Mark, Marisa, and Cris break down this week's flood of economic data and explain how new auto tariffs will affect consumers and the overall economy. Their conversation addresses important concerns about the quality and availability of government statistics as they consider private-sector alternatives. They wrap up the episode with the ever-popular "statistics game" highlighting key economic indicators and with responses to listener questions.
Mark, Marisa, and Cris break down this week's flood of economic data and explain how new auto tariffs will affect consumers and the overall economy. Their conversation addresses important concerns about the quality and availability of government statistics as they consider private-sector alternatives. They wrap up the episode with the ever-popular "statistics game" highlighting key economic indicators and with responses to listener questions.
Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s Analytics
Follow Mark Zandi on 'X', BlueSky or LinkedIn @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn
Mark Zandi: Welcome to Inside Economics. I'm Mark Zandi, the Chief Economist of Moody's Analytics, and I'm joined by my two trustee cohost, Cris deRitis and Marissa DiNatale. Hi, guys.
Marisa DiNatale: Hey, Mark.
Cris deRitis: Mark.
Marisa DiNatale: Happy Friday.
Mark Zandi: What was that?
Marisa DiNatale: I said happy Friday.
Mark Zandi: Happy Friday. Happy Friday. I like these podcasts where it's just the three of us sometimes.
Marisa DiNatale: Me too.
Mark Zandi: Right?
Marisa DiNatale: It's a little freer.
Mark Zandi: You feel freer? I feel free.
Marisa DiNatale: I do.
Mark Zandi: Yeah, I don't feel constrained. You must wonder what happens when I'm unconstrained then.
Marisa DiNatale: Yeah, I would love to see that. That would be a podcast with just you.
Mark Zandi: Pretty ugly. Pretty ugly.
Marisa DiNatale: Just talking.
Mark Zandi: Yeah. So, how are you guys doing? Everyone okay? A good week?
Marisa DiNatale: Yeah. We had our webinar earlier.
Cris deRitis: What's going on? Yeah, we had the webinar on Tuesday.
Marisa DiNatale: Oh, yeah.
Cris deRitis: Months ago.
Marisa DiNatale: It does feel like that was like a week ago, but it was a few days ago.
Mark Zandi: Great title too, which you came up with, Marissa, Trump Tariffs and Tail Risk. I thought that was a pretty cool... I think that explains all the people who, I think we had 1600 people on the webinar, didn't we? Something like that.
Marisa DiNatale: Something like that, yeah.
Mark Zandi: Yeah. I haven't seen the feedback yet.
Marisa DiNatale: Nor have I. No.
Cris deRitis: Neither.
Mark Zandi: I take that feedback very personally.
Cris deRitis: I know.
Mark Zandi: If someone's unhappy, we actually call them up and say, "Well, what the hell? Why are you unhappy?"
Cris deRitis: Yeah. You ignore the 99 people who said, "It was great. I loved it." "Ah, could have been better."
Mark Zandi: Well, here's the thing. I've been doing webinars since the beginning of time. I don't think I've ever had a webinar where I've had perfect feedback. There's always somebody. There's always somebody, right?
Marisa DiNatale: Absolutely.
Mark Zandi: Especially in this day and age. Because given the political environment, hard not to get someone upset about something.
Marisa DiNatale: We did get a comment during the webinar.
Mark Zandi: Did we?
Marisa DiNatale: That someone was... Yeah. About we were being...
Cris deRitis: Biased.
Marisa DiNatale: One sided.
Cris deRitis: Yeah. Yeah.
Mark Zandi: Well, I want to talk to that person. Did you get the name?
Cris deRitis: Exactly. Exactly.
Marisa DiNatale: Yeah. Yeah. We'll have the name.
Mark Zandi: We'll have the name, okay. All right.
Cris deRitis: Mark, you know where you could get a great summary of that webinar.
Mark Zandi: ChatGPT?
Cris deRitis: Well, I was thinking your newsletter.
Mark Zandi: Oh, my newsletter on LinkedIn?
Cris deRitis: Yes.
Mark Zandi: Yeah, it's called Inside Economics.
Marisa DiNatale: Way to tee that up, Cris.
Cris deRitis: Thank you. I tried. I tried.
Mark Zandi: Nicely done, Cris.
Cris deRitis: I tried.
Mark Zandi: The two of you are like LinkedIn Mavens. You've been doing this-
Marisa DiNatale: I'm not. No, I'm definitely not, no.
Mark Zandi: Oh, I thought you were... You're on LinkedIn though?
Marisa DiNatale: I'm on it, but I'm not very active.
Mark Zandi: Oh, you're not very active. Because you're active.
Cris deRitis: Not as active as you.
Mark Zandi: Oh, really?
Cris deRitis: You are on there and posting right away.
Mark Zandi: Wow.
Cris deRitis: That's because I have Sarah.
Mark Zandi: Sarah's a godsend. But what was I going to ask? Oh, explain the whole newsletter thing. What's the newsletter thing on LinkedIn?
Cris deRitis: There's an option on LinkedIn where you can create newsletters, a weekly newsletter that goes out to subscribers. So, people who are linked to you, certainly they should be already getting a notification that, "Hey, there's this newsletter out there if you want to subscribe." And otherwise, if you do a search on Inside Economics, you should be able to pull that up.
Mark Zandi: Oh, so this is more like the content is pushed to you as opposed to you going to it? Is that how you think about it?
Cris deRitis: You still have to subscribe, but yeah. The thing about the newsletter is the posts are not limited as a normal post, or a regular post is. So you can have multiple charts, you have a more in depth type of article. You can have video, you can have pictures. So it's just like a newsletter, it's a richer form.
Cris deRitis: So, your first newsletter post includes a full summary, really, of the webinar. All the explanations for all the different parts that we went through in terms of the tariffs and their impact. And you have multiple charts in there. It's the same article that we posted on our Inside Economics website... No, our Economic View.
Mark Zandi: Economic View, right. I'm getting lost in all the different ways we get content out there. You know the thing I like it most about that newsletter?
Cris deRitis: What's that?
Mark Zandi: I like the Ben Franklin logo. Yeah.
Marisa DiNatale: Well, that's our podcast logo.
Mark Zandi: I know. I love that logo.
Marisa DiNatale: Okay, good.
Cris deRitis: Is it just the love of Philadelphia?
Mark Zandi: No, what I like about most about it, it doesn't have that big M on it. The big Moody's M. What do you guys think of that big Moody's M?
Marisa DiNatale: We'll have to edit this part out the podcast.
Mark Zandi: No, no, no, no, no. I want people to hear this. This is authentic.
Cris deRitis: I like the apostrophe.
Marisa DiNatale: I'm on record liking the M. Yeah, I do.
Mark Zandi: Oh, my gosh.
Marisa DiNatale: I do.
Mark Zandi: Cris, see? She's sucking up to the powers at be.
Marisa DiNatale: That's not true. That is absolutely not true.
Mark Zandi: I don't know who those powers are, but you're sucking up. I can feel in my bones.
Marisa DiNatale: In fact, I started signing my own name as M, apostrophe, A-R-I-S-A.
Mark Zandi: What?
Marisa DiNatale: Marissa with an M apostrophe.
Cris deRitis: You could do it too, Mark.
Mark Zandi: Actually, now I have a different view on that whole big M thing, now that you say that. I could do that. I could do a big M with apostrophe A-R-K. Oh, man. Okay. I'll have to think about that.
Marisa DiNatale: Yeah, think about it.
Mark Zandi: My view might change on the whole M thing. What's your view on the M thing, Cris, since you don't have an M?
Cris deRitis: I don't have a strong view on the M thing.
Mark Zandi: You don't have a strong view on the M thing.
Cris deRitis: It is a nice shade of blue. I think they chose a nice shade of blue.
Mark Zandi: Right. Do you think the folks out there understand what we're talking about when we're talking about-
Marisa DiNatale: Nope, not at all.
Mark Zandi: Oh, really? Okay.
Cris deRitis: Nope.
Marisa DiNatale: Probably not.
Mark Zandi: Just think Moody's big M.
Marisa DiNatale: Moody's, right. So, when did this happen? I guess last year Moody's changed its branding, and Moody's changed its logo, and color. It was a big to-do, internally at least.
Mark Zandi: And very expensive, I'm sure.
Marisa DiNatale: And obviously, it was very divisive here, whether people like that new logo or not.
Mark Zandi: That's right. Okay. Well, we all have a view on the M, that's for sure. All right. But we better move on. Even though I love the chitchat, I could just chitchat all day with you guys, but we better move on to the economic data.
Mark Zandi: Plethora of data. I haven't used that word in a while, plethora. It's a good word, don't you think?
Cris deRitis: It applies.
Mark Zandi: It applies. I mean, lots of data.
Marisa DiNatale: Almost too much data.
Mark Zandi: Yeah, almost. So maybe, I don't know where to start. Maybe Marissa, I'll turn to you, what's the data statistic of the week that you would point to?
Marisa DiNatale: Well, I think it would be what came out this morning, which is the data on spending and income, and the personal consumption expenditures, deflator. That would be my highlight of the week. We can talk about some of the other stuff.
Marisa DiNatale: But yeah, so just kind of to sum it all up, personal income came in very strong. It rose 0.8% over the month, which was the fastest rate of income growth since January of last year. And it was up 4.6% year over year. The savings rate-
Mark Zandi: Yeah, I'm going to stop you right there. I take umbrage with the way you... That's another good word by the way, umbrage.
Marisa DiNatale: Yeah.
Mark Zandi: I'm not sure I'm using it properly, but umbrage. You said I'm going to focus on the income spending and inflation data, and you began with the income data, which it was strong, but it kind of belies the weakness. I mean, the whole report was, in my view, weak. I would've led with the weak real consumer spending number. No? Or the high inflation number. But you started with the income number. I'm just very curious.
Marisa DiNatale: I'm just trying to start on a positive note.
Mark Zandi: Okay, okay. Fair enough.
Marisa DiNatale: Everything else I'm going to say is next-
Mark Zandi: Okay. Proceed, proceed then. Proceed.
Cris deRitis: I thought you were going in order of the release, right?
Marisa DiNatale: Well, that is actually what I was doing. And it happens that that order was positive to negative. Yeah.
Mark Zandi: Okay. I'll stop. I'll stop.
Marisa DiNatale: Yeah. It goes income, deflator, spending. Okay. Follow along.
Mark Zandi: I think she's getting annoyed at me, don't you think, Cris? I can feel it. No? All right, go ahead. Now she's really annoyed.
Marisa DiNatale: No, I'm not annoyed.
Cris deRitis: Hey, control, Marissa.
Mark Zandi: I'll stop. I'll stop.
Marisa DiNatale: I come to expect this sort of things.
Mark Zandi: Marissa, this is uncontrolled Mark. Now you're observing. No, unconstrained Mark. Unconstrained Mark.
Marisa DiNatale: Yeah, this isn't news Mark.
Cris deRitis: This is dark Mark?
Mark Zandi: What's that?
Cris deRitis: Is that dark mark?
Mark Zandi: Well, that's a little extreme.
Cris deRitis: Like dark mago.
Mark Zandi: All right. There's no reason why we should be punchy, but I feel punchy for some reason. I'm not sure why. But go ahead, Marissa.
Marisa DiNatale: It's a long week.
Mark Zandi: Go ahead. I'll stop, I'll stop, I'll stop.
Marisa DiNatale: Okay. So personal income was good, right? And it was up by 0.8%. As I said, month over month, savings rate rose, disposable income rose by a pretty strong amount. Now, all the components of personal income were up over the month. Part of this strength in this release, and I don't know, maybe you guys know more detail about this than I do, I've searched for this, but I don't have a lot of insight, is that there was a big legal settlement payment?
Mark Zandi: Yeah.
Marisa DiNatale: I don't know if it was the Facebook. Was it the Facebook settlement?
Mark Zandi: I ChatGPTed it and she didn't know. She mentioned Meta, she mentioned a Twitter settlement, but they seem too small. Maybe if you analyze it.
Marisa DiNatale: Yeah, I'm not sure. And I'm also wondering why I didn't get part of the Facebook settlement too. That's my main question.
Mark Zandi: That's a good question.
Marisa DiNatale: If that's what it is. I don't know, it said there was a legal settlement paid that shows up in transfer payments from a social media settlement, and a medical device settlement, but it didn't say what the companies were. So I didn't know if it was the Meta settlement or not. But that boosted transfer payments 2.2% over the month, which was really big. So, a lot of this strength is sort of artificial because of this one-time settlement. But if you take that away, I mean, even if you just look at compensation was up half a percentage point over the month led by wages and salaries, and supplements to wages and salaries, there was a social security adjustment back in January that's now baked into the data. So, this was a good report on the income side of things. Now, if we go to the other stuff, it wasn't so great.
Marisa DiNatale: So, spending growth was weak. So, spending rose only 0.1% over the month, and for the first time in three years, spending on services fell. So, all that spending was led by spending on goods, and it was led by spending on autos, which could suggest that perhaps people are buying ahead of the imposition of the tariffs.
Marisa DiNatale: Yeah, so the decline in services is weird. There was a big decline in spending on food services and accommodation, so restaurants, hotels, that sort of thing, travel. And we've looked at other data that shows that there may be weakening in consumer spending on travel related things, and entertainment related spending. So, that kind of jives with this too. So the spending data here, quite weak. Anything you want to say about that, Mark?
Mark Zandi: Yeah. Well, I think it was just a really weak report. I mean, forget about the income, I think that was just messed up by this, a couple payments made for settling court cases, which we don't quite know what that is. Also, I think there was ACA, Affordable Care Act tax subsidies.
Marisa DiNatale: There was, yeah. That's right.
Mark Zandi: That mixed things up. And I don't think the problem right now is with the job market or income. That's okay. But the real issue is spending, that's really gone soft here. I mean, real consumer spending after inflation is no higher today than it was back at the end of... You go all the way back to November last year. It's basically flat. It goes up a little bit, it goes down a little bit. It's basically flat. That's a pretty significant shift. If it continues, maybe it's just temporary. But doesn't feel that way because the softness is in things that feel like are being affected by the uncertainty created by the chaos out there in terms of economic policy, the tariffs and the trade war and that kind of thing.
Mark Zandi: So, it just feels like a pretty, I wouldn't say disconcerting, but in that direction report. The other thing is inflation was, you didn't get there, and I know you're going to go there next, but inflation was hot. I mean, it was pretty strong. So, do you want to fill us in on that, on the consumer expenditure deflator?
Marisa DiNatale: Yeah. The consumer expenditure deflator rose 0.3% over the month. This was the same as it rose in the prior month. It's up 2.5% year over year. But core PCE came in pretty, actually, both of these were above expectations, but core PCE rose 0.4% over the month, which puts the year-over-year rate of core inflation at 2.8%, year-over-year. So this was definitely-
Mark Zandi: A lot of those durable goods, I think.
Marisa DiNatale: Yeah. And that core was an acceleration on a year-over-year basis, that core. So in January it was up 2.7, now it's up 2.8. So we're going in the wrong direction there on core inflation. Yeah, durable goods inflation rose 0.4%, which is the strongest increase it's been in months and months and months.
Mark Zandi: Yeah. And that maybe, it just feels like the tariffs in the trade war, the fingerprints are all over this. And it's doing what economists, well, us have been saying, this hurts growth. Consumer spending has gone flat now since last November, and it lifts inflation. And you can already feel it. I mean, businesses are already starting to push up prices in anticipation of the tariffs, maybe because demand has, like you mentioned, vehicle demand, but pulled forward.
Mark Zandi: So, it just feels like this is the leading edge of a real problem in the economy. And that the next thing to go, really the only thing keeping us now from going into recession is jobs and income. That has to hold firm. If that doesn't hold firm, that feels like the floater for an economic downturn. So, we're right at the cusp of determining which direction the economy is going. And this report, in my mind, just puts everything all that into relief, to clear relief. The income, I think that's backward looking, doesn't save very much, it's really the real spending in the inflation statistics that really are the point here. Cris, what do you think? What's your interpretation?
Cris deRitis: Yeah, I'd agree. And the markets would agree with that assessment as well, right? The stock market plummeted this morning.
Mark Zandi: Oh, is it? Is the market down?
Cris deRitis: Down 600 plus points.
Marisa DiNatale: Wow.
Cris deRitis: 10 years down, 10 basis points.
Mark Zandi: Oh, wait, wait. So the stock market's down and bond yields are down?
Cris deRitis: Yes.
Mark Zandi: Okay. So what's the message in that?
Cris deRitis: Inflation.
Mark Zandi: I think it's growth, right?
Cris deRitis: It's probably both.
Mark Zandi: Or both. Well, if it was inflation, wouldn't that mean interest rates go up, not down?
Cris deRitis: Yeah, that's right.
Mark Zandi: Right? I mean, if you get both, if you see on your screen for stock prices and you see lower yield, it's saying the market investors are saying, "Oh, I'm worried about the economy's growth," no?
Cris deRitis: Are, but I think they're reacting off of the PCE report.
Mark Zandi: PCE. Maybe because the link is that means the fed's not going to ease. Yeah. So that just exacerbates the growth concerns, right?
Cris deRitis: Yeah. Okay. Wow. Okay.
Mark Zandi: I also noticed the saving rate, you mentioned this, the saving rate is pushing up, right?
Marisa DiNatale: That's right. Yeah, it went from 4.3% to 4.6% over the month.
Mark Zandi: If my memory serves to go back a few months ago, in the last year, it was pretty solidly in the three. So we've pushed up here in a meaningful way, I think almost a percentage point from the bottom on the saving rate. And that also is very consistent with the worries about spending... The saving rate's gone up because stock market is down, wealth effects would suggest that consumers turn more cautious, high-end, well, to do consumers turn more cautious, that means a higher saving rate, that means less spending. Another reason for some nervousness about where the economy's headed here.
Marisa DiNatale: Yeah, absolutely. I mean, I think that's what we're seeing, is this pullback in spending, particularly among discretionary type spending.
Mark Zandi: Yeah. You said on services, it was restaurants. On restaurants you saw a real weakness.
Marisa DiNatale: Right. Yeah.
Mark Zandi: So it all kind of fits kind of the narrative that, look, this economy's really beginning to struggle. It's not in recession, but it feels like it's headed in that direction if things don't change here. Anyone disagree with that? No? Okay.
Cris deRitis: No.
Mark Zandi: All right. Cris, in all the plethora of data statistics that came out this week, what would you point to, other than what Marissa did?
Cris deRitis: I mean, those are the main ones.
Mark Zandi: These are the key? Yeah.
Cris deRitis: Yeah. Do you want me to reveal my statistic?
Mark Zandi: No, no, no, no. We're going to play the stats game today.
Cris deRitis: All right.
Mark Zandi: We can wait. Yeah.
Marisa DiNatale: Oh, I should just say one other thing, was that we got the final read on GDP. We got the third print on fourth quarter GDP, which came in at 2.4%. That was actually revised up a 10th of a percentage point from 2.3%. So that's the final, final for Q4. And the one 10th of a percentage point revision came because imports were revised lower. So, net exports were actually a little bit higher in the calculation.
Mark Zandi: Right. I noticed inventories were not quite as... They didn't build quite as much as either which...
Marisa DiNatale: That's right.
Mark Zandi: That's more of a positive for current quarter growth. But we'll come back to that in a second. Didn't we get this consumer confidence measure from the conference board this week?
Marisa DiNatale: We got both of them.
Mark Zandi: We got both of them. University of Michigan came. I didn't look at what happened, what did the university... There's two surveys-
Marisa DiNatale: Take a guess.
Mark Zandi: Take a guess? Well, I think this was the second print though, wasn't it? The first print, wasn't this an update for the month? I mean, I think they previously released a couple of weeks ago and it was down quite a bit. I assume it remained down weak. 55, 60, something like that, on the University of Michigan.
Marisa DiNatale: 57.
Mark Zandi: 57.
Marisa DiNatale: It fell. 7.7 points, yeah.
Mark Zandi: Okay. Yeah. And that's on top of the conference board... There's two measures of, well, consistently followed measures of consumer confidence or sentiment. One's the University of Michigan survey I've done every month, and we got that data point today. And the other is the conference board survey. And I think we got that on Tuesday for the month of March. Both of them fell very sharply. And that's also consistent with the concerns about the economy, right? That consumers are really on edge here. Really on edge here. In fact, I think I put this up on LinkedIn. My favorite statistic leading indicator of recession is the conference board survey of consumer confidence. If it falls more than, good rule of thumb, falls more than 20 points in a three-month period, we're going into recession. Consumers are running for the bunker, going to stop spending. And if history is a guide, recession begins six months later. And I think because of the decline in March, that's the read we got on Tuesday, the index is now down 17 points over the last three months. I think something like that, 16-
Marisa DiNatale: Yeah. 16.8.
Mark Zandi: Is that what it is? So not quite recessionary, but certainly-
Marisa DiNatale: Pretty darn close.
Mark Zandi: Pretty darn close. Pretty darn close. Okay. Okay. I guess the other big news of the week, economic news of the week was more on tariffs on trade. This time it was on autos. Cris, any thoughts on the announcement? This was yesterday on 25% tariffs on auto parts imports, with some exceptions.
Cris deRitis: Yeah, certainly another inflationary type of effect here, right? The estimates are for an increase in prices of autos, somewhere between five and even $15,000, right? So, clearly that's going to have some impact. There's some complications in terms of the imposition of the tariff on, what is it, the imported parts with foreign content from Canada and Mexico. So for the time being, those US MCA parts are excluded. But just to buy time to figure out a mechanism to charge. So, the impact could even be higher than the initial estimates here once they figured things out. So yeah. Another reason for some concern, I would say, in terms of both the consumer and the economy.
Mark Zandi: Marissa, any perspective on the auto tariffs?
Marisa DiNatale: They're big. I think they're still a little confusing from what I've read. It's complicated, because of what Cris just said, parts that are made in the US but assembled somewhere else. For example, if parts come from Mexico, but it's assembled in the US or vice versa, tariffs will only be levied on the parts that are manufactured outside and not assembled. So, some automakers have said they, or actually I think the government has said they have to figure this out, have to figure out this calculation of how much of a car is actually imported. So, I think it's not a hundred percent clear, but 25% tariff on imported vehicles is very large.
Marisa DiNatale: I will note that I saw there was an announcement from Hyundai that they're going to invest billions of dollars in producing more vehicles in the US as a result of these auto tariffs. So they already produce some vehicles in the south, and they're I think putting $10 billion or $20 billion or something into making more of their vehicles to get around the tariffs-
Mark Zandi: Do you believe that?
Marisa DiNatale: That they'll actually do it?
Mark Zandi: I mean, do you remember Foxconn? Does anyone remember Foxconn?
Marisa DiNatale: No.
Cris deRitis: Yes.
Mark Zandi: They said, "I'm going to invest $10 billion," it's kind of the same number. $10 billion in a facility in Wisconsin. That was back under President Trump's first term with those tariffs. When those tariffs were imposed.
Cris deRitis: Yeah.
Mark Zandi: What happened to that? What happened to that? Nothing. Nothing happened to that. Nothing. In fact, the state of Wisconsin, they ended up a billion dollars in other tax incentives that they paid out. And I think there's some Foxconn facility there, but I think it's a fraction of what it was.I don't know.
Marisa DiNatale: You don't believe it?
Mark Zandi: No.
Cris deRitis: Well, you have to be careful. Some of this might already have been entrained. They're already planning to-
Marisa DiNatale: Yeah, that's true.
Cris deRitis: Right? What was? Apple I think had an announcement recently.
Mark Zandi: Yeah. I don't believe the tariffs are a reason why they're investing in a facility, is it South Carolina, I believe? By the way, I think they get inflation reduction act tax credits.
Marisa DiNatale: Oh, I'm sure they still do, right? Because that hasn't been repealed yet.
Mark Zandi: Yeah. At least so far. Maybe it gets repealed, I don't know. Here's the thing, it makes me nervous, and maybe this is why the market's having a real indigestion. This feels like these tariffs are real. There are not some negotiating ploy that's going to go away. When you do this, this is a big deal, and it's not just one country, or two countries. This is a lot of countries. This is Canada, Mexico, it's Japan, Korea, it's Germany. This is going to affect. And that's just the folks that assemble. There's a lot of parts suppliers all over the planet. So, it just feels like the signal in this move, of course, it can all be taken away, I'm not saying that. And that's still our baseline. There's a high probability that this all goes away at some point, the president will pivot on all this. But I don't know. I say that with much less confidence today as a result. This is the world that we're going to face going forward. Higher tariffs.
Mark Zandi: Now, we'll get a better sense of that next week, because I think that's when the so-called reciprocal tariffs are going to be unveiled. But we'll see. I don't know. I'm getting more of the mind that we got to build in tariffs here for an extended period of time. I don't believe they're going to remain forever. I don't believe that at all. Because there's going to do so much damage to the economy, and to the stock market, and everything else. But I do think this is going to go further than I think we have built into our baseline thinking. Another reason, significantly more nervous about the economy's prospects here going forward.
Mark Zandi: Here's the other thing. I think people, maybe it's just me, this hadn't crystallized in my thinking, but the tariffs, the automakers may decide not to pass through all of the tariffs onto consumers because they want to preserve sales. I mean, the other thing that's going to happen here is they're going to jack up price on the vehicle. Say it's 10%. The tariff is 25%. Let's say they jack it up 10. That means the new vehicle price goes from on average right now it's 50 K, almost on the nose, to 55 K. 50 K is already unaffordable for most American families. 55 K, now you're making it really tough. So that's going to hit sales.
Mark Zandi: So, that also has all kinds of ramifications, right? I mean, think about the auto dealers, think about transportation and distribution, think about insurance, think about maintenance. I don't know, I haven't even thought about it in the context of lending, auto lending. I don't know what kind of impact it'll have on auto lenders, I'm not sure. But the knock on eff effects are significant. So it's not only just about raising price and hitting real income. We're going to sell a lot fewer cars. Now, more of the hits going to be on imports, but also the domestic automakers are also going to raise price and it's going to affect their sales. Now, they'll get a higher market share, so the net of all that might be a wash, but that means fewer sales. And that has implications. The dealers probably employ more people, the auto dealers, I'm making this up, maybe somebody can ChatGPT it, they employ more people than the automakers employ in the country. I'm guessing.
Marisa DiNatale: Yeah, I think I saw like 2 million or something?
Mark Zandi: Yeah, 2 million. Yeah, I think the vehicle manufacturers is more like a million, something like that. A million people working in it. So it just goes back to the point, tariffs are inflationary, and they hurt growth, and hurt growth.
Mark Zandi: And then again, I keep coming back to this. Who in their right mind is going to invest in the United States based on these tariffs? Are you kidding me?
Cris deRitis: Hyundai.
Mark Zandi: Yeah, Hyundai, Hyundai. But come on. That's why I don't believe it. I just don't believe it. If you want to build a vehicle manufacturing plant, how long do you think that takes?
Cris deRitis: Oh, it takes years.
Mark Zandi: A quarter?
Marisa DiNatale: Years.
Mark Zandi: A year? It takes years.
Marisa DiNatale: Right.
Mark Zandi: It takes years. And then how long is the life of that plant?
Cris deRitis: Decades.
Mark Zandi: Decades. So, are you telling me I can count on those terrorists for decades? No. No. This is not happening. I don't know, that announcement on autos, I really wasn't expecting that. I didn't think that was going to come before the reciprocal terrorists. I guess maybe they thought they had legal, the administration thought they think they have legal authority to do it and therefore went forward with it, but I think that may be a game changer in terms of how this all plays out. Any thoughts on that?
Cris deRitis: What's your take on irreparable damage here in terms of foreign consumers just turning their backs and saying, "I don't want anything to do with American products"?
Mark Zandi: Well, that I don't think is irreparable. I mean, that's more temporary. Because ultimately, I'm going to buy what I want to buy. I may forego to make a statement for a month, two or three, but I don't know if that will last. But more irreparable, and nothing's ever completely irreparable, but more irreparable is what it does to supply chains. What other countries... If I'm not going to locate in the US, that means I'm going to change my focus and invest somewhere else. That's going to happen. And once that happens, how do you turn that around anytime soon? I mean, that may be the definition of irreparable.
Cris deRitis: Yeah. I have to believe any Canadian manufacturer is looking for other market, right? They were so tied at the hip with the United States. Now they have to diversify, right? Even if we call the whole thing off, right? I think there's going to be some fallout.
Mark Zandi: Cris, it's going to happen the fact if those tariffs go in place, because sales are going to collapse.
Cris deRitis: Right. They have to look for us.
Mark Zandi: It's a trade between US and Canada, the trade between Mexico and the US is going to fall sharply, between Germany and the United States is going to fall sharply, between Japan, Korea, and the United States is going to sharp... So those companies, they're going to direct someplace else. They want to sell their product. I don't know.
Marisa DiNatale: I've read there's already talks between the Canadians and the Europeans to try to come up with a trade agreement between the two of them to offset this.
Mark Zandi: Yeah. Anyway, I don't know, you can tell I'm getting more nervous. It just feels like we're definitely headed down a dark path. I thought we would pivot here and start going in the other direction, but doesn't feel like it. And the economic data is, I guess we're going to get another read next Friday, the jobs numbers for March. It might be too premature to expect a big hit there, but I don't know. It feels like we should buckle in here, or buckle up, or whatever it is. Anyway.
Marisa DiNatale: Still no movement on UI claims.
Mark Zandi: Yeah, I've been a little perplexed by unemployment insurance claims. I think it may be most of the layoffs, or federal government related suppliers, and people are getting severance packages. They're not going to file right away, it's going to take some time. I mean, if I were-
Marisa DiNatale: Some of it is tied up in court, right?
Mark Zandi: Yeah, yeah.
Marisa DiNatale: Some people may be waiting to see what happens there.
Mark Zandi: I'm a little skeptical of the UI claims, but that does suggest it hasn't hit the labor market yet. And that's the reason to think we're not going into recession. If we don't see the layoffs in UI claims remain down, we should be okay. But let's watch that very carefully.
Mark Zandi: You mentioned GDP. And we got the GDP number for the fourth quarter of 2024. And I want to pivot the conversation to economic data. This is something, I'm on the board of the Coleridge Initiative. The Coleridge Initiative is a nonprofit organization that helps facilitate the use of data, economic data, demographic data, within the government, federal, state, and local. And obviously, I was just spoke at the convening this week in D.C., and there's a lot of concerns about data, data quality, data availability. And kind of the hook back into our conversation is GDP. Did you hear Commerce Secretary Lutnick comment on GDP, and GDP and the government? Marissa, did you hear that?
Marisa DiNatale: Yeah, to remove government spending from the calculation of GDP? Is that what you're referring to?
Mark Zandi: Yeah, that's what I'm referring to. Yeah. What do you think of that? Speechless?
Marisa DiNatale: I don't get it, I don't understand why you would do that. It is separated out in the report. You can clearly see what government spending is contributing separate from everything else, right? If you want to calculate GDP minus that, it's very easy to do, if you want to see all the other components. I don't know why... I mean, the implication in what he said was that we shouldn't be counting government spending because there's a lot of waste in that number, that I think the quote was something like, "If the government purchases a tank or a fighter plane, then that should be spending. But paying all the people to decide whether to purchase that tank or fighter plane is wasteful and shouldn't be counted." Right?
Mark Zandi: Yeah, that's right.
Marisa DiNatale: Wasn't that his rationale?
Mark Zandi: Right. Yeah. Paraphrasing, obviously.
Marisa DiNatale: But I mean, then you could say that about the private sector too, right? I mean, when a company purchases an office building, or hires someone, or purchases software equipment, do we count that, but we don't count all the people that work for the company that make those decisions... I mean, it just doesn't... I mean, I understand I think the motivation, is because all of these cuts to government spending that's happening under Doge is going to have a downward, going to put downward pressure on GDP because you're going to have government spending falling, presumably. And they want to remove that from the calculation. But that's just sort of semantics, right? I mean, you can go into the report and easily see the different components and remove whatever you want, if you'd like to calculate it that way. There's no reason to fundamentally change the definition of GDP.
Mark Zandi: Right. Cris, any perspective on that?
Cris deRitis: What she said.
Mark Zandi: Okay, what she said. Well, that's absolutely right. I mean, you mentioned GDP grew 2.4% annualized in the fourth quarter of 2024. By the way, it grew 2.8% calendar year 2024, which was a good year. That's a really good year. Our tracking estimate for Q1, real GDP growth, so we take all the economic data, including today's consumer spending data and all the monthly information that's coming in, and we translate that through a model into what it means for the current quarter growth. It's 0.8%. 0.8%.
Mark Zandi: And I think the concern that's coming through in Commerce Secretary Lutnick's argument that we should exclude government from GDP, is that we could easily get a negative number in Q2. Easily. Because, correct me if I'm wrong, I think I've got the GDP accounting correct, this is from the Bureau of Economic Analysis. The way the BEA calculates government spend in the NPA accounts is by looking at in part compensation of government employees. So, if you're cutting comp, if you're cutting jobs, you're cutting comp, that's a direct hit to government expenditures. And you can see how the arithmetic comes out here. You could easily get a negative number. If our underlying growth rate is close to one, and and that's in the first quarter before the cuts really took effect, if they start taking effect in Q2, Q3, that's the fodder for outright GDP declines. So you can see why there's a level of concern there.
Mark Zandi: But more broadly, what does that raise concerns about, in your mind, Cris, about the data we get from the government in general, should we be nervous about that? I mean, we rely, like everyone else does, on government statistics: employment, unemployment, inflation, wages, investment. It goes on and on and on. And we trust that data. Obviously, it has its problems, it's based on samples, and samples are imperfect, and there's all kinds of measurement issues, and seasonal adjustment, and quality... On and on and on, but we trust the underlying data. Should we be nervous about that in the context of these kinds of comments?
Cris deRitis: Yeah, absolutely. And we were nervous about government data even before this, right? We've been talking about the decline in survey response rates, right? So not even cuts by the government necessarily, but just the fact that you can't get people to answer a survey at the same rate as you could in the past. And so what does that imply for the quality of the data? And I think those are really important discussions to have.
Cris deRitis: And if you wanted to have a discussion about GDP, how it's flawed, how it's estimated, there's lots of things not to like about GDP. We can have that debate and discussion, and we should have it and put all that data into context. That's important. But this just continues to throw more doubt into that data. And it also suggests that, hey, maybe we don't need to fund the collection of this data as we used to. Or maybe there are private sources that can replace it and be equally as effective. So that also makes me nervous, right?
Cris deRitis: There are lots of companies, of course, that rely on this data to make their own decisions, right? If we didn't have a good data on the consumption, the spending and the unemployment, what have you, that certainly would diminish the quality of their decision-making. And then obviously we do have the Federal Reserve, we have other policy makers that rely heavily on this information. So, if we're not getting the highest quality we can get, even understanding that it's never perfect, at least let's do our best to help those policy makers make the right decision. Otherwise, they're in a fog, right? We didn't always have GDP to guide central banks, or even the government's relatively modern metric.
Mark Zandi: I think post-depression, right?
Cris deRitis: Post-depression. I think it was Kuznitz, right?
Mark Zandi: Kuznitz, yeah.
Cris deRitis: Like the 40 or something. And so yeah, you can guide your economy without it, but not very well. If you look at the historical record, we're much better off having higher quality data than not.
Mark Zandi: Yeah, there's a lot to unpack there. I mean, putting aside any concerns about continued funding of government statistical agencies, which I think is a reasonable concern in the context of all the things that are going on and all the cutting that's being done. And also abstracting from the comments from the Commerce Secretary that makes me queasy, implying that you shouldn't trust the data, or what the data is purported to measure. But even as you pointed out before, any of that, the quality of data is increasingly of some concern because of declining response rates. Because all these, or at least most of these data series that we look at are based on samples of different parts of the economy, whether that be consumers, or households, or businesses, or whatever it is. And those response rates are way down.
Mark Zandi: So, I'll give you an example, because I know this, because I presented this at that convening for the Coleridge Initiative, the Jolts report, the job opening, labor turnover survey report, which we all really pay a lot of attention to, because it goes to hiring, it goes to layoffs, it goes to quits. You get under the hood as to what's going on with job growth and unemployment. You know what the response rate to that was 10 years ago in 2015? You want to take a crack at it? What was the response rate? Cris, you want to take a crack?
Cris deRitis: 80%.
Mark Zandi: It was two thirds. Two thirds.
Cris deRitis: Two thirds. Okay.
Mark Zandi: You know what it is today 10 years later?
Cris deRitis: A third.
Mark Zandi: A third.
Marisa DiNatale: It's in the thirties.
Mark Zandi: A third. A third. Obviously, I'm rounding. A third. But pick your statistic. See consumer price index, employment cost index, the CES, the CPS, that's the current population survey, the basis for the unemployment rate data. All have fallen very sharply. And the problems are quite pernicious. What's behind the decline in survey responses? It could go to survey fatigue, we're always filling out surveys to tell people how we like their product, or whether we enjoyed the hotel room, or the air ride. It goes to cyber. I'm always nervous about interfacing with anything that comes over my computer screen, even if it's purported to come from the government, I'm not sure.
Mark Zandi: And privacy. Now, particularly given all the things that are going on, I mean, if I'm not compelled to, do I really want to hand over any information whatsoever? I'm not so sure. But all those things are happening.
Mark Zandi: And it's not just in the United States. I mean, I think if you go over to the UK, the survey responses for the data to calculate the unemployment rate have fallen so sharply, they can't even calculate an unemployment rate now. Right? Can you imagine that?
Cris deRitis: Bizarre, yeah.
Mark Zandi: Bizarre. It's bizarre.
Marisa DiNatale: And it's also reduced funding for these surveys. I mean, this has been a long battle, this isn't new. I remember when I worked at the BLS 20 years ago, we were talking about funding for the current population survey. And that's always been a battle. And every administration is to give these statistical agencies more funding. So, if you don't support the collection of this data, it's going to be harder and harder to do.
Mark Zandi: Yeah. I think-
Marisa DiNatale: You recall, just one more, if you recall last year, there was talk of reducing the sample size of the current population survey, which is only 60,000 households, yeah, because they didn't have enough funding to keep the sample at 60,000. They were going to actually reduce the sample size, which means poorer quality data. There's already pretty big margins of error around some of these estimates. And the smaller that sample gets, the more error-prone the data gets. And fortunately, they got the funding. They were able to keep the sample in place.
Mark Zandi: [inaudible 00:45:55] statistics.
Marisa DiNatale: Yeah.
Mark Zandi: Well, yeah, I mean, I think the lesson or the message in declining survey response rates is not cut funding, it's to increase funding. I mean, if you don't have the data, policy makers are flying by, and how can the Federal Reserve, when it sets monetary policy interest rates, it looks at inflation, and it looks at unemployment. Those are the two things that it looks like. If you can't measure those two things, then how do you set, well, you'll set it, but you won't set it well. You won't set interest rate policy very well. So, it's just absolutely critical. But it doesn't feel like we're moving in that direction at all. If anything, wait, because you sent me an email, I guess some advisory group, economic advisor too. Can you explain?
Marisa DiNatale: Yeah, there's a group called FESAC, which is the Federal Economic Statistics Advisory Committee, which is made up of academics, economists, government officials, private sector, people that volunteer their time to advise agencies like the BLS and the BEA on how they produce their statistics. Kind of like a user group feedback type thing. And these committees talk about these issues like falling response rates, and how can we turn this around, or how can we improve the data. That was disbanded at the end of last month by the administration. And then there was another committee that focused strictly on the BEA data, which is the data where we get, this is the agency we get GDP, and income, and PCE deflator, all of these extremely important statistics. There was an advisory committee just for the BEA that was also disbanded by the administration. So that's not a good sign, right? It's sending a signal that this isn't important, and this is not a priority for the administration clearly, but I mean, these aren't even committees where people were getting paid to participate on them.
Mark Zandi: So, you hear the argument that, well, okay, if the government isn't going to devote more resource, or in fact devote less resource to collecting data and other information, you should rely on them on private market sources. And in fact, private companies are increasingly collecting more data for their own business practices. What's wrong with that argument, Cris? Why don't we just ante up and buy that data from the various private sources?
Cris deRitis: We should use all the data, right? We should be using those private sources. But those sources are not perfect either. The private sources are often collecting data that's really exhaust from another profit making enterprise. So a good example might be the payroll data, payroll survey data. Or payroll data from a payroll processor like ADP. Their main business is processing these payroll rolls. And as a byproduct, they're able to see, or get a lot of information about what's going on in the labor market. But that's great, but that's also got its own biases and distinct issues, right? First and foremost, it's only their customers, right? They're not surveying the broader market, or the broader economy. So, smaller businesses that may not subscribe or use that type of service may be left out, or there may be certain industries that don't typically participate with that payroll process. So it's got some gaps to it as well.
Cris deRitis: So helpful, but the broad-based survey that the government provides is really, again, that's the gold standard.
Mark Zandi: Only the government can provide it. Yeah.
Cris deRitis: Who else is going to step in? What's the profit incentive that they can offer to collect this information?
Mark Zandi: Right, right. Well, we'll end this part of the conversation because I do want to play the stats game and maybe take a question or two from listeners. But before we do, I'm just going to ask you, what is your favorite alternative private data source that you use? You mentioned ADP. And I'll turn to Marissa first, maybe. Is there a alternative data? I think listeners always are very curious in what we're looking at, that you look at that you think is particularly valuable. Marissa? Or you, Cris?
Cris deRitis: Yeah, I think it depends on the topic. But I do like the consumer credit report data. That's...
Mark Zandi: From Equifax.
Cris deRitis: From Equifax, or Experian, or TransUnion. Again, it's got its flaws, everybody knows that there are things that can crop up in a credit report, but it's very timely, it's not biased, it's just the numbers as reported in terms of delinquencies, and credit formation, and credit inquiries. It just gives you a lot of detail about actual observed consumer behavior. So, that's always been a favorite of mine.
Mark Zandi: Yeah. The data we collect, we collect it from Equifax, but you're right, the other bureaus have the same kind of data, correct me if I'm wrong, but that's a census, isn't it? It's based on all the credit files, not just a sample. So, that makes it even more valuable because those survey issues that I described earlier.
Cris deRitis: That's right. That's right. It's a false sense. So it's great. Again, there's a blind spot in terms of the unbanked, right? You're not going to capture what's going on with them. But again, no data is going to be perfect, but this one is really good to capture most, or a broad swath of the population in terms of what's going on with their consumer credit cards, their credit cards, mortgages and whatnot.
Mark Zandi: Right, right. Marissa, do you have one particularly in the labor market that you look at? I mean, any alternative data there? Anything from like Indeed or...?
Marisa DiNatale: Yeah, I mean, there are some, Cris mentioned ADP, I don't really look at that that much, but Indeed puts out a hiring metric and a job opening metric that often corresponds and moves in the same direction as Jolts ultimately does. So I think it's pretty, pretty good. And it's very detailed too. So they have it by industry and occupation, and region of the country, that kind of thing. So yeah, that's a pretty good measure.
Marisa DiNatale: There's also, I mean, this isn't really data exhaust, but then there's surveys like Challenger, Gray & Christmas that are private sector surveys of the job market that aggregate layoff announcements that scrapes the web and aggregates announcements for layoffs. I tend to look at that as well.
Mark Zandi: I really like the house price series in the commercial real estate value series that we construct, because they're based on actual transactions. We get that data and we can see from deeds that are filed at county courthouses, what those values are. And then we could construct so-called repeat sales price indices, at a detailed geographical level, and in the commercial real estate market across property type. And I find that highly, it's very timely, we can track that monthly. Very, very valuable. So anyway.
Mark Zandi: Okay, let's play the stats game. We just put forward a stat. The rest of us try to figure that out through clues, questions, deductive reasoning. The best stat is one that's not so easy, we get it immediately. One that's not so hard, we never get it. And we always begin with Marissa. Marissa, what's your stat?
Marisa DiNatale: My stat is... Where is it? 5%.
Mark Zandi: Is that the inflation expectations in the University of Michigan survey? One year-
Marisa DiNatale: Cowbell. Virtual cowbell.
Mark Zandi: Virtual cowbell. Baby.
Cris deRitis: Nice. Nice.
Marisa DiNatale: Right out of the gate.
Mark Zandi: Right out of the gate. I'm on fire. Okay, you want to explain?
Marisa DiNatale: Yeah. I mean, this keeps popping up and up and up each month, right? From both consumer confidence surveys, both conference board and Michigan they ask for what consumers think inflation will be next year. And this has been rising very quickly since the start of the year. So in the Michigan survey in January, we were at 3.3%. This is what consumers thought inflation rate would be a year from now in January. And we're at 5% now as of March. So, this is, actually, it didn't look to see how high this is like, when was the last time it was 5%? I think it was three years ago, if I'm not wrong. Yeah, it was November 2022. You have to go back to when people thought inflation would be that high. And if you remember 2022 was peak inflation coming out of the pandemic. So, this just shows this expectation that I think that tariffs are going to have a real impact on inflation here. You're seeing it across all surveys, across all demographic groups. Think inflation is going to be significantly higher next year.
Mark Zandi: Hey, Cris, inflation expectations in the bond market equally as elevated, do you know? Have they pushed up as much? It doesn't feel like they have.
Cris deRitis: They actually came back down. If you look at the five-year break even rate, I was looking at that just a few days ago, and they had risen. They're still high relative of course to where they were, say, a year ago, but they're actually backing down a bit. I don't know. I didn't check today. Maybe things have changed here, but...
Mark Zandi: Right. Yeah.
Cris deRitis: So concern, but not quite as concerned as they were just a few weeks ago.
Mark Zandi: Few weeks ago. One thing that strikes me about the inflation expectations, particularly the consumer, but also in the bond market, usually it's higher oil prices, gasoline prices, the cost of regular lettuce that's kind of driving those expectations up or down. But I think cost of a gallon of regular lettuce is like three bucks, right? It hasn't budged at all. So it has nothing to do with what's going on here. And it's all about the tariffs and the trade war, and it's affecting people's thinking. And I think that's one reason why the Fed's going to be cautious here, because they're fearful that if the tariffs, even though they're one time get into inflation expectations that could then infect wage demands, and you get a more kind of self-reinforcing persistent inflation, and they really don't want that to happen. That's stagflation. So, that's a good one. That's a good one. Cris, what's your stat?
Cris deRitis: Okay, it's two stats related: 69 and 71.
Marisa DiNatale: They sound like index values.
Cris deRitis: They are.
Marisa DiNatale: Are they from Michigan?
Cris deRitis: They are.
Marisa DiNatale: Is it current and future?
Cris deRitis: No. It's current.
Mark Zandi: No. A Michigan survey of consumer sentiment? Isn't that?
Cris deRitis: It is. It's too demographic.
Mark Zandi: Is it a Republican... No.
Cris deRitis: No. No, I was going to go with that. There's big news there as well.
Mark Zandi: Yeah, okay. You don't have to tell us. Is it income related?
Cris deRitis: No.
Mark Zandi: Is it age?
Cris deRitis: Yes. I'll tell you the two age groups.
Mark Zandi: Oh, two age groups. Okay.
Cris deRitis: 18 to 34, and 55 plus. Who do you think is 71 versus 69?
Mark Zandi: Oh, that's interesting.
Marisa DiNatale: 69 versus 71? So they're almost the same.
Cris deRitis: They are almost the same, but one is lower than the other.
Mark Zandi: Yes, indeed. Thank you for for that. What insight, baby.
Cris deRitis: That's what people come insight economics for.
Mark Zandi: That's right.
Cris deRitis: Which one's lower?
Mark Zandi: My intuition's probably wrong, but my intuition would be that the folks that are older would've a lower, they'd be the 69. And the younger would be 71. Is that right?
Cris deRitis: So, that's what typically is true. Historically, if you go back, the younger are always much more optimistic than the old. Not anymore.
Marisa DiNatale: Interesting.
Cris deRitis: Right now it's the younger cohort is more pessimistic than the older.
Marisa DiNatale: I would've thought older just because-
Cris deRitis: 18 to 34. Versus 55 plus.
Mark Zandi: Okay.
Marisa DiNatale: Yeah, I would've thought older people just are more sensitive to the stock market. And either the value of their 401(k) is plummeting.
Mark Zandi: The wealth effect, I would've thought.
Cris deRitis: Well, both indices have come down, right?
Mark Zandi: They're both down.
Cris deRitis: Is just that the 18 to 34 has come down even faster.
Mark Zandi: And to what do you describe that, do you think?
Cris deRitis: I think they don't have that nest egg, or don't have that housing wealth, or even the stock market wealth. So yeah, if you're older, you have the stock market goes down 10, 20%, you don't feel good. But that's after years of gains.
Marisa DiNatale: You have some cushion.
Cris deRitis: You got some cushion. That 18 to 34-year-old group still looking to try to buy a house, trying to save up, but really struggling.
Mark Zandi: But you're saying it has fallen more in the last few months.
Cris deRitis: That's right. That's right.
Mark Zandi: So I think the problem with the house has always been a problem with the house.
Cris deRitis: Yeah. But I think their outlook is even darker now.
Mark Zandi: Even darker? The one thing I think might be going on, and I have no basis for saying it, but I'm going to say it anyway, speculation, is going back to the Jolts. Hiring rates are very low. And it's not like these young people are getting laid off. And some of that's going on probably, but that's not the issue. The issue is they can't get a job. They can't get hired. And I can see it. I can see it in my own world. Highly educated, very talented, very eager. They're having a tough time breaking in. And that's got to be really debilitating psychologically. I mean, really debilitating.
Mark Zandi: So, I wonder if there's something like, maybe we can look at that region, regionally or something to get a better sense of that. But anyway. All right, I got one. Ready? 4.5%.
Cris deRitis: That's the-
Marisa DiNatale: House price.
Cris deRitis: ... retail analytics house price index.
Mark Zandi: It is, but that's not the 4.5% I had in mind. And you were so proud of yourself.
Cris deRitis: I was so smug.
Mark Zandi: "I know the statistic." Yes.
Marisa DiNatale: So, it's not anything to do with house prices?
Mark Zandi: No. It came out this week though.
Marisa DiNatale: Oh...
Cris deRitis: Inflation related?
Mark Zandi: No.
Cris deRitis: What's the other big stat that came out this week?
Mark Zandi: We talked about it.
Marisa DiNatale: GDP.
Mark Zandi: GDP. Okay. You should know this, because you've used this on this stat on me before, Cris.
Marisa DiNatale: Oh, it's GDI.
Mark Zandi: GDI, real gross domestic income. 4.5%.
Cris deRitis: I couldn't believe it's that high.
Mark Zandi: Yeah, yeah.
Cris deRitis: Really. Wow.
Mark Zandi: Yeah. So, the thinking is to get to reality you should take the average of GDP growth and GDI growth. And that gets you to, well, one say two and a half, the other is four and a half. That gets you to three and a half. See how I did that? Real insight, three and a half percent. That actually was a pretty good quarter. Fourth quarter 2024 was a good quarter. And you know what? If you look at GDI for calendar 2024, it was 3% on the nose. 3% on the nose. So that was a really good year. But we're coming off here pretty quickly. Pretty quickly.
Mark Zandi: Okay. Let's take a few listener questions. Hey, Marissa, I know you've been inundated with questions. Do you have any good ones there you want to post to the group?
Marisa DiNatale: Yeah, I have one that goes back to what we were talking about before with the trade war and the motivation for doing this. Do you think that, given that we're, I think you could say we're in a trade war at this point, right?
Mark Zandi: Oh, yeah.
Marisa DiNatale: Given this, and given the alienation of other countries and our largest trading partners, do you think that there's some risk that foreigners stop buying US treasury debt?
Mark Zandi: I got a view. Cris, do you want to take that or you want me to go first?
Cris deRitis: Go ahead.
Mark Zandi: Well, to some degree they already are. And not that they're selling the debt, but they're just not buying. Like the Chinese. The Chinese were, still are huge holders of US treasuries, but much less so than they were five, 10 years ago. And for obvious reasons, I mean, given the growing tensions between the US and China, they've decided to reduce their exposure to US treasury debt. So if you look at their holdings, I'm making this up, but I think we're down to 700 billion, something like that. It was well over a trillion at one point in time. Again, that's from my mind's eye, so I might have that wrong. But that gives you kind of rough order of magnitude. So, I think we've already seen that in the case of China very large holder of treasury debt.
Mark Zandi: I sense also that other countries are putting pressure on their institutions, their pension funds, insurance companies, other institutional investors to stay closer to home, buy my country's debt, your country's debt. It kind of sort of felt like that was happening during the pandemic. Historically, when you get a thing like a pandemic or another crisis, money comes flowing into the United States because it was always deemed to be AAA, money good, you get your money back if you invest here. So, in times of crisis, the money would flow, but it didn't flow to the US to the same degree that it did in the pandemic as it has historically. And I do think, I don't have hard data, but my sense of it talking to different investors is that there's some more home bias that invest here at home.
Mark Zandi: Other foreign buyers are also more cautious. I don't know if it's because of any geopolitical reason, just more economic, like the Japanese, they're now the largest foreign holders of US treasury debt. They become a little bit more circumspect in buying treasury bonds, only because they can now buy 10 year JGBs, that's the Japanese government bond, at a positive interest rate. For many years it was negative. Now they can buy it at one point a half, 2%, I think. And they can do that without any currency risk. They're very nervous about the fact that, because the yen is so cheap relative to the dollar, that if they invest in dollars that could get crushed. If the yen were to appreciate the dollar would decline in value. So they've been more cautious.
Mark Zandi: So there's lots of reasons why foreign holdings have come down, but I do think one of the reasons is people are just not as anxious to invest in the United States for lots of different geopolitical reasons. Cris?
Cris deRitis: Yeah, I'd add that probably the experience after the Russian invasion of Ukraine and the sanctions imposed on Russia and their capital availability to access capital, I also think that that has an influence-
Mark Zandi: Ah, good point.
Cris deRitis: ... on governments in terms of they want to ensure that they exchange, they want to ensure that they have access to capital. So I could certainly see some of those sovereign governments and pension funds, as you mentioned, Mark, kind of focusing, certainly looking to diversify to a greater degree. I'm not so sure about the more private investors or funds. I don't know that they necessarily are impact, they're just looking at the total return here. But yeah, I think there's certainly something to be said from the sovereign government side.
Mark Zandi: Well, not everyone is as rapacious as you are, Cris. I mean, most are. Most are. Let's ask ChatGPT. I'm really curious about Chinese holdings, whether I got that right or not. Let's just see. ChatGPT is coming online. Can you tell me what the value is of Chinese holdings of US treasury debt? Here it's going.
ChatGPT: Since January 2025, China's holdings of US treasury securities were about $760.8 billion.
Mark Zandi: Okay. What do you guys have to say? Something? I said 700 billion. Okay, let me ask you this.
Marisa DiNatale: Okay, very good.
Mark Zandi: One more. One more. What was the peak holdings of the Chinese of US treasuries? What was the highest amount that they've owned throughout history?
ChatGPT: The peak was around $1.3 trillion, which happened in late 2013.
Mark Zandi: Thank you. Appreciate that.
Marisa DiNatale: So it's down by almost half.
Mark Zandi: Yeah, there you go. Right. Yeah, very good. Okay, let's take one more question and we'll call it a podcast. I'm sure people are getting very tired out there.
Marisa DiNatale: This is a good one.
Mark Zandi: Yeah.
Marisa DiNatale: Given all the doge cuts to the firings in particular, do you think that all these people getting laid off and fired from the federal government will easily be absorbed into the private sector? Is the job market strong enough to absorb all these people without pushing the unemployment rate higher?
Mark Zandi: Yeah, good question. Cris?
Cris deRitis: I think a lot of them will be hired. I think that one reason perhaps why we haven't seen unemployment insurance claims take off is that you do have some of that, but you'd also have folks who are taking retirement, early retirement instead. So, I don't see that it's a significant enough to really push the unemployment rate up to a sufficient degree. But that said, everything else we've discussed about weakening economy, perhaps weakening hiring, what you are going to see, perhaps some longer struggle for folks in certain occupations to find work.
Mark Zandi: Yeah, I agree with Cris. I think it puts upward pressure on unemployment, but it's too small to push it up a lot, right? I mean, I think in our baseline we're assuming federal government employee, employment comes down by three, 400,000 jobs from the peak. So, let's say that happens over an 18-month period. What is that? That's 30, 35,000 per month. Just for context, the economy right now it's creating 150, 175,000 per month. So it gets consequential. And I do think that's one reason to be nervous about the labor market and the economy's prospects here going forward.
Mark Zandi: But I think the more likely scenario is that those folks get reasonably absorbed. Unemployment will push up a little bit, but not a lot. The other thing that's going to keep unemployment down is the slowing in the labor force, right? Because of the immigration policy. So we already are seeing a lot more immigrants come into the country. Pretty soon we're going to start seeing that show up and fewer applications among immigrants for work authorization, and then ultimately less labor force. And that will tighten up the labor market, so that'll limit any increase in the unemployment rate.
Mark Zandi: Again, another reason to think that the labor market should kind of hang together reasonably, and we should be able to navigate through all this without suffering a recession. But again, given recent events, and given it looks like we're going down the trade war path to a greater degree than I just had previously thought, the risks are a lot higher. So, I don't know. Marissa, what do you think?
Marisa DiNatale: Yeah, I think on net it isn't going to be a huge deal to the overall labor force when you look at the aggregate numbers, but I think if you were just to look at the Washington, D.C. area, there's real possibility that you could even have a recession there.
Cris deRitis: Absolutely.
Marisa DiNatale: And if you look at the industry mix, I think you'll see big changes in the composition of job growth. I mean, I think that the immigrants that aren't coming into the country, the jobs that they typically get, those aren't going to be filled by federal government employees, right? Those are two different types of profile of worker. So you're going to have federal government employees trying to go into the private sector, and information in professional business services, in industries like that. The industries that are going to be hurt by lower immigration are going to be things like agriculture and construction. So, I think you'll see a compositional mix difference there, but I think overall, when you just look at the unemployment rate, you just look at job growth, you probably see minimal impact on the top line numbers.
Mark Zandi: Yeah. Well, I've already gotten three resumes from people affected by dose cuts. Yeah. I mean, I assume you have as well. Yeah.
Marisa DiNatale: I mean, I know people that have lost their job, or know that they're losing their job that are now out there looking for work in the private sector. Yeah.
Mark Zandi: Very talented people, yep. Okay. Anything else before we call it a podcast? No?
Cris deRitis: Which country is the third-largest foreign holder of treasuries?
Mark Zandi: Ooh. I'd say the UK.
Cris deRitis: Oh, very good. Excellent.
Mark Zandi: I am on fire.
Cris deRitis: There you go.
Mark Zandi: I am on fire.
Marisa DiNatale: Why you're the chief economist?
Mark Zandi: The bar is high, you're saying? That's funny. I think that's because all the Middle Eastern money is sitting in the UK. All the Saudi money, all the UAE money. I think a lot of it is sitting there in London probably. Anyway, it goes to London and then the financial houses in London or Switzerland buy the US treasuries. There you go. Yeah.
Cris deRitis: If you can guess number four then, actually [inaudible 01:12:42].
Mark Zandi: Ooh, really?
Cris deRitis: Yeah.
Mark Zandi: Number four... Would it be a surprising country?
Cris deRitis: Yes. Really surprising to me. In retrospect I can see why.
Mark Zandi: Oh, in retrospect you can see why. You want to take a guess, Marissa?
Marisa DiNatale: Can you tell me what continent this country is?
Cris deRitis: Europe. Europe.
Mark Zandi: Oh, it's probably like-
Marisa DiNatale: Is it like Luxembourg or something?
Mark Zandi: Yes, it's going to be Luxembourg.
Cris deRitis: Got it. You got it, Marissa.
Mark Zandi: Yeah, that same thing's happening, obviously.
Marisa DiNatale: Yeah.
Mark Zandi: All that Middle Eastern money. Anyway. Okay, we're going to call this a podcast. I hope you found some value, and we'll talk to you next week. Take care now, dear listener.