. Yeah. Of course.
Ryan Sweet: You know something that we should do? We should look at the share of consumer spending that goes towards natural gas, gasoline in European countries, versus in the US. Because in the US, it's about 1%, we spend 1% of our spendings on gasoline, roughly the same for natural gas. So it's really, really low.
Mark Zandi: Oh, is that right?
Ryan Sweet: Mm-hmm (affirmative).
Mark Zandi: I thought it was a bigger share of the pie than that. No?
Ryan Sweet: It's dropped a lot. Since 2008, when we had the last big jump in oil prices, the share of consumer spending going towards gasoline has dropped quite significantly.
Mark Zandi: I think Ryan, I think it's got to be more than that. Right?
Ryan Sweet: Mm-hmm (affirmative).
Mark Zandi: Yeah. It's got to be 3, 4%.
Ryan Sweet: No, no.
Mark Zandi: Because energy [crosstalk 00:19:14], total energy, CPI, is six, seven per... Okay, this is what we bet.
Ryan Sweet: Yeah. [crosstalk 00:19:19] pull up right now.
Mark Zandi: Yep. The CPI, it's 6, 7%. The CPI, total energy though.
Ryan Sweet: Yeah. But that includes a bunch of other things, you're talking about, just gasoline.
Mark Zandi: Yeah.
Cris deRitis: Fair, fair.
Mark Zandi: Fair.
Ryan Sweet: Gasoline is [crosstalk 00:19:30] spending. All right. Discuss, I will [crosstalk 00:19:34].
Mark Zandi: Okay, we'll discuss. All right. Hey, John, I know you also... Morning Consult did a survey of attitudes towards Russia, in different parts of the world, US and different parts of the world. Can you give us a sense of what that told you, or is telling us?
John Leer: Yeah, certainly. So my colleague, Jason McMahon, who runs our geopolitical risk team has been sort of leading the charge on this front. Looking, not only on how people view Russia, but also how Americans are thinking about military intervention. What share of Americans want to go in? Under what conditions would they be more willing to? I think what's surprising to me is, we live in this hyperpolarized world right now, where seemingly Democrats and Republicans can't agree on anything. And yet in this particular case, they all agree, they don't want to go in. They would much rather prefer sanctions to any real-direct military dimension. And I think the only scenario where that changes is where Russia, not only takes control of the Eastern provinces, but actually invades all of Ukraine, and then Americans start saying, "Yeah. Actually, we should go in."
Mark Zandi: Oh, okay. So that's the line for most Americans?
John Leer: That's right.
Mark Zandi: If they're in Kiev-
John Leer: If they occupy all of Ukraine, then it warrants troop-
Mark Zandi: Troop.
John Leer: Yeah. US troop intervention.
Mark Zandi: Okay. [crosstalk 00:20:58].
John Leer: That's a pretty high bar.
Cris deRitis: Yeah. Yeah. If I recall correctly, more Democrats.
John Leer: That's right. Yeah.
Cris deRitis: I mean, in that direction than Republicans, which I found interesting. Right? It's not typically what we would think.
Mark Zandi: The other thing I took away from the survey was, you did, also asked Russians what they thought of all this, and the Russians were pretty supportive, I thought. Weren't they? Of the whole thing.
John Leer: Yeah. I mean, I think that's one of the challenges of... Or not with the challenges, the insights that you get from doing surveys here, is that you don't really know how people in Russia, China, India, Turkey, some of these countries that are a little bit more closed to outside media influences, feel about the world. And so I think we continue to see that. Yeah, that Russians are generally supportive of BOOM. I think they're less aware of, how we are to a real-pending military invasion, and I think folks in the US are, and that might be clouding their view of supporting the current path that BOOM's taking.
Mark Zandi: Yeah. It made me think that, this is another reason why Putin might invade, because politically, internally, it's playing pretty well.
Cris deRitis: Right.
Mark Zandi: So, he doesn't have like the population saying, "I don't like this idea." They're saying, "Okay. I'm okay with this idea."
Cris deRitis: Right. Well, he's got a-
Mark Zandi: [crosstalk 00:22:15] right now.
Cris deRitis: He's got a strong track record, for what it's worth. I mean, I think Crimea invasion built a lot of credibility, show that there's a way of doing it.
Mark Zandi: Yeah. Yeah. Interesting. The other thing that I found, and you may not have any idea of why, it just came out, I found it bizarre. The folks in India, the population of India is very pro-Russian, at least in the context of this survey, did you notice that? Any insight there? Not that you should, I just found that very surprising. You see, I pour over your data.
Cris deRitis: Yeah. Yeah.
Mark Zandi: I'm all in your data. I'm down into [crosstalk 00:22:56].
Cris deRitis: I appreciate it. We love power use of our data, and there are a lot of insights in there. I think what's shocking to me is that, is not the case that everyone blindly assumes, that the US, and the policy approach that the US is going to take, is the right one. And I think doing these global surveys really reveals to you how much the US doesn't... There are people out there that really don't trust US, and US policy intervention.
Mark Zandi: Yeah. Hey Ryan, are you going to tell us, I told you so, or what?
Ryan Sweet: I got the numbers. So this time, last year, it was a little bit less than one and a half percent, but now it's up to 2% for gasoline, as a share of total consumption.
Mark Zandi: Okay. I think you're more right than I was. I thought it was three.
Ryan Sweet: No, no.
Mark Zandi: This is total gasoline consumption?
Ryan Sweet: Yeah. As a share of nominal consumer spending.
Mark Zandi: Okay. All right.
Ryan Sweet: And then electricity is one and half percent, and this is for the US. And natural gas is a half percent.
Mark Zandi: Okay. [crosstalk 00:23:57]. Up to 3 or 4%?
Ryan Sweet: Yeah. You add it up.
Mark Zandi: Right.
Ryan Sweet: But if you look at just gasoline, that share was three and a half, 4%, 2012, 2013. So we come down quite a bit.
Mark Zandi: Good. No, that's an interesting point. So you're saying, yeah, this isn't great for consumers, but it's not as bad as it used to be.
Ryan Sweet: As it used to be. Right.
Mark Zandi: We produce a lot of oil and natural gas, so those folks obviously benefit from the higher prices. So the net of all that is, this may not be as big a hit then some fear.
Ryan Sweet: Correct.
Mark Zandi: At least through that link between what's going on. There's many others, financial markets, you can see what's happening in the stock market.
Ryan Sweet: Right.
Mark Zandi: It's down 10%. I don't think that's all Russia, Ukraine, but say it's only 5%, you do the arithmetic there. What is that? That's probably 5% of 50 trillion, that's 1.25. John, see how good I am at this?
John Leer: Yeah. I know.
Mark Zandi: 1.25 trillion, down in household wealth, because of the stock market, probably.
John Leer: What I was going to say is, while gas is a share of total expenditures, is not what it used to be. There's never a good time for a military intervention, but this is probably one of the worst times, where households are already facing so many of these price pressures, that this is just-
Mark Zandi: Great point.
John Leer: Exacerbating a lot of those underlying concerns.
Mark Zandi: And actually, gasoline prices, no worst thing to jack the price up and really undermine consumer sentiment, which we'll come back to. And also inflation expectations, I would assume.
John Leer: Correct.
Mark Zandi: Right?
Ryan Sweet: Mm-hmm (affirmative).
Mark Zandi: Because people really form their expectations based on what they see at the pump. They're paying more at the pump, then they immediately think inflation's going to be higher.
Ryan Sweet: That's why UMich, University of Michigan, consumer confidence has gotten crushed recently. It's because the stock market, which it's very sensitive to, is down a lot, and gasoline prices are up. That's the worst recipe for UMich.
Mark Zandi: Well, maybe this is a good time to just take a dive there. John, is your survey saying the same thing, then?
John Leer: We're saying, largely the same thing. I think one of the interesting footnotes from the University of Michigan survey was, that decrease that they experienced most recently, was entirely driven by people making over a hundred thousand dollars, per year. And so I think, inflation, stocks, prices certainly drive consumers, but they do tend to drive more well-off consumers than the average person. If you think about people who make over a hundred thousand dollars a year or more, it's about 30% of the US population. So I think it overstates the case, but certainly what we're seeing is over the last five or six months, that if you were to go try to run a regression, which we're doing and explain the drivers of daily consumer confidence, that things like gas prices, tips, inflation expectations, the market's inflation expectations, and stock prices, matter more now than they have over the past. Since the start of the pandemic, and that those things like COVID cases have essentially left consumers calculation.
Mark Zandi: Yeah, I can attest to that. I took a trip for the first time in... Well, since Omicron hit, it was in Atlanta, and I didn't see a mask. I mean, there was masks in the airport and on the plane, but outside of that, I didn't see a mask. I didn't see one mask. Yeah.
John Leer: Yeah. We saw really strong, negative correlations for the first two years basically, where every time cases rose, confidence fell dramatically. I mean, it was like clockwork. And then slowly but surely over time, it took more and more cases to get a same level of decrease. There was a diminishing impact of cases essentially on consumer confidence, and it was always asymmetric, so falling cases never drove confidence higher, it just allowed consumers to go focus on other things, the employment situation, inflation, personal finance and stuff like that. And so for me, it's great that COVID cases are in the past, but now we got to go focus on the actual underlying economy. And it's not clear to me that that's so positive, that you're going to see some bounce back and consumer sentiment this year.
Mark Zandi: Now on the UMich survey, it's currently at this lowest level... Since the pandemic, you have to go all the way back to the early recovery, after the financial crisis to find sentiment, by that measure as low as it is today. Is that the same with the Morning Consult?
John Leer: It's not the same. We're not as far down as we were at the debts of COVID. And again, I think a lot of that has to do with the fact that, a lot of people... And we saw this in the January job report, for a lot of people they're working, and wage gains have done a reasonably good job of keeping up with inflation. So if you're talking to people on the phone who tend to be a little bit older, tend to be a little bit wealthier, all of those inflation concerns are going to matter a lot more for them.
Mark Zandi: Yeah. Well, since we're on the subject, the one thing that I've found a bit perplexing, and maybe you can make sure I got the facts right here, is that, despite the weaker sentiment, pick your measure more Morning Consult, you [inaudible 00:29:12] were weaker, doesn't seem to affect the consumer spending. Like Christmas, we saw the retail sales for January come out, and by the way, we'll get to the statistics game in just a second. But they were BOOM-like, and consumer spending year... I mean, retail sales year over year, were double digit. Some of that's price inflation, but even abstracting from that, that's pretty heady growth. So how do you square that circle John, between the soft sentiment and the strong spending? I've never seen a disconnect like that before.
John Leer: Yeah. But I think part of it is, the premise. So I'll start you by, fighting in the premise, and then I'll fight the conclusions. The premise is that, consumer sentiment is at record lows, I would say that's true, but the level is down. And actually, what we have seen over the course of January and through February is that, the change has not been so dramatic. In fact, it's been relatively constant. So I think that's one thing where I just push back that... I don't think we're in a tailspin, where every day is worse than the day before.
Mark Zandi: Yeah.
John Leer: And then the other side, it's on the jobs growth. I mean, I think that we really are seeing a lot of, in particular, what we're seeing is, a lot of lower income people looking for work, starting to work. I think that's fueling a little bit more money in people's pockets, and some of that, like I said, or you said earlier is driven by inflation. Right? Those are nominal values.
Mark Zandi: Got it. Okay. Okay. But it sounds like, that you think the consumer sentiment numbers will start to improve, become more consistent with the consumer spending numbers here, going forward. This gap is widened up for a range of reasons, but that gap will close going forward. Okay.
Cris deRitis: Yeah, I would expect. I mean, what we see is that, in general consumer sentiment tends to be highly responsive to downside risk, and then it takes a long time to recover. And so my baseline is that, we're going to need another six months of pretty steady economic improvements, and then I would say also on the policy front, we need... The Ukraine, Russia stuff is not doing us any favors. Any of that uncertainty is what makes it harder and harder for consumers to upgrade their assessment of the economy.
Mark Zandi: Great. I did want to ask one methodological question, and I promise we're going to get to the game soon, guys. I know, Ryan's [inaudible 00:31:51].
Ryan Sweet: The suspense is killing.
Mark Zandi: [inaudible 00:31:53] suspense is killing him. Because, I've got a great statistic. But the surveys you run, they're online, correct? They're online surveys?
John Leer: Entirely online.
Mark Zandi: Okay.
John Leer: That's correct.
Mark Zandi: And the other surveys, I think they're moving obviously more to online, but it can be a mix, online phones. I don't think there's anyone doing paper anymore, is there or actual phone calls?
John Leer: So the conference board for a while was doing mail in surveys, and they changed in March.
Mark Zandi: That's right.
John Leer: To doing online surveys. And I know that Richard Curtin, at the University of Michigan, has a few proposals out there, where they're thinking about moving online, but I think maintaining the continuity of that time, they're trying to figure out way to do that while maintaining the continuity of that time.
Mark Zandi: Oh, they're still using phone call?
Cris deRitis: They're still calling people. Right. [crosstalk 00:32:38] think about a lot of response rates. The premise of Morning Consult, was the future of survey reachers is going to be driven by addressing this really significant problem with decreasing response rates. If you go look at 25 to 34 year old women, they do not pick up the phone from random numbers. And so you've got to find a way to deal with that, and I think one way is to talk to 6,000 people every day.
Mark Zandi: Well, either do 60 year old white men either, they don't pick up the phone.
Cris deRitis: That's right.
Mark Zandi: Yeah. So-
John Leer: There's certain populations that, disproportionately, don't answer unknown numbers.
Mark Zandi: So is there any difference?
Ryan Sweet: [inaudible 00:33:14] online, either. Right?
Mark Zandi: What's that?
Ryan Sweet: They might not go online.
John Leer: They might not go online. I think one of the premises, particularly in the US, is that the online population is growing. Online penetration is pretty high and growing. And then, as we think about the developing economies, the similar thing is going on there, particularly as people are on their phones, more and more.
Mark Zandi: Do you think, [crosstalk 00:33:34]. Oh, sorry.
Ryan Sweet: I'm sorry.
Mark Zandi: [crosstalk 00:33:36] exact same question I was going to ask. [inaudible 00:33:37].
Ryan Sweet: Coming back to the Russian opinion pool statistics, especially, right? How much confidence do you have, in that number, for example? Russian's saying that, yeah, they support the efforts, but it's all online, and we know they're cyber attacks and people watching. Right?
John Leer: I mean, so if I were in Russia, it would be very hard for me to say that I didn't support something that Putin's doing. And I think that's probably true online or over the phone, and the same as true in Turkey, or China, to some of these other more authoritarian regimes. In the case of the US, where we're fortunate enough to live in a fairly free-local democracy. What we tend to see is that people, particularly good on things that are really sensitive, so things like somebody's personal finances, or the health of their marriage, or even their voting history, they tend to be a little bit more willing to tell the computer what they're thinking, or what they're planning on doing, as opposed to online. Sorry, as opposed to phone service.
Mark Zandi: There's biases in every survey.
John Leer: There's biases. In every economic measurement, I take a step back. Every economic measurement has air.
Ryan Sweet: Sure.
Mark Zandi: Sure. But you're saying, the biases here are no worse than, and probably better than, the traditional way of calling people, or taking mail and survey results.
John Leer: That's right. And then just the frequency and timeliness of it too.
Mark Zandi: Frequency and timeliness. Yep. Yeah. That's intuitive to me. Okay. Let's play the game. Okay. Can I go first?
Ryan Sweet: Yes, of course.
Cris deRitis: Yes.
Mark Zandi: So here's the game, John. So the game is, we each lay out a statistic, and the rest of the group tries to figure out what it is, through deductive reasoning. For the non gas, that's us, the statistic has to be from this past week. So anything that happened this past week.
Ryan Sweet: Oh, okay.
Mark Zandi: And the best statistic is one that's not so easy, that it's a slam dunk, but not so hard that there's no possibility that the person will get it. But you, John, free reign, you can do whatever you want, you're a guest. The bar is-
John Leer: I will tell you this, the statistic that I had is not from the most recent week, but it is the most recently published.
Ryan Sweet: Okay. That works.
John Leer: Statistic into series.
Ryan Sweet: That's good.
Mark Zandi: Yeah. That works. That works. Hey, why don't we go with you first then? That sounds pretty intriguing.
John Leer: All right.
Mark Zandi: Yeah. Let's do that.
John Leer: So here's the number, and this is no reference, I'm fresh to all of this. It's 1,691,000, and I'll say US adults.
Ryan Sweet: [crosstalk 00:36:19] from the employment numbers.
John Leer: What are the rules for confirming people's guesses? [crosstalk 00:36:25].
Mark Zandi: You say, yes.
John Leer: Yes, yes. Correct.
Mark Zandi: Exactly, right. So it's in the employment report?
John Leer: Correct.
Mark Zandi: Oh, 1,691,000.
Ryan Sweet: Is it a change?
John Leer: It's not a change, it's a level.
Ryan Sweet: So it's a level? All right.
Mark Zandi: It's in the household statistics, not in the-
John Leer: It's in the household surveys, correct.
Mark Zandi: The household survey is a survey of households, is the basis for the unemployment rate and labor force, as opposed to the payroll survey, the survey of businesses. Okay. That makes sense.
Ryan Sweet: Does that thing to do with long-term versus short-term unemployment?
John Leer: It does.
Ryan Sweet: I got to figure out which one it is.
Mark Zandi: Yeah. That's the number-
Ryan Sweet: The number of long term.
John Leer: It is. Wow, I am really, really impressed. That was more rapid than I could have guessed.
Mark Zandi: Very good. So when you say long-term, that's the number of people that have been unemployed for more than-
John Leer: 27 weeks, or longer.
Mark Zandi: 27 weeks.
John Leer: And I think, yeah.
Mark Zandi: Is that down? That's got to be down.
John Leer: It's down. And I mean, the reason I picked it was just, I thought, going back to March, February, March of 2020, I was going to anticipating some prolonged period of long-term unemployment. And we have seen this just snap back in a way that is so different than what we saw in 2008 and 2009, where you had such persistently elevated levels and points. I think part of that is, on the labor force front. Right? So that number skews things, because people just dropped out and stopped looking for work. But nonetheless, I think it's a sign of just taking a step back and remembering how robust this jobs recovery has been, relative to some of the others.
Mark Zandi: Yeah. Good point. Here we are, two years after the pandemic hit and the labor markets come, not all the way back-
John Leer: Not all the way back.
Mark Zandi: It's getting there. Do you know what it was roughly before the pandemic? The number of long-term unemployed?
John Leer: I think it was closer to, I want to say 1, 3, 1, 4, something like that.
Mark Zandi: Okay.
John Leer: So we're ballpark. Yeah. We're close closing in.
Mark Zandi: We're closing in.
John Leer: And that's not accounting for population growth too. So there's something there.
Mark Zandi: Yeah. True. Yeah. Good point. Yeah. I mean, I think if you add up, we're still at a 4% unemployment rate. We were three and a half before the pandemic, and you consider all the folks that have stepped out of the workforce, even accounting for retirees that, let's assume they don't come back, and then you consider the growth and the working age, or the working age population, since the pandemic hit, we're still down probably I think 4 or 5 million jobs. But if you do the arithmetic, we're creating 500,000 jobs per month, if we stay there for very long, certainly by the end of the year, we're there, we're at full employment. So it feels like we're getting there pretty fast. Okay. That was a good one. Okay.
Ryan Sweet: That was good.
Mark Zandi: Yep. I got mine. You ready?
Cris deRitis: Right.
Ryan Sweet: Mm-hmm (affirmative).
Mark Zandi: Ready?
Ryan Sweet: Yep.
Mark Zandi: 760,000 and 760,000. This is an amazing quinky dink, in the data this week.
Ryan Sweet: So it came out this week?
Mark Zandi: It did, indeed.
Ryan Sweet: Is it housing related?
Mark Zandi: It is, indeed.
Ryan Sweet: Okay. So you're stealing from Cris?
Mark Zandi: [crosstalk 00:39:35] go first. Because if I let him go, I might not be able to use this statistic. Yeah.
Ryan Sweet: [crosstalk 00:39:40]. Well, we had starts in existing home sales.
Mark Zandi: Okay. Which is it?
Ryan Sweet: I'm thinking, starts.
Mark Zandi: Starts, very good. Yeah.
Ryan Sweet: 760,000.
Mark Zandi: Yeah.
Ryan Sweet: Multifamily starts.
Mark Zandi: No, no. That was actually a little weak, I think 450,000, something like that, annualized.
Ryan Sweet: How deep are you going? Are we going down into [crosstalk 00:40:03].
Mark Zandi: We're going pretty deep. We're going pretty deep, but not deep enough that you should not be able to... You should [crosstalk 00:40:09], regional split. Okay. Add to two together, and you get 1.54 million. Maybe I'd start ringing a bell. 1.54 million. I think it's 1.54 million. Does that add up?
Ryan Sweet: Well, starts are 1.6 [inaudible 00:40:27].
Cris deRitis: Yeah.
Mark Zandi: Yeah. It's not starts
Ryan Sweet: Permits.
Mark Zandi: No, that was [crosstalk 00:40:30]. No, no. No. [crosstalk 00:40:31].
Ryan Sweet: We're got to go deeper.
Mark Zandi: [crosstalk 00:40:33] completions.
Ryan Sweet: Completions.
Mark Zandi: Completions. You guys, this is pathetic.
Ryan Sweet: Under construction.
Mark Zandi: Under construction.
Ryan Sweet: We're going to get there, there's only so many [crosstalk 00:40:41].
Mark Zandi: There you go, under construction. That's right. So these 1.54 million homes are under construction, 760,000 of which are single-family. 760,000 of which are multifamily.
Ryan Sweet: Oh, that's a good one.
Mark Zandi: It's unbelievable. It's uncanny.
Cris deRitis: Wow.
Mark Zandi: It's uncanny. The old time record high, 50 years ago, briefly in the early '70s, you find a time when there were so many homes under construction, and I may have this wrong, someone in the listener world will correct me if I'm wrong, but I don't think that actually includes the homes that have been permitted, but permitted, but have actually begun construction.
John Leer: That's correct. That's correct. It so happens, I was speaking with the chief of economic of the Mortgage Bankers Association, today. And that was the big divide there.
Mark Zandi: You talking to Frat and Tony?
John Leer: Yeah, yeah. Yeah, mike. Yeah. I mean, it's a record high.
Mark Zandi: You're not trying to hire him, are you John? Trying to hire Mike.
John Leer: No, no. No.
Mark Zandi: Tony, from MBA
John Leer: Just trying to learn-
Mark Zandi: Oh, my gosh.
John Leer: Trying to learn what's going on, and [crosstalk 00:41:49].
Mark Zandi: Drawn fast.
John Leer: It's a big issue. Housing is a big issue. There's a lot of homes out there, and people just flat out aren't starting them, because they know that they don't have all the supplies they need. Yeah. They don't have the lumber, they don't have the people, and it doesn't pay for them to start. And so it's-
Mark Zandi: A garage door.
John Leer: Yeah, exactly.
Ryan Sweet: There's a lumber it's expensive.
John Leer: Yeah.
Ryan Sweet: Really expensive.
Cris deRitis: Yeah.
Mark Zandi: Actually, I think the backlogs, even more than that, I was talking to, I don't know if I mentioned this on the podcast, but I was talking to a multifamily developer, a pretty good size developer in California. And he was telling me, he's not even starting projects because he's fearful that he starts, and then he can't get to the finish line with the schedule, because he can't get whatever it is, a plumbing fixture or something. So he's not even going to start projects until he has a clear line of sight to the end of the project, so the backlog may even more.
But I think that's an important statistic. I mean, I think obviously, if 1.54 million, just for context, I think the underlying rate of single-family, multifamily starts is about 1.7 Million. So that's almost one year's worth of supply, sitting in the pipeline that will come. And I think, once the supply chain issues start to iron themselves out, and I expect that to happen over the course of the year, we're going to see a lot of supply. And which we need, obviously. And it should help with house prices, and affordability, it should also help with rent growth, which is key to inflation. Obviously, CPI inflation. Won't help for this year, probably won't help for 2023, but by mid decade, I think we're going to see a lot more housing.
Cris, I just said a lot there, and you have strong views, I think on this issue, you want to push back on any of what I just said?
Cris deRitis: It's a good story.
Mark Zandi: But by the way, that was your statistic. Right?
Cris deRitis: It was not my statistic. No, I stuck to the rules. Made it survey-related.
Mark Zandi: [crosstalk 00:43:42] related, Morning Consult. [crosstalk 00:43:45]. Ryan, does it have to be survey-related?
Ryan Sweet: No. No.
Mark Zandi: [crosstalk 00:43:49] the big topic.
Ryan Sweet: Housing still consumer.
Mark Zandi: All right.
Ryan Sweet: You can make that link.
Mark Zandi: It's a survey of permitting issuing [inaudible 00:43:57].
Ryan Sweet: Oh, fair enough. Fair enough.
Mark Zandi: Exactly.
Ryan Sweet: Well, they changed some methodology there. That was-
Mark Zandi: Oh, did they?
Ryan Sweet: Yeah.
Mark Zandi: Oh, we should know that.
Ryan Sweet: Take a look.
Mark Zandi: Okay. All right.
John Leer: Sorry, Cris. In the housing starts data for December, permits jumped in the Northeast.
Cris deRitis: I saw that.
John Leer: Because of Philadelphia.
Cris deRitis: I know that. We have a huge-
John Leer: I was like, Philadelphia gets a big shout out.
Mark Zandi: Okay, Cris.
Cris deRitis: I think it's a good story.
Mark Zandi: [inaudible 00:44:22] good story.
Cris deRitis: Oh, you do? Okay. Yeah. I think you know it all fits, I just don't think we have the capacity to build that much.
Ryan Sweet: Yeah. I agree.
Cris deRitis: I don't think we can get up there.
Mark Zandi: Oh, in the next year.
Cris deRitis: As quickly in the next year or two years even.
Mark Zandi: Okay.
Cris deRitis: And then, you have interest rates rising, I think that's going to take a bite out of some of this activity as well. So I think it'll remain strong. I think the building's going to remain strong for next five, 10 years easily, just because of all the tailwinds from the demographics. But I don't think the industry has that capacity, who's going to build these homes?
Mark Zandi: You know why he's saying this, John? Because I think we have a bet. Don't we have a bet?
John Leer: Is that right?
Mark Zandi: We do have a bet.
John Leer: What's the over-under?
Cris deRitis: 1.7 million average. I just looked this up, that's how I know. Is it 1.7 Million average, over 21 and 22, 2021 and 2022?
Mark Zandi: Oh, and I need 1.8 million for that to work?
Cris deRitis: Yeah.
Mark Zandi: And would you say?
Cris deRitis: I took the under.
Ryan Sweet: Yeah. The under’s a good one.
Mark Zandi: [inaudible 00:45:21] took the under. Yeah. Well, how rude. All right. I hear you. Okay. Okay. Who hasn't gone yet? Ryan, you're up.
Ryan Sweet: All right. These numbers are perfect. Right? Because it ties in what we're talking about on the big topic, and then also everything else for the most part that we've talked about. Supply chains, inflation, these are good. So John, Mark's been on our hot run, so we got to bring him back down to earth.
Mark Zandi: We do have a count down.
Ryan Sweet: If you get these right, I'll give you the double cowbell. We have two cowbells.
Mark Zandi: Oh, really?
Ryan Sweet: Okay. All right. So the first one is positive 12.5%.
Mark Zandi: Oh, so you're not going to give us the second one?
Ryan Sweet: The second one is minus 21.3, or 22.3.
Mark Zandi: These are related, obviously?
Ryan Sweet: Different reports, but they are tied together. One is causing the other.
Mark Zandi: And one is causing the other. Okay.
Cris deRitis: Is it inflation related?
Ryan Sweet: It's not [inaudible 00:46:26].
Cris deRitis: It's not from the CPI?
Ryan Sweet: That's not the CPI, came out this week.
Mark Zandi: Retail sales?
Ryan Sweet: It's retail sales. I'll give you a hint, it's not month to month, it's not year over year, it's a different way to looking at it. But it hammers on the point.
Mark Zandi: It's not month over month, it's not year over year-
Ryan Sweet: And a change.
Mark Zandi: And it's overall. Total retail sales is not some component of retail sales.
Ryan Sweet: [crosstalk 00:46:50], it's what goes into GDP?
Mark Zandi: Oh, control retail sales.
Ryan Sweet: Okay. Now, what's the 12 and a half percent?
Mark Zandi: Oh, the control retail sales by the way, is total retail sales, X auto, X gasoline, X building materials. Because, the building materials go into residential investment. So that control, they call control retail sales, drives consumer spending.
Ryan Sweet: And it takes out restaurants.
Mark Zandi: Oh yeah, it takes out restaurants. So 12.5%, that's not year over year control retail sales?
Ryan Sweet: Mm-mm (negative). Think about when you go to the mall, you go to the map, and it says you are here, there's your head.
Mark Zandi: Boy, does that help you, Cris? You that? Yeah. [crosstalk 00:47:33] when's the last time you went to the mall, anyway?
Cris deRitis: I haven't been in a long time.
Mark Zandi: Yeah.
Ryan Sweet: We wrote about this on the site, 12 and a half percent, that's the level of control retail sales, above its pre-pandemic trend. It's enormous.
John Leer: It's a permanent shift?
Ryan Sweet: No, I don't think it's permanent.
Mark Zandi: No.
Ryan Sweet: I think it's going to come back, because we're going to get services spending, picking up over the next couple of years, so you'll see goods... There's only so much stuff we can buy, it will come back down. [crosstalk 00:47:58] that gap-
Mark Zandi: Is 21%. That can't be on the service side, is it?
Ryan Sweet: No, it's not. But we're buying a lot of stuff.
Mark Zandi: Is in the retail sales numbers too?
Ryan Sweet: It's not.
Mark Zandi: Oh, okay.
Ryan Sweet: [inaudible 00:48:12] go different survey.
Mark Zandi: But the 12 and a half, you're saying, look, that's the... Because people are sheltering in place, they spend a lot of their money on stuff, but they spend a lot... Oh, is it like spending on movie tickets?
Ryan Sweet: It's not spending-
Mark Zandi: On Broadway plays? Spending on-
Ryan Sweet: I think-
Cris deRitis: All games.
Ryan Sweet: We get two regional manufacturing surveys.
Mark Zandi: Oh, we do Philly Fed, and-
Ryan Sweet: Philly Fed, very good.
Mark Zandi: Yeah. And I don't know what the other one... Richmond Fed, maybe. I'm not sure.
Ryan Sweet: Empire State. So [crosstalk 00:48:41].
Mark Zandi: That's right.
Ryan Sweet: But it's in the Philly Fed, you're getting close.
Mark Zandi: Oh, down 21.5. I don't know. What is it?
Ryan Sweet: It is the expectations. Six months ahead of supply chain, supplier delivery. So when it's negative, it means purchasing manufacturers are expecting faster deliveries. This is the lowest it's been since 2008, so even though we're buying a lot of stuff-
Mark Zandi: [crosstalk 00:49:04] statistic.
Ryan Sweet: Supply chain problems are going to start to ease. So tied in spending with supply chains, which means inflation's going to begin to decelerate.
Mark Zandi: Hey, Ryan, this is something that's bothering me, related. Inventory accumulation is booming, because the other one of their statistics that came out this week, was business inventory, manufacturing, retail, wholesale, skyward. And I think the inventory to sale ratio, which is a good measure of your level of inventory, it's actually moving up and pretty high. So what's going on? I mean, why are we having shortages, or are we having shortages? I mean, I can't square the circle that people are saying, "I can't get this stuff." But it's like, we got a new warm inventory build going on.
Ryan Sweet: Well, the inventory build, the IS ratios are going up for wholesalers and retailers. It's pretty flat for manufacturers. So it differs.
Mark Zandi: Yeah. Okay.
Ryan Sweet: But-
Mark Zandi: Are you saying any shortages are in manufacturing? They're not in which stuff.
Ryan Sweet: Yeah.
Mark Zandi: Okay.
Ryan Sweet: Right.
Mark Zandi: Like vehicles, you got a shortage, but that's in manufacturing. Okay. That's-
Ryan Sweet: That's the manufacturing [crosstalk 00:50:15].
Mark Zandi: Building materials. But it feels like all the data is accumulating, suggesting strongly. And this is because your supply chain stress index, which is a compilation of a lot of these statistics, that things are starting to move in the right direction around the supply chains.
Ryan Sweet: They are. And I think it's a good sign that businesses are increasing their inventories, because that's going to take additional stress off supply chain. Because they're not going to have to book as many orders, in a few months to replenish their shelves, or their manufacturing plants. So-
Mark Zandi: Hey, John, so-
John Leer: Yeah, I can speak to that directly. On the US side, I mean, that's exactly what we're seeing across all the major spending categories that, when consumers go to make these purchases, it's not that they've actually... the prevalence of supply chain issues has fallen, but rather that the growth rate is essentially gone to zero. It looks like we've reached some peak supply chain disruption essentially, and that's groceries, new and used cars, clothing and apparel. The only area, and this is may be, I guess from US focused here, then we can scrap this then, but the only area where we're seeing dramatic supply chain issues is, Australia of all places, I don't know if you guys have been following this, but they've got extreme labor shortages, a flood that wiped out a lot of their transportation, and the grocery shelves are just essentially bare there. So we saw a 26 percentage point increase in the share of Australians, who said in January that they couldn't go buy the food that they were looking for in grocery stores.
Mark Zandi: I had not heard that. That's fascinating. So in the surveys you've been doing, you ask consumers about what shortages they're facing?
John Leer: That's right. So if they... Yeah.
Mark Zandi: And what you're finding is that, people are increasingly not experiencing shortages? Is that what you're saying?
John Leer: Well, I wouldn't go that far quite yet. I would say, the growth rate has essentially slowed. So we saw September to October, things got worse, October, November, things were worse, and then all of a sudden, December to January, we've seen it essentially hold constant. Particularly, for some of these goods that early on in the pandemic were driving a lot of supply sheet orders, I think about used cars. It's unclear to me, that's because there are more used cars, that there's just fewer people, consumers have essentially internalized that there's such a supply constraint that they're not going out, and trying to make those purchases.
Mark Zandi: Oh, I see. And so your sense is, of course we'll have to see what happens here, but your sense is, that this might be an inflection point.
John Leer: That's right.
Mark Zandi: Okay.
John Leer: That's right.
Mark Zandi: Your survey should start to show few and few people reporting. I'm experiencing shortages for whatever it is going.
John Leer: That's a share of total people, looking to make that purchase.
Mark Zandi: Yeah.
John Leer: So if you go look at... Yeah, sorry.
Mark Zandi: Can you give me a sense of magnitude? So what percent of your survey saying, "I'm suffering, some form of shortage."
John Leer: So I think on the high end, we're seeing like grocery sales, grocery and food items, which in January was really high, 47% of adults who tried to go buy groceries, said they encountered that the item wasn't stocked, and that's up from 41% in November. But then if you go down to something like newer or used cars, it's like 28% and that's essentially flat over the past six months.
Mark Zandi: Well, my wife, every time she comes back from the grocery store, she complains bitterly, she can't find onion salt. Do you have any idea what onion salt is? I have no idea.
John Leer: [crosstalk 00:53:50]. Feels antiquated. I mean, one of the things that's interesting is, we're tracking not only whether or not there's a supply chain disruption, but also how are people responding to it? And we do see overwhelmingly, that women are less likely to be willing to pay more for something where they're experiencing elevated prices than men. And the same is true with urban people. Urban adults are willing to go out there, and pay the extra money to get the thing. And that's not true for [crosstalk 00:54:16].
Mark Zandi: What's the intuition behind that, do you think? Is it, you have an intuition about men, women and their different-
John Leer: I think part of it has to come down to what they're out to purchase.
Mark Zandi: Okay.
John Leer: An, I think we see a lot, that women still disproportionately do a lot of the large grocery shopping.
Mark Zandi: Yeah.
John Leer: And so if they... Yeah, [inaudible 00:54:44].
Mark Zandi: It may be that, at least now it's all about me, John, as you know. So from my experience, I don't buy many things, so if I want to buy something, that's like a deal. I don't care, just give it to me, as fast as you possibly can. I don't care if it's [inaudible 00:55:00]. My wife's buying lots of stuff all the time. Maybe that's what partly what's going on.
Ryan Sweet: Is that by choice or decision? Because, you go out and when you buy stuff, you buy two of everything. So why do you have two power washers, like that your spending should be revoked right there.
Mark Zandi: Yeah. I have a hard time explaining that, there's something going on there deep down, logically.
John Leer: You have two of everything? You have duplicates of everything in your house?
Mark Zandi: No, he's making that up.
John Leer: Oh, okay.
Mark Zandi: I do have two power washers. And I don't-
John Leer: There's some interfere there. That you are afraid [crosstalk 00:55:34].
Mark Zandi: Yeah. And I really don't know why. I really don't know why. But I think Ryan joked, or my somebody joked that I bought one to wash the other.
Ryan Sweet: The other, yeah.
Mark Zandi: Hey, while we're on this subject, I think you've also done a fair amount of work on inflation expectations.
John Leer: That's right. Yeah.
Mark Zandi: Can you describe? Because I think you're working on a special measure, or-
John Leer: That's right. Yeah. Yeah. So for the last year and a half, we've been partnering with researchers from the Cleveland Federal Reserve, to try to think about a new way of measuring inflation expectations. And so really trying to understand basically, how people think about inflation. So what we're doing is, we're going out there and asking people, how much their income would have to increase or decrease to make up for changes in prices, goods, and services that they see? In the US, it's 20,000 people every week, so it's again, high frequency inflation expectations. Looking at the 12 month time horizon, we see a really dramatic increase, but it looks to me like we've plateaued, starting in December and January. Again, there was some inflection point, that the rate of growth is slowed. But globally, we continue to see inflation expectations increase pretty dramatically in places like Turkey. I mean, the places where you would expect it to happen. Places like Turkey, Russia, and Argentina, they were all month over month, they showed really large increases in inflation expectations.
Mark Zandi: There's this debate in raging about, or at least raging in my own mind, about the source of inflation, whether it's demand or supply, and of course it's both demand and supply.
John Leer: It's both. Right.
Mark Zandi: Yeah. No one's arguing that. But predominantly, this uncomfortably high inflation we're suffering through right now, whether that it's supply-driven, we talked about global supply chains and labor markets, as opposed to demand-driven, which I would argue this time last year when we got the vaccines, and people started spending, and we had the American Rescue Plan, and had help people spend, that was more about demand, but now it feels more like supply. In any of your survey, or in your survey work or any of your own thoughts around that debate, I'm really curious what you think about that, if you have some views on that.
John Leer: I think on the demand front, we continue to see that spending is overallocated towards goods relative to services, that I think a lot of us had expected by now, that we would start seeing more and more people move away from these large durable goods purchases and into the services sector, and that just flat out hasn't happened. And so, it's not super surprising me that there's a concentrated amount of money chasing these relatively few goods. And it just so happens, that they tend to be the ones that are also affected by these supply chain issues. I would expect, I mean, what we're starting to see is, that consumers are growing more and more comfortable going out to in-person activities. I think, in DC here, they're removing the mask mandate, they're removing the vaccination mandate. I think the same is true in New York, and some of the other large metro areas. So I'm expecting this summer to start seeing like a real boom in the services sector, and I think that's going to ease some of the price pressures. Yeah.
Mark Zandi: Price pressures. Yeah.
Cris deRitis: Travel bookings are up, right? [inaudible 00:58:57] see it. Yeah.
Mark Zandi: Yeah. That makes sense.
Cris deRitis: Let me throw in my statistic here.
Mark Zandi: Oh, yeah. I'm sorry, Cris. I nearly forgot.
Cris deRitis: No problem. This is going to be-
Mark Zandi: He really wanted to play, he wouldn't even wait. Go ahead.
Cris deRitis: 3.5%.
Mark Zandi: 3.5?
John Leer: Is it housing?
Cris deRitis: Nope. It's not housing. [inaudible 00:59:17].
Mark Zandi: 3.5%, in a statistic that came out this week. [crosstalk 00:59:21] in the retail sales numbers?
Cris deRitis: No. Nope.
Mark Zandi: Industrial production?
Cris deRitis: No, it is a survey.
Ryan Sweet: Oh, survey.
Mark Zandi: Oh, okay. It's a survey.
Cris deRitis: Very relevant to what John just-
Mark Zandi: Yeah. He's laughing, ha ha. I did the right statistics.
Ryan Sweet: Is this the New York [crosstalk 00:59:36] expectations?
Cris deRitis: Yeah. The year ahead.
Ryan Sweet: That's right. Three year ahead, three and a half, it fell by half of-
Mark Zandi: Oh, I saw that fall.
Ryan Sweet: Percentage point. Yeah.
Mark Zandi: Which is a little weird. It feels like it's rolled over too, if you look at a graph of it, it feels-
Cris deRitis: Seems like it. [crosstalk 00:59:51] both the one year and the three year ahead, rolled over. I mean, it's only one point, but they suggest that consumers are switching behavior, or they don't expect this inflation to persist.
Mark Zandi: Particularly in the context of higher gasoline prices, which you would've thought just the opposite. Right? Because it's so feels, near-term consumer expectations around inflation, feels so dominated by the movements in gas prices, at least.
Cris deRitis: I think it's gas and groceries though. I think it's both. I mean, we saw that in the CPI, right? Grocery prices are skyrocketing, contributing to CPI as well.
Mark Zandi: Yeah. Good point. Okay. Yeah. That's a-.
Ryan Sweet: I found it interesting. Yeah. That a good one.
Mark Zandi: Very interesting. That is a good one. Yeah. Very good. Hey, John, are there other survey-based insights in what's going on?
John Leer: Oh man.
Mark Zandi: You want to share? I'm just really curious.
John Leer: Yeah. So many.
Mark Zandi: Put it at the top of list. Yeah.
John Leer: So I would put at the top of list, our January measure of financial vulnerability. So we measure every month, the share of adults who lack savings to cover their basic expenses for a full month. And it hovered around 22, 21, 22%. Every time there was some stimulus injection, it fell. And then all of a sudden in January, it skyrocketed up to 29%, highest level since we've been collecting it over the past two years. And for me, it just highlighted exactly what's at stake, while we're moving beyond on COVID, we just don't have the policy support in place to provide some of those folks who are still losing their job, with additional financing. And when you pair that with inflation elevated costs, I think that there's a group of people out there that's really suffering, and that number... the total savings rate or savings income ratio, I think doesn't really reflect the fact that there's a group of people out there who are not making a lot of money, and they're really starting to eat into whatever savings they might have had.
Mark Zandi: And that statistic is the percent of respondents that say they don't have enough to pay for all their bills in that given month?
John Leer: Correct.
Mark Zandi: Right. That feels like Child Tax Credit. Right? Because that expired in January. And that would not be surprising to me, that you'd see 5, 6% percentage points, more of folks saying, "I can't pay my bills as a result of that."
John Leer: Yeah. Historically, there was a pretty big bump when the $600 federal unemployment insurance benefits expired last year. And then this year, we had the $300 benefit expire in September, and we didn't really see a move in the number. It was just plotting along at 22%, and then all of a sudden in January, it skyrocketed. I think in February, it's likely to come back down a little bit. We haven't had the weekly unemployment, insurance numbers have not been as high as they were in January. So I don't think that their disruptions to the income like they were before.
And then I think the other thing to note is, maybe just, we're tracking the share of part-time workers who want to work full-time, and that number continues to rise. It has risen every month since June, I think we're up now to something like 55 or 60%, so it's been up from 30 or 35% in June. So a lot of these part-time workers want to work full-time, and they can't quite figure out how to do it, they've got childcare issues, healthcare. I mean, there are all these binding constraints that are preventing them, but there's something to be said about... There's something said about the intensive margin, that they're people who are working a little bit, they'd like to be contributing more hours.
Mark Zandi: Is this because there aren't full-time jobs? It doesn't feel like that would be the case.
John Leer: I don't think that's the case.
Ryan Sweet: No.
Mark Zandi: Yeah. They just can't get their lives in a place where they can actually work full-time?
John Leer: Correct.
Mark Zandi: Yeah. Interesting.
John Leer: Yeah.
Mark Zandi: Yeah. Very-
John Leer: What else? Maybe, the last thing that's interesting is the global recovering confidence. So we're tracking the largest fifth team global economies, and since July of this past year, 2021, that was the peak of the GDP weighted recovery in consumer confidence. And every month, since then, we've seen a gradual decline. So this idea that we're going to continue to bounce back in perpetuity, I think, is behind us, and that's start with Delta, and then move to Omicron, and then inflation, we've just had this litany of factors that have weighed on the global front, I think a lot more than we maybe appreciate here. And in the US, we had Delta and Omicron, and those were separate things. In Europe, that was basically one-
Mark Zandi: Big thing.
John Leer: Big thing. Yeah.
Mark Zandi: Yeah. Hey, just one last broad question, because you joined Morning Consult, and started looking at the data prior to the pandemic, do you get a sense, generally that the pandemic is weighing on the collective psyche? I mean, that people just inherently are just generally more pessimistic than they were pre-pandemic, or can you tell that from your work?
John Leer: I mean, certainly the levels remain well below what they were in 2019 and 18, that people... There's a smaller share of the population that believes that they'll be well better off financially a year from now, when they are currently. And so I think that's a lot of it, and then I think what we continue to see is, just how differently people across this country have experienced the pandemic, that we talk about the average American, but I just think that under $50,000 in annual income group, is not going to bounce back from this pandemic. Economically, I should say.
Mark Zandi: Yeah. Hey Ryan, Cris, any questions for John?
Ryan Sweet: Yeah. Just on that last note, one thing I find interesting from the University of Michigan survey is the political divide. Right?
Mark Zandi: Mm-hmm (affirmative).
Ryan Sweet: Yeah. We have confidence weighing down, but it's driven by the Republicans, right? There's a very vast chasm between the two. And I wonder how that figures into your thinking around the survey results. You mentioned the difference between the soft data, people saying they're not confident, but then going out and spending anyway, is that political divide? Something you think is getting more intense in the survey results, or? Any thoughts about that?
John Leer: So in general, there's a level difference. So you can see that Democrats are general, more confident in the economy than Republicans, and that's even after controlling for things like income.
Ryan Sweet: Right.
John Leer: But if you do a rolling 30 day, percent change or something like that, those trends are right on top of each other. And so, what was really interesting is, we started to see in that trend line, a divergence, starting in August and September. One could argue that's driven by politics, but as it so happens, a higher share of older Americans are Republican, and a higher share of Republicans live in the middle of the country. And both of those groups are groups that were disproportionately affected by rising prices. And so I think, it's hard for me to say, conclusively that's a political phenomenon, and not driven by the reality of inflation, affecting different groups of the different population cohorts, differently.
Ryan Sweet: A good point. I guess what gives me pause is, if you go back historically, you look around elections, it flips. Whoever's in the White House [inaudible 01:07:37].
John Leer: It flips, that's right.
Ryan Sweet: Suddenly, my opinion has changed the next day. Right? Before any policies. Before the person's actually in office, right? I'm feeling very confident.
John Leer: I mean, it's like clockwork. It's like, as soon as the election happens, there's this total reversal. Again, it's one of the reasons why I just almost exclusively look at some change over time.
Ryan Sweet: Yeah. That makes sense. Yeah.
Cris deRitis: And it's not just consumers, if you look at the small business competence survey, and FIB, for sure, small business are very pessimistic about the economy's prospects, or a Democrat in office, and then it flips, there's a Republican. So it's not just consumers. So one question, or thought I had was, around that financial vulnerability, we're in tax season, and the average tax refund, so far is $800 less than we put, was the average last year. And again, that's to Mark's point about the Child Tax Credit. So maybe it comes back to down in February, but so far refunds are averaging a lot less than what we've seen over the last few years. So that might keep it elevated for a period of time.
John Leer: What do you think is driving that? Is that just because incomes are down?
Ryan Sweet: I think it's the childcare tax credit.
John Leer: Because people had, they-
Ryan Sweet: You can't deduct all of it.
John Leer: They can't deduct all it.
Ryan Sweet: Yeah.
Mark Zandi: Yep. That makes [crosstalk 01:08:53].
John Leer: We looked at it, and what it looked like to us when we looked at people who received the Child Tax Credit was that, it intended to disproportionately go to higher income people, because they have more kids. I know that's a super counterintuitive group, thought process, but if you look at this, a hundred to 150,000 annual income group, those are the people who tend to be married and they tend to have more kids, and so they get a large... Their check was larger than lower income people. It's not to say that a smaller dollar value could be more valuable for lower income people, and helping them to pay their bills, but just in terms of the sheer dollar value, it looked to us like it was going towards slightly higher income.
Mark Zandi: Although, the percent of children that have been lifted out of poverty, is pretty impressive.
John Leer: Correct. Correct.
Mark Zandi: Or lifted out of poverty, I should say. Well, John, I want to thank you, this was very thoughtful and insightful. So what's your mood like? How are you feeling? Thumbs up, thumbs down?
John Leer: I feel pretty good. We spoke about this, I went into the office for the first time this week, and so I'm feeling pretty good that we're going to get back, and live some sort of new, normal life.
Mark Zandi: Yep. Fantastic. And Cris is already back in, he needs some company though. Ryan, are you going back in anytime soon?
Ryan Sweet: Going Friday. I'm going to see Cris on Friday.
Mark Zandi: All right. Oh, okay.
Ryan Sweet: We might do the podcast in the conference room.
Mark Zandi: Live. Wow.
Ryan Sweet: We could do it live.
Mark Zandi: Okay. Very good. Well, you're going to have to wait a little bit longer for me. I'm still safely in Lincolnton, Florida. So I'll be back soon though.
Ryan Sweet: The weather is warmer here. [crosstalk 01:10:31] warming up.
Mark Zandi: Fifties today. I'm just saying, it's [crosstalk 01:10:34] out here right now. Sunny. And I won't even show you.
Cris deRitis: All right. All right.
Ryan Sweet: What's your threshold, Mark? What's the temperature have to be, to get you back up to Philly?
Mark Zandi: 70. I mean, geez. Yeah. I might do that might do it.
Ryan Sweet: So we'll see in April or May.
Mark Zandi: Yeah. April or May. Yeah.
Ryan Sweet: Yeah.
Mark Zandi: Well, @Markzandi, just saying. John, what's your Twitter?
Cris deRitis: @JohnCLeer.
Mark Zandi: There you go. And Mr. Ryan?
Ryan Sweet: @RealTime_Econ.
Mark Zandi: And Cris, I know you have-
Cris deRitis: I'm on LinkedIn. Find my LinkedIn.
Mark Zandi: He's a LinkedIn maven. And any suggestions about future podcasts? Please let us know, you can go to Economy.com, and vote, and let us know what you want us to chat about, and we will certainly do that. And with that, we'll call this a podcast, take care everyone.
