Bill Adams, Chief Economist of Dallas-based Comerica bank, joins the Inside Economics team to assess the economic outlook and consider a range of economic issues from consumer credit to China’s prospects. We also learned what he is most anxious about, and it isn’t the outcome of the Super Bowl.
Bill Adams, Chief Economist of Dallas-based Comerica bank, joins the Inside Economics team to assess the economic outlook and consider a range of economic issues from consumer credit to China’s prospects. We also learned what he is most anxious about, and it isn’t the outcome of the Super Bowl.
For more info on Bill Adams click here
Follow Mark Zandi @MarkZandi, Cris deRitis @MiddleWayEcon, and Marisa DiNatale on LinkedIn for additional insight.
Mark Zandi: Welcome to Inside Economics. I'm Mark Zandi, the Chief Economist of Moody's Analytics, and I'm joined by my two trusted co-hosts, Cris Derides and Marisa DiNatale. Hi, guys.
Marisa DiNatale: Hey, Mark.
Cris deRitis: Hey, Mark. It's good to have Marissa back.
Mark Zandi: It is. You were AWOL last week/
Marisa DiNatale: I was in Pennsylvania.
Mark Zandi: Ah, on business?
Marisa DiNatale: No, pleasure.
Mark Zandi: Oh.
Marisa DiNatale: Yeah. Two of my very good friends had birthdays last weekend, and it had been a long time since I'd been there, so I flew to Philly for the weekend.
Mark Zandi: Cool.
Marisa DiNatale: And then I had the most hellacious travel experience coming back to the weather here in Southern California.
Mark Zandi: Oh, right. Did you get back? You finally got back.
Marisa DiNatale: I finally got back. I waited for my luggage for almost two hours at LAX. My flight was diverted. Yeah, it was bad. I always worry about the weather in Philly in February. I never thought I had to worry about the weather in Los Angeles in February, but yeah.
Mark Zandi: Did the flooding affect you at your home, or were you okay there?
Marisa DiNatale: No, I was fine here. My flight was supposed to come into Orange County. They diverted it to LA because the flight couldn't land in Orange County because of the rain for some reason. And then they lost the luggage that was on the plane, and they didn't take the luggage off the plane, and the plane took off and flew somewhere else with our luggage on it. It was a new one for me.
Mark Zandi: Sorry about that. But you're home safe and sound.
Marisa DiNatale: I'm fine. Yeah. Still raining here, but-
Mark Zandi: Is it still raining?
Marisa DiNatale: Yeah, it is.
Mark Zandi: Wow. So are things turning green in Southern California?
Marisa DiNatale: Yes, yes. It looks very nice.
Mark Zandi: Amazing. Amazing. So is the drought, this is now the second winter in a row where you've got a boatload of rain. Is the drought winding down? I haven't kept track.
Marisa DiNatale: I haven't heard what they've said about the drought situation. It has to have-
Mark Zandi: Had some impact.
Marisa DiNatale: It has to have put a dent in it. I think we got more rain in the last week than we've had in six years combined, or something like that. Something crazy.
Mark Zandi: Oh, wow. Wow.
Marisa DiNatale: Yeah, I mean, it's been raining, pouring every day since last Thursday, so we're going on eight days of constant rain.
Mark Zandi: Goodness. I know in Philly, I'm hearing secondhand from folks, because I'm down in Florida. But you guys have been... Cris, you've been getting pretty warm weather in Philly, right?
Cris deRitis: Yeah. Yeah, it's pretty nice. Yeah.
Mark Zandi: Pretty nice. Yeah. Well, good. Well, I'm glad you're safe and sound, and glad you're back on the podcast. You missed a good one last week. I can't remember-
Marisa DiNatale: I listened to it on the plane.
Mark Zandi: It was a good one. I can't even remember.
Marisa DiNatale: It was Jobs Friday.
Cris deRitis: Jobs.
Mark Zandi: Oh, Jobs Friday.
Cris deRitis: Dante.
Mark Zandi: Yeah. Yeah, absolutely. Yeah, it was very good. Good. Well, this is going to be a good one too. We've got a guest, Bill Adams, a chief economist of Comerica. Bill, good to see you,
Bill Adams: Mark, thanks for having me on.
Mark Zandi: Are you hailing from Dallas?
Bill Adams: Well, if you want to be really precise about it, I'm in Frisco, Texas, but close enough. Yep.
Mark Zandi: Frisco's just north of Dallas, or no, is that right?
Bill Adams: Right. Yeah, Frisco, we're about, at 3:00 AM, we're a 25-minute drive north of Dallas, and one of the fastest growing towns, or cities I guess we are, or Frisco is, in the United States right now.
Mark Zandi: Yeah, it's boom times there. Unbelievable.
Bill Adams: Right. Yeah.
Mark Zandi: I mean, just amazing kind of growth. Every time I go, it's like the whole thing changes. It's just incredible.
Bill Adams: It's a very exciting part of the country to be in.
Mark Zandi: Yeah. I think of Miami, like Miami's booming too, like the Dubai of the United States. So what would be Dallas, what would be the global analog for Dallas do you think?
Bill Adams: Being in Dallas, so I'm going to get in trouble for this. I know you wanted to do my background later. So I was living in China for a couple of years in the 2000s, like right after China joined the WTO. And it feels sort of like being in a major Chinese city in the old go-go boom times. There's a lot of cranes, a lot of construction. You don't go to a part of town for a year or two, and you're like, "Where am I? Which building is this again?" And the same feeling of optimism and a kind of confidence, really cosmopolitan, outward-looking town because it's growing so much and people are coming from all over to come here, live here, do business here.
Mark Zandi: Yeah. We get this really, I think I've talked about it before, this really cool data based on credit files. We get all the credit files in the country from credit bureau Equifax, and you can see the address changes. And so we can track, very timely, like I can tell you how many people moved from Southern California, or even Marissa's neighborhood to Frisco last month, in the month of January. It just feels like people are... Well, actually, with the immigrant issue, people are pouring in from everywhere, aren't they?
Bill Adams: Definitely. Yeah. You see it in the streets, in the license plates on cars. The parents in my kids' elementary school, and they're middle school, they're from all across the United States, all over the world. So it makes for fun PTA events, where bring the food from where you're from, you get just an amazing mix of backgrounds.
Mark Zandi: Yeah, very cool. And so talking about your background, can you just give us a sense of that? How did you end up as chief economist of Comerica? And we've had points of contact over many years. You were at PNC. Tell us, what's your history, how'd you get there?
Bill Adams: So I joined Comerica in 2022. Prior to that, I was an economist with PNC for about 10 years. And then prior to that, I started out my economic forecasting career with the Conference Board, working in their China Center in Beijing. So that's the standard version of it.
The Economist, inside baseball version of it is, if you remember the movie Zoolander, and then there's the scene where Mugatu calls in Derek Zoolander. He's like, "We should work together." And Derek's like, "Well, why are we... I've been here, why now?" Because basically, almost everyone who I've worked with as an economist over the last 20 years, came out of Moody's. There's a lot of Moody's alumni at PNC. The former chief economist at Comerica also spent time at-
Mark Zandi: Bob Dye.
Bill Adams: Yeah, Bob Dye spent time, way back when. So I have been the odd man out of not knowing 10,000 Moody's Data Buffet mnemonics off the top of my head with this crew.
Mark Zandi: It's so funny, yeah.
Bill Adams: So yeah, it's a lot of fun for me, to finally talk with folks at the mothership.
Mark Zandi: And that's what I call it, the mothership. Definitely, the mothership. Well, yeah, I forgot about that, Bob. Now, Comerica, you guys were headquartered in Detroit, weren't you? Now that's way back when.
Bill Adams: Way back when, there was a bank called the Detroit Savings Bank, and that bank merged with banks in Texas and California, Sterling Bank, Imperial Bank. And those, they came together, became a regional bank. And that's kind of Comerica's identity today, where we're in, still have a very large presence in Michigan, but also a big footprint here in Texas, in California, and in Florida, and now in the Southeast and Mountain West as well.
Mark Zandi: In terms of asset size, how big is Comerica these days?
Bill Adams: I think, Q4 2023 we're around $85 billion in assets.
Mark Zandi: $85 billion, okay. So kind of just south of that a hundred billion threshold, when life changes for a bank.
Bill Adams: It's a very special time in a bank's life when they hit a hundred billion dollars, and we're not there yet. If you look at our historical financials, yeah, we've been kind of close enough to that a hundred billion dollar threshold, that we get questions about it. Our investor relations teams gets questions about that.
Mark Zandi: Yeah, just for listeners out there, once you hit the a hundred billion, then a whole nother slew of regulatory constraints, oversight, capital, liquidity, you're in a whole different ballgame at that point. Of course, I think the other threshold is, isn't it 250 billion? So it's a hundred billion, you get an increased level of scrutiny from regulators, then you get over 250, then you're in the big time. The scrutiny is very intense.
Bill Adams: That's right. Yep.
Mark Zandi: Right, okay. Okay, good. Well, a lot to talk about, but maybe with just an open-ended question, just to get a sense of where your mind is. And as I was saying to you prior to going on the podcast, I'm going to try to find a place where we disagree. I've been talking to a bunch of economists recently, and it feels like now, everyone's in the camp of soft landing, everyone's in agreement. The argument over recession is largely over. I don't know if it should be or not, I'd be curious what you think. But now everyone's in the camp of, "Okay, the economy's okay, fine, we should be able to avoid recession." So it doesn't feel like economists are disagreeing with each other, which makes me very nervous. So therefore, I'm going to look for a place where we can disagree.
Bill Adams: Okay.
Mark Zandi: But just an open-ended question, how are you feeling about things? What do you think about the economy's prospects here in the near-term?
Bill Adams: So I have this sort of split personality view of where we're headed in 2024. On the one hand, I feel like economic growth this year is probably going to moderate a bit from what we had last year. So if you're looking for direction of momentum, I think, probably, we'll see some softness in parts of the economy that did really well.
On the other hand, if you're asking about recession risk, I think recession risk in the 12 months ahead, are considerably lower than I thought recession risk in the 12 months ahead were at the start of 2023. So a lot of the tail risks that I'd been thinking about, falling inflation, adjusted incomes, energy price shock, interest rate shock, global geopolitical threats to the U.S economy, I feel like those are smaller risks now than they have seemed for a while. So on the one hand, I feel like the rate of growth that we've seen in the data, in hand through the end of last year and early this year, may be a little too good to be sustained. But on the other hand, in terms of what I see coming forward, not a recession, and not necessarily a big slowdown, just kind of a moderation closer to our potential growth rate.
Mark Zandi: So just to put a finer point on it, if you were on the podcast a year ago and I asked, "Hey, Bill, what do you think the probability of a recession starting at some point in 2023?" What would you have said?
Bill Adams: A year ago, I would've said, "I think there's a risk that the US economy already is in a recession, or has already had a recession at the turn of the year from the end of 2022 into 2023."
Mark Zandi: Got it. And now, going forward for the coming year, what would you say, probably?
Bill Adams: I'd say the risk of recession now is like three in 10, which is pretty low. And I guess, we've been what, in recession like one-fifth of the time since World War II, give or take. So three in 10 is slightly above historical average, but not high. That's fair.
Mark Zandi: Yeah. Since World War II, I think it is. But if you go since 1980, I think it's 1980 is kind the threshold. Because the world kind of changed in that period, conduct of monetary policy because-
Bill Adams: I was born. I was born, was just the big change in world.
Mark Zandi: There you go. In 1980?
Bill Adams: No, 1981. So for me, yeah.
Mark Zandi: Yeah.
Bill Adams: Yeah.
Mark Zandi: So you saw nothing but falling interest rates?
Bill Adams: That's right. I did not believe interest rates could rise. Who knew?
Mark Zandi: Okay, so here we are. And so I would put the unconditional probability of recession at, say 15%, but 15, 20. You're saying-
Bill Adams: I said 30.
Mark Zandi: Elevated, but just a bit elevated, right?
Bill Adams: Right.
Mark Zandi: Yeah. Okay. This is something I'm asking myself, because our forecast for growth in 2024 is a bit less than in 2023. So 2023, real GDP grew two and a half percent, I think, if memory serves. Calendar year.
Bill Adams: Yeah, yeah.
Mark Zandi: And I think we have it coming down to somewhere between two and two and a half percent in 2024. But every time I sit down and do the forecast, I mean, actually sit at the computer, run our model, do all the arithmetic. You have to get some pretty weak growth in the middle of this year now, or at some point in this year, to get something less than two point a half percent, right? You have to have quarters where you're well below two. Why? Why would that happen? What's going to be behind that growth slowdown?
Bill Adams: So if we get that growth slowdown, and that is kind of my base case, I guess as well as yours, is two drivers. One would be consumer spending was really strong in 2023, and we saw a run up in credit card balances. We saw a big drop in the household saving rate, which maybe that's just catch up after pandemic era savings, people spending that down. But there are a lot of other signs that households were under financial strain over the last two years. And so I don't think of that as just a normalization. I think there are, especially low and moderate income households, but, to an extent, reaching into some parts of the top half of the income distribution, where households are under some stress. And I don't think that rate of spending growth is likely to continue. I mean, when you get the turning point is much harder to call than just like, "Wow, this fundamental thing seems out of whack," and eventually you're going to revert to the mean.
But my forecast assumes that that is this year. The other part of my expectation for a moderation in growth is that there was a big boost to the deficit, the fiscal deficit, federal fiscal deficit, from inflation indexed wonky stuff. Or social security benefits rose a whole lot in 2023 because measured inflation was high at the end of 2022. Inflation slowed through the end of 2023, so we should see smaller increases in federal expenditures on social security, Medicare, Medicaid. A lot of inflation indexed. Defense department contracting is probably going to see smaller price increases this year too. And then we're also, I think we'll see larger, non-withheld tax revenues come April because stock market did better last year than in 2022. Bond market was not a bloodbath like in 2022, so I think capital gains receipts will be higher this tax season.
Mark Zandi: Got it. So basically, the story is that consumers drove the train pretty quickly in 2023. They're going to continue to drive the train in 2024, just at a slower rate for-
Bill Adams: Sure. I think that's a fine way of describing it.
Mark Zandi: That's my simplistic way of doing it. Well, can I do a little bit of a tangent here, and start pulling on one of the threads you put out there on low-income households. And there's a lot of hand wringing, and clearly, lower income households are under some significant financial pressure, right?
Bill Adams: Right.
Mark Zandi: They got nailed hard by the high inflation, they blew through their excess saving they built up during the pandemic pretty quickly. They turned to credit cards, consumer finance loans to supplement their income to maintain their purchasing power. Of course, rates have risen, so now they're left with the credit card bills at a higher interest rate, and they're paying on that. And we've seen delinquency rates on credit cards and other household credit products, rise. They're still not really high, but they've risen considerably, particularly cards and consumer finance, subprime auto would be another place where we've seen some significant increase. And there's now a lot of hand wringing about that. And do you have a sense of that? Do you have a view on how serious a problem that is, and will the credit problems become more of an issue going forward? Or now with the Fed likely cutting rates, and we'll come back to that, are we seeing the worst of the credit problems at hand?
Bill Adams: My expectation, and you know, I work for a bank, so got to put in a disclaimer. I'm talking about the economy wide, not Comerica itself.
So across the economy, my expectation is that we still have some pain to be realized in defaults and credit stress affecting low-income households. And the credit cycle is long and slow, and is lagged to the real economic cycle. Access to credit was really good the last couple of years, and there was this just sort of broad sense that the economy had a ton of support from fiscal stimulus. And so there was a big lag between when shocks would hit households, and when you would see it show up in delinquency on credit. So I think a combination of higher interest rates, people first running out of stimulus money, and then tapping their credit cards and running out of their capacity to keep up on bills, with that sense.
For people who are in the most vulnerable fifth of the income distribution, I think we'll continue to see some increase in delinquency rates and financial stress over the next 12 months. But for an economy-wide basis, I think you've got a lot of puts and takes on credit performance. The expectation that the Fed is cutting interest rates, combined with some interest rates are already down from where they were at their peak last year. And I was at an economic outlook event, it was somewhere here in North Texas last week. And I was listening to an economist talk about... Oh, this was the one of our researchers at the Dallas Fed talking about the real estate agents. A part of how they're convincing people to go out and buy, given where mortgage rates are today, is I've got a mortgage agent, they'll get you a mortgage today. And they will, with your mortgage, comes a free refi in two years, is what I've heard is kind of the sweetener that they're using to pull people into the market.
Mark Zandi: How interesting. At the prevailing rate, presumably. Whatever the rate is.
Bill Adams: That is not-
Mark Zandi: There's no fee.
Bill Adams: Yeah. Well, it's not a business that we're in, so I don't know exactly what the terms were for that. But I think the idea that interest rates are headed lower now, I think is a big psychological shift. And you'll find smart business people coming up with ways, innovative products that take advantage of their expectations of where rates are headed, and find ways to do business around that. So I think a lot of the pain in the real economy from high interest rates, as I believe, it's likely a majority of that has already been realized.
Mark Zandi: Okay. Cris, what do you think, with regard to Bill's perspective on household credit?
Cris deRitis: Yeah, I think I broadly agree, that there's probably still some adjustment that's going on. So we do expect to see delinquency rates, default rates continue to rise here for a bit. But we're most likely close to stabilizing at this higher level when it comes to credit cards and personal loans. Part of the reason why we saw this increase is just the lending standards during the pandemic had loosened up, either directly or indirectly, as people's credit scores improved. So we're just paying the price of some of that loosening. But since then, of course, as the banks have tightened up, certainly over the last year, the credit quality of the newer loans should improve dramatically. So for that reason, I think barring a recession, I think the household credit picture looks pretty good. I wouldn't be overly concerned about some of the increases we're seeing.
Mark Zandi: Bill, I mentioned the Equifax of data that we get every month, and we got one of our colleagues, Justin Begley, sent us, both Cris and I, a workbook last night with the data. And so it's monthly data, so I have data now through the month of January. We seasonally adjust the data because there's a lot of seasonality in the credit statistics, in terms of delinquency. And delinquency rates look like they've stabilized, even on credit cards. I think the 30-day-plus delinquency rate, and correct me if I'm wrong, I think it's percent of dollars outstanding, was 4%, I think, on the nose, or pretty close in January. And it really hasn't budged for three, six months-
Cris deRitis: That's right.
Mark Zandi: Consumer finance, same. Retail card, that's a whole different ball game. But auto, same with auto loans. It is rising for mortgage, first and second mortgage, but it's off an incredibly low level. I mean, it's still well below what it was pre pandemic, and there's no sign of any credit stress there. And the other thing I take solace in, is if you look at the growth in outstandings, how much debt is actually outstanding? Those growth rates have really come down a lot. And over the year-over-year, I think total household debt, cars, auto, first mortgage, home equity lines, the whole shooting match, has almost come to a standstill. There's very little credit growth going on.
The card is still high. It's still, I think, in the double digit, but that's coming in really fast as well. So I look at that, it feels like to me, we've probably seen the worst of it. In fact, you can look at the delinquency rate by vintage of loan origination, and to Cris's point, if you look at the loans that were originated a year ago and their delinquency rate like a year into their life cycle, those rates are now coming in below previous vintages at the same point in their life cycle, so lower than the 22 vintage, 21 vintage. So I don't know, it feels like we're pretty close. And I bring all of this up because I'm so annoyed, and I'm curious if you're as annoyed as I am, with the New York Fed data. You do follow the New York Fed data, what the New York Fed does on the consumer credit?
Bill Adams: The quarterly data, right?
Mark Zandi: Yeah. I just find that so bogus. I mean, first of all, it's a 5% sample. You can say, "Oh, 5% should be big enough for these big aggregate statistics." But I'm not so sure because our data, which is the whole shooting match, doesn't line up with their data, even apples to apples. So it's a sample. Second, it's very lag. It's already out of date compared to the data that we have. And then Cris, explain this weird thing they do with the calculated delinquency rates on charge-offs. Explain what they're doing there.
Cris deRitis: Oh, gosh. I think we need a whole lot of other-
Mark Zandi: I'm going to tweet about this this weekend. I'm gearing up for it right now.
Cris deRitis: You need another podcast for it.
My understanding, at least what they've explained, is that they leave in loans that have been charged off. I believe the theory is they're taking more of a consumer-centric view, right? So if you are a credit card borrower, you default on your loan, your loan actually gets charged off by the issuing bank, but that doesn't mean you're off the hook. You're still on the hook for the debt. There's going to be some collection agency presumably, that picks it up and tries to collect that debt. And that continues either until you pay off, or it will remain on your credit report for up to seven years, this derogatory account. So I think the theory is, A, if we're looking at this from the viewpoint of the consumer, a debt is a debt and you're still delinquent even after the issuing bank has charged off. That might be fine in theory, but it doesn't really represent what's going on today, and to my mind, what the consumers are actually reacting to in terms of their current credit position.
If I have this debt that's been charged off five years ago, I haven't paid it. I'm pretty clear that I've already made the choice as a consumer, not to pay that debt. It's not really affecting my day-to-day decisions. I don't see that as a very meaningful economic statistic. The other issue is that doesn't this measure of where we include these charge offs, doesn't line up with what the actual credit card companies report in their financial reports. So a bit of a difficulty in terms of doing any type of benchmark comparison, in terms of the different measures.
And then finally, there's a lot of, let's call it variation, in the practice of reporting delinquencies after charge off. Some companies will continue to do so. Others say, "Well, I have no incentive to continue reporting on this debt, so it's not really important that I ensure the accuracy of this." So you end up with a measure that, to my mind, is very convoluted. It's difficult to understand what exactly is going on when you look at those New York Fed statistics. The broad trends maybe are okay, and certainly, if you look at some of their transition rates, that might be okay. But even there I'm a little bit skeptical given the sampling that Mark brought up and just some of the other data treatments that we're talking about here.
Mark Zandi: Hey, Bill, I just want to point out, you saw the way I express my annoyance and the way Cris expresses his annoyance. I'm not even sure he's annoyed. I don't know. This is unfair Bill, but what do you think we brought you into this conversation, this kind of discussion we've been having. Do you have any views on [inaudible 00:28:58]? You don't need to, I'm just asking.
Bill Adams: No, fair. I think it's hard to measure the economy in real time, right? And you'll see really different things depending on your definitions.
I mean, when I think of this, I think of the analogy to the recession argument over the last couple of years, did we have a recession or not? By the every official measure, I got the recession call wrong in late 2022, early 2023, delighted to see that the economy did better than I feared. But if you look at gross domestic income, we did see two consecutive quarters of decline. And in theory, gross domestic income and GDP by the expenditures account are measuring the same thing. So it's an experience that I have, which I imagine you probably have had some analogous conversations, is when you talk to financial people, like people in a finance department, if they have one version of their numbers, and then they're like, "Nevermind, we're totally restating everything for the last five years. We got better data. So this is a better measure of what happened to the thing we're measuring." They get in a lot of trouble for that. They don't like doing that, and they don't like working with data sources that do that. But as macro-economists, it's just part of the game.
We're talking right now, we've been on this podcast for, I guess, about half an hour. I mean, you folks are on the clock. I'm on the clock. In theory, we're creating GDP right now. How much GDP have we generated in the last half hour? I mean, I wouldn't know. Am I making a good point? And so my GDP per minute just went up as I started talking, or was I actually making more GDP when I was silent? I don't know how to measure that, and I don't know if there's a good answer.
Mark Zandi: Okay. Okay. Fair enough. Fair enough. Okay, this is what I wanted to do-
Bill Adams: Or to make a finer and more actionable point, I don't think it's a good idea to base any business decision, or any firm judgment about the economy, about things that happen too far beyond the decimal point. It's just we're not able to measure the economy to a degree of accuracy, that I feel like that's a credible way of using our data sources and our judgments.
Mark Zandi: Right. Yeah. Although, measuring a delinquency rate, you would think we could get that one right. Come on. How do we-
Bill Adams: You'd think. You'd think, yeah.
Mark Zandi: Anyway-
Bill Adams: Complicated, yeah.
Mark Zandi: Now you've laid out the baseline case, kind for the economy, relatively sanguine, kind of down the middle of the distribution, no recession, slower growth. You said risk of recession is a little bit elevated, so it feels like the risks to your baseline is a little bit skewed to the downside compared to the upside. Can I ask, what's the number one threat to your optimism? If something went off the rails, what would that be?
Bill Adams: I'd say most-
Mark Zandi: Yeah. Cris, I'm going to ask you the same question.
Cris deRitis: Sure.
Mark Zandi: Or maybe I'll ask you to comment on Bill's comment.
Bill Adams: I think if you're working in an institution and you're following a process, and I feel like you got to put foreign shock number one right now, war in the Middle East, war between Russia and Ukraine. Ever since Russia invaded Ukraine and then the war deepened, I feel like everyone's been sort of saying, "What about China and Taiwan, and what are the potential scenarios there." For listeners at home, or on their delayed flights who don't subscribe to the Moody's Scenario Service, Moody's has been incorporating a China-Taiwan conflict in the downside scenarios for the last, I believe, couple of years. So as a consumer of those, it's helpful to say that we have one institution's view of how that would affect the broader economy. But that is something that I think you have to keep in mind.
The U.S economy has been amazingly resilient to these foreign shocks in the last 12 months. And I think it's largely because we're growing energy production so successfully right now at home, like oil outputs at a record high, natural gas, liquids, dry gas also at record high, and growing faster than crude oil. But we're also, I think it's like 17% year-over-year growth of solar electricity generation. I follow the EIA's monthly statistics for that, which come out at a lag, but point to really big changes underway in basic energy supply. And if you think of the 1970s, early 1980s, oil price shocks are a huge part of why the U.S had these very volatile, very sudden and deep recessions. A positive supply shock on energy supply, both conventional and renewable, it seems like it should be good for the economy, and I think that's what's kind of offsetting the effect of this geopolitical unrest, uncertainty, wars, et cetera. But there's no guarantee that we continue to realize the best possible outcome among those, and I think that that's still a downside risk.
Mark Zandi: So just to put it into my nomenclature, you're saying geopolitical risk, and that takes on different dimensions, China, Taiwan, what's going on in the Middle East, maybe North Korea. That's the thing that makes you most nervous in terms of the economic outlook, near-term economic outlook?
Bill Adams: Yeah. I think if you want to come up with tail risk scenarios, and you're coming up with a downside scenario and you want the most likely downside scenario right now, I feel like makes sense to put a negative foreign shock in part of that.
Mark Zandi: Okay. Okay. What do you think Marissa?
Marisa DiNatale: Yeah, I agree.
Mark Zandi: You agree?
Marisa DiNatale: That's my number one as well. I mean, it's the most obvious thing that's out there. I always worry about something percolating in the financial system that we can't see, because that seems to happen and we don't foresee it, so I do worry about that. But certainly, something coming from abroad, would be my number one.
Mark Zandi: How would that manifest? Give me a scenario that makes you nervous.
Marisa DiNatale: I mean, the conflict in the Middle East, just it seems to be widening. I mean, we're doing strikes on Iranian-backed rebels throughout the Middle East, in other countries. It seemed very contained to Israel, Gaza. Then we had the Houthis. Now it seems to be broadening. So if it draws in much more of the Middle East, then you could have a real oil supply shock. Now-
Mark Zandi: Oh, is that what it is?
Marisa DiNatale: Yeah, that's my conduit that I think about. I mean, to Bill's point, we are producing more oil now. We are, I don't know, we're back and forth with Saudi Arabia, so I don't know if we're the biggest now, or second biggest, right?
Mark Zandi: Oh, we're definitely the biggest.
Marisa DiNatale: I mean that's-
Mark Zandi: No, wait. In terms of production, correct me if I'm wrong, I think we're at 13 million barrels a day. They've been cutting. They're down to like eight, seven.
Marisa DiNatale: Okay. So I mean, that has insulated us much more than it would've in the 1980s, certainly. But if something happens with these Middle Eastern countries, I mean that's still a very large part of our oil supply and our global oil supply.
Mark Zandi: That's how you connect the dots.
Marisa DiNatale: Gas prices are... Yeah.
Mark Zandi: That's how you connect the dots.
Marisa DiNatale: Yeah, gas prices.
Mark Zandi: Okay. Bill, is that same way, would you connect the dots from geopolitical threat back to the economy, or is this something else? How does it manifest?
Bill Adams: Yeah, I think gas prices, I think a shock to financial conditions, stock, equity indices fall, you see a negative consumer confidence, negative wealth effect. And then probably also, I would expect a sharp appreciation of the U.S dollar. So negative effects on U.S foreign trade manifesting over a couple of quarters, and maybe some shocks to the oil importing, emerging markets where we could see kind of knock on effects flowing back to the U.S through other global channels. It's very different than it was 15 years ago, where we were so exposed to energy price shocks and now we're better insulated. But that's not true of the whole world. And so you could see effects of an energy crisis on global growth that then kind of flow through other trade, or geopolitical shocks, and then come back and affect us on a secondary-
Mark Zandi: What do you think, is geopolitical risk at the top of your list of concerns as well?
Cris deRitis: Not at the very top. I put the Fed at the top of my list. That makes some type of mistake, but although it's all interrelated, right? Why would the Fed make a mistake? Well, maybe it's because inflation starts to take off again because of a geopolitical threat. Just to add to the mix, because it sounds like we're in the risk identification mode here. Maybe I throw in the supply chains, I wouldn't discount issues in terms of trade being disrupted. I hear the Somali pirates are back because now some of the trade is being diverted closer to the Somali coast. So maybe there are small, in the grand scheme of things, all these different trade bottlenecks, but put them all together and they do increase shipping costs, and certainly, could lead to some delays in delivery of materials and product that could disrupt manufacturing and other industries.
Mark Zandi: Yeah. When I hear geopolitical risk, I think, "Oh, the economy's in pretty good shape." If we're going back to geopolitical risk, that's just a amorphous thing. We always have geopolitical risk. There's always something going on somewhere that we have to worry about. I mean, I'm sure I've said this many times before, but when I was a kid in elementary school, we had drills where there was a nuclear bomb that went off and we had to run under our desk. In my mind, that's geopolitical risk. And this stuff, really? Come on. So this makes me feel like we're searching for threats, which makes me feel a little bit... First blush, makes me feel better. Then I say, "Oh my gosh." Then there's something that's going to be out there that we're not thinking about that's going to come back and hit us.
And I do want to bring up one other risk and get your view Bill. Then we'll be going to do the game, and then we're going to come back and talk about China because of your experience in expertise in China, and then we'll call it a podcast. And Marissa alluded to it, the financial system.
Look, the financial system is under a lot of pressure. The yield curve is still inverted, short rates are higher than long rates. So funding costs are higher than lending rates in many cases. So that puts pressure on banks and other financial institutions. That's how they make their most basic way of making money. I borrow short at a low rate, I lend long at a higher rate. Loan growth is weakening because of the tightening and underwriting. Credit quality is weakening. I made the case, household credit, we're at the worst of it, but CRE, commercial real estate, that's in train. We still got a sense of that this past week with a New York City community bank choking on their commercial real estate loans, that's coming. And of course, the regulatory environment is more difficult. I'm not making a comment, is it good or bad? I'm just saying, "Look, the regulatory costs are on the rise because of what's happened here over the past year." Is that on your list of concerns, something else going off the rails, or breaking in the financial system, the banking system?
Bill Adams: I had a really great professor when I was in grad school, and I went back and talked with him a couple of years after I graduated. And I was thinking about tail risks, risk identification, and how do you think of these shocks? And I asked him, "What's the right way to think of a financial shock affecting..." Sure, the economy looks like... This was in the early 2010s, when the economy was kind of crappy, but not in a recession. It was gradually improving from a very, very bad state. And I was like, "Well, couldn't we have another financial shock, and then that would push us into recession." And he said, "There's no such thing as a financial shock that just comes from the financial system. What you see is you have some stress from the real economy, that then is intermediated through the financial system, and then there's a vulnerability, a weak link in the financial system that then gets exposed. But it only was exposed because you have that real economic shock."
And this was over 10 years ago, so the analogies back then were all to the 2007, 2008 crisis. And he said the things that went back wrong in the financial system then, you saw them in financial institutions, but they were manifestations of housing prices falling and the stress that caused on the real economy, which then flows through the financial system. So I don't know that I'm necessarily a believer in that point of view, but it's-
Mark Zandi: By the way, I totally disagree with that.
Bill Adams: It's an elegant argument.
Mark Zandi: That's a whole different thing.
Bill Adams: Yeah, I think... But that's like-
Mark Zandi: Subprime mortgage. I'm just saying, subprime mortgage.
Bill Adams: Yeah. Well, I mean, subprime maybe would've been okay if house prices kept going-
Mark Zandi: No way. No possible scenario would that be okay.
Bill Adams: I'm not betting my money on it. So this is a long way of saying, I think that if the economy is still in decent shape over the next 12 months, it would be pretty unusual to see a major financial shock with the healthy real economy.
Mark Zandi: Got it. Okay. Very good. Okay, let's play the game. The statistics game, we each put forward a stat. The rest of the group tries to figure that out through cues and clues and deductive reasoning. The best stat is one that's not so easy we get it immediately, and one that's not so hard, we never get it. And one that's apropos for the topic at hand or is recent, and we've covered a lot of ground, so that leaves a lot of ground for the stat. And we always begin with Marissa. She leads the way. Marissa, what's your stat?
Marisa DiNatale: My stat is minus 0.8% year-over-year in January.
Mark Zandi: Government statistic?
Marisa DiNatale: Yes. And it's also, I'll give you a hint. It's actually a happily coincidental statistic in this podcast.
Mark Zandi: Oh, interesting.
Cris deRitis: Whoa.
Mark Zandi: Is it a credit, something related to household credit?
Marisa DiNatale: No.
Mark Zandi: No. Okay. Is this a stat that came out this week?
Marisa DiNatale: Yes.
Mark Zandi: Okay. Is it an economic-
Cris deRitis: Financial stability-related? Financial... No.
Bill Adams: Is it some part of the imports report?
Marisa DiNatale: No.
Bill Adams: From the foreign trade? No. Okay.
Mark Zandi: Not related to foreign trade. Is it a government statistic that we would typically follow, or is this more esoteric.
Marisa DiNatale: Mm-hmm.
Mark Zandi: Oh, it is.
Bill Adams: We're all in trouble.
Cris deRitis: Came out this week?
Marisa DiNatale: Yep.
Cris deRitis: Came out this week. What came out this week?
Marisa DiNatale: I'll say, Bill, you're like tangentially on the right track there.
Bill Adams: Minus is zero-
Cris deRitis: Trade related.
Bill Adams: Year-over-year. It wouldn't be the trade deficit, would it?
Marisa DiNatale: No.
Mark Zandi: The dollar. Something related to the dollar.
Marisa DiNatale: No.
Mark Zandi: No. Trade-weighted dollar. Are we going to be embarrassed if we don't get it?
Marisa DiNatale: I don't think so.
Mark Zandi: Okay. Okay, good.
Marisa DiNatale: I mean, I'll try not to embarrass you.
Mark Zandi: Can you give us one more hint without giving it to us? I was so busy this week, I really haven't paid a lot of attention to-
Marisa DiNatale: The reason I said it's happily coincidental, is because of Bill and his expertise.
Mark Zandi: China? No. Banking? China banking?
Bill Adams: Oh, it wasn't year-over-year imports from China?
Mark Zandi: No, she said it was trade.
Bill Adams: It's a banking number? Is it... Oh, was it, we did get the consumer credit report this week. And I was looking, but I was looking at the month-over-month change.
Marisa DiNatale: It's not consumer credit. We did get consumer credit.
Bill Adams: Okay. All right.
Marisa DiNatale: Can I just tell you?
Mark Zandi: I think we're going to give.
Cris deRitis: Yeah.
Mark Zandi: But by the way, related to UI claims in any way?
Marisa DiNatale: No.
Mark Zandi: I didn't even look at UI claims. What happened to UI claims?
Marisa DiNatale: They fell.
Mark Zandi: They fell? Back down to what?
Marisa DiNatale: They fell slightly. They went from like 220 to 218, or something.
Mark Zandi: Just asking. All right. Okay. Okay. We give, what is it?
Marisa DiNatale: It's Chinese CPI, year-over-year in January.
Mark Zandi: Of course, of course.
Bill Adams: Yeah.
Mark Zandi: We all knew that.
Bill Adams: Sure, we did. Yeah.
Marisa DiNatale: I picked it not knowing that Bill's-
Mark Zandi: It's a good one.
Marisa DiNatale: Was like a Chinese expert here.
Bill Adams: Oh, man.
Marisa DiNatale: I just thought it was interesting because this is kind of the deepest deflation China's had since the financial crisis.
Bill Adams: I hope my mom's not listening.
Marisa DiNatale: Mostly. Yeah, yeah. Maybe you are embarrassed, Bill. I don't know. This is mostly driven by food prices. So there is a glut of pork production in China, and pork prices are down like 18% over the year, 17% over the year. Overall, food prices have been just plummeting in China. Energy prices are falling too, but overall, as we know, consumer demand is also really weak. So consumer goods prices are falling, service prices are up, but they're really, really weak, and they appear to be weakening month over month. So I picked it because I thought it was interesting, and we've talked in the past about how weak Chinese demand may actually be helping, or have helped the US economy to keep inflation under control as it's put a damper on overall global demand and demand for U.S exported products.
Mark Zandi: That's a good one. Hey Bill, do you have any perspective on what's behind the Chinese deflation and how big a deal that is for global inflation?
Bill Adams: I mean, for pork prices, China grows pork domestically using soy and other kind of feedstocks that are linked to the global commodity price, global agricultural commodity prices. So I think we're finally seeing some pass-through of the food price shock of 2022, coming out of food prices there. For China's economy more broadly, man, it doesn't look great. I was in China over the holidays, and you see the effects of the housing market downturn, but commercial real estate utilization also looks quite weak, like a lot of barely occupied retail space. I was in Beijing, you see it there. And I lived in China from 2004 to 2006, and then 2009 to 2011. And the change in demographics, just looking around on the street, seeing how few children there are compared to how it used to be, it's very dramatic. And so that kind of anecdotal, longer-term thematic story about the constraints on China's growth kind of binding more tightly now, I think, are very palpable. So yeah, I don't think we're likely to see a big turning point in the Chinese economy in the near term.
Mark Zandi: Bummer. Yeah, that was a really good statistic, Marissa. Very good one. Bill, you want to go next?
Bill Adams: Sure. So first time playing, my number is 5.1%. So how much detail do I give, when, so that I'm playing fair?
Mark Zandi: That's a good number. And we'll start asking questions.
Bill Adams: Okay.
Mark Zandi: Is it government?
Marisa DiNatale: We'll suss it out.
Mark Zandi: Suss it out, yeah. Is it a government stat?
Bill Adams: Yes, it is.
Mark Zandi: Is this-
Cris deRitis: Did it come out this week?
Bill Adams: No.
Marisa DiNatale: Did come out-
Bill Adams: It's a government stat. It's one from a slow-moving data source.
Marisa DiNatale: Census Bureau?
Bill Adams: Not Census Bureau.
Mark Zandi: It's a demographic variable?
Bill Adams: I'm trying to think of where I would find it in Data Buffet. In Data Buffet, it may be under demographics.
Mark Zandi: Oh, okay. 5.1%. So some-
Bill Adams: Actually, no. It's actually not in Data Buffet. I was talking with the help desk earlier this week.
Mark Zandi: Oh, no. Let's edit this part out.
Bill Adams: Sorry.
Cris deRitis: This is a nice way to force us to [inaudible 00:51:38].
Marisa DiNatale: It's demographic related. Is it a statistic from the past year?
Bill Adams: It is no longer a statistic covering the past year, no.
Marisa DiNatale: Two years?
Bill Adams: Yeah. This is a 2022 annual number, which is the most recent release.
Mark Zandi: 5.1, and it's not housing-related, it's demographic?
Bill Adams: To lay out my thematic story for this, I'll give you one that I'm pretty sure you're going to get. What was 3.6% for the last two years in a row? Not '22, 2021. It's for 2022 and 2023, it was 3.6% annual average.
Mark Zandi: It wasn't inflation was it? No. 3.6%?
Bill Adams: The unemployment rate, the annual average unemployment rate? Yeah.
Mark Zandi: Oh, oh, oh. Was it 3.6? Okay.
Bill Adams: Yeah. 3.6 for both years on annual average. So this number, it went from 3.8 in 2021, to 5.1% in 2022. And so, which is getting worse
Cris deRitis: Labor market-related then?
Mark Zandi: Labor market-related?
Bill Adams: Not labor market-related, actually, but a broad measure of the health of the household and consumer sector.
Mark Zandi: Oh, I see. I see.
Cris deRitis: Savings?
Bill Adams: [inaudible 00:53:24].
Marisa DiNatale: Oh, is it a debt service burden or a financial obligation ratio? That sounds really high though.
Bill Adams: No. So this is very low food insecurity in the United States. So maybe I'm cheating by picking something too obscure, but-
Mark Zandi: That's okay. Fair enough. 5.1% of the population has food insecurity?
Bill Adams: So this is 5.1% of the population had very low food security in 2022. Which is this is the USDA, and their data comes out at a long lag. And so to your question about are we going to have a recession? Did we have a recession? I feel like this is... So it went from 3.8% in 2021, to 5.1% in 2022, which is the high. And they measure it on, it's not measured the way the rest of our economic statistics are measured. They only give an annual average number, and they're measuring like "Did you have so little access to food over the last year that someone in your household had skip a meal," that's the simplistic version of their question.
And like everybody, I've been thinking about the kind of Vibecession debate and what happened to the economy really. And most measures of the economy, you don't see a recession, and you definitely don't see a recession as the MDR defines it. Mark, I'm sure you demote people who try to do this at work, but it's sort of like an.
Mark Zandi: I don't demote people. What are you talking about, demote people?
Bill Adams: Unavoidable temptation of economists to say... Well, the reason there wasn't a recession is because measuring it wrong. There really was a recession it's just it's not fair, the definition, but I know that's not what you're supposed to do as an economist, but-
Mark Zandi: No, I hear you. I hear you. Let me push back a little bit. I mean, couldn't that simply be the American Rescue Plan? I mean, the American Rescue Plan provided so much support in 2021, particularly around food assistance, SNAP, expanding out the SNAP program, that expired, I think, in 2022. And so you see what you're describing, and that doesn't necessarily mean recession, I guess, right? I mean, tremendous support, less support. But it goes to the Vibecession for sure, because people had support then they don't, that doesn't feel good. So I get that.
Bill Adams: I think the withdrawal of fiscal stimulus and support for households is a huge part of it. But the surging in the price of food and gas and rent for low and moderate income households, and for middle income households that might be renters or have someone who's a renter. And I think there was a lot more economic stress on the household sector in 2022, than we have good data to measure. And especially like retiree households, where what does the unemployment rate matter if you're retired? Actually, higher unemployment probably means there's more home health workers who are available. So your standard of living might get better if there's more slack in the labor market. But you do, and I think you can get at it through these sort of, what we consider, or what I would consider are kind of ancillary measures of the health of the economy that aren't really linked to output. And they're not really linked to consumption, right? Because you're not measuring consumption in dollar terms. It's not big dollar amounts, but it's important to kind of standards of living. So yeah, it's-
Mark Zandi: A good one.
Bill Adams: It's something I've been-
Mark Zandi: We'd never have gotten it by the way, Bill.
Marisa DiNatale: But Bill, what does that statistic look like relative to prior to the pandemic? Is that a low number, a high number, just historically speaking?
Bill Adams: Right. It jumped back to where it was in 2014. So it's measured annually. We don't have... I guess, the Census Pulse Survey, there is high-frequency data on, which listeners at home, you can get Census Pulse and Data Buffet.
Mark Zandi: That's the special survey. The census began with the pandemic to provide a lot of granular understanding of what was going on to people because of the pandemic, health and labor market.
Marisa DiNatale: I think they do ask about food insecurity in that survey too.
Mark Zandi: Yeah, they do.
Bill Adams: You get the data every two weeks, so that was the first time that we had data like that on a high-frequency. But this indicator, the last time it rose as much as it did in the 2022 data, was it was at that level or higher level in 2014 when the unemployment rate was 6.2%. So if you want to think of broad summary statistics of the economy, going from where they were in 2021, and then going back to where they were in 2014, I feel like the unemployment rate, it was, I think, 5.6% annual average in 2021, somewhere in the fives for most of the year. If it went to 6.2%, that would've been a mild recession. So again, the weaselly economist who was wrong argument for-
Mark Zandi: I mean, I love the statistic. I think you're stretching, but okay.
Bill Adams: I am really stretching. No, that's totally fair.
Mark Zandi: Hey Cris, what's your stat?
Cris deRitis: 53.4.
Marisa DiNatale: Is that the ISM non-manufacturing index?
Cris deRitis: Bingo.
Mark Zandi: He wanted to give us one that would... Because we were miserable on the first two. Go ahead. You want to explain, Cris?
Cris deRitis: Well done, Marissa. This is a little bit of good news. This is the Services PMI, right? 53.4 indicates expansion. It's the 13th consecutive month of expansion of the Services Purchase Managers Index. So that's above 50 is consistent with expansion. So that's certainly quite positive. If you look through some of the components, there's still very bright signs in terms of business activity, new orders are up. The purchase managers are indicating that demand remains strong. The one blemish you might point to, I think this might be related to some of our earlier discussion, is prices paid. The purchase managers are indicating that they're facing higher pressure for prices again. Part of that related to transportation.
Mark Zandi: Transportation.
Cris deRitis: The shipping costs that alluded to earlier. So that's certainly something to watch. If that were to continue and manifest into broader inflation, that certainly would be a negative. But overall, right, this is a very positive report.
Mark Zandi: Very good.
Bill Adams: So Cris, like surveys of sentiment have been so weird the last couple of years. Are you starting to put more weight on them now, or are you still like, "Man, been such a bad leading indicator of what's really going on," a huge grain of salt still?
Cris deRitis: Well, I think it varies a bit. I don't put a whole lot of stock in surveys to begin with, because of just the subjectivity and interpretation of the question, whatnot. I will say though, that I think the ISM, the purchase managers index is a bit of a combination between sentiment and actual hard data. So put a little bit more stock into this one versus, say, consumer confidence, which is just more of a gut feeling. And as we've talked about on the podcast, you see very strong relationships with political affiliation, so hard to really put a tremendous amount of weight on that. But yeah, PMI, I think it's worth watching. Again, I don't think it necessarily tells you something that's very different from other hard data you might see in the economy, but I think it can give you a bit of a useful signal in terms of sentiment. So I think it's worth keeping an eye on.
Mark Zandi: That ISM Services Index, that's had some really weird months, hasn't it? I can recall last year, there was one month when it plunged, and then came right back and-
Cris deRitis: Yeah.
Mark Zandi: A lot of weird stuff.
Cris deRitis: Yeah, I don't know that you want to-
Mark Zandi: Yeah, hang your-
Cris deRitis: I certainly wouldn't look at one month and conclude very much.
Marisa DiNatale: I think you can say that about a lot of things.
Mark Zandi: Yeah, true.
Cris deRitis: That's right.
Mark Zandi: True. Hey, I got a stat. You'll never get it, but it's a good segue.
Marisa DiNatale: Great.
Mark Zandi: I'll give you a lot of help, but you'll never get it. This is a good segue into the last part of the conversation around China, therefore that was a big hit. Okay, $1.77 trillion. And you may get it because it was in the headlines this morning. I saw it in the headlines this morning in the financial news related to the stock market, another big hit. 1.77 trillion. And I'm not going to belabor it for too long before I-
Marisa DiNatale: It's a financial related number?
Mark Zandi: It is indeed. Yes it is.
Bill Adams: Well, if I'm not going to get it, I remember the fiscal deficit was 1.7 and change, can't be that, can it?
Mark Zandi: No, but that was good.
Bill Adams: No? All right. I think another stat that matches that number, do I get my-
Mark Zandi: If that happens, that happens. I'm going to put you out in your misery. That is the market capitalization of Nvidia, the AI chip company whose stock has gone skyward, part of the magnificent seven, the seven companies whose stock prices have gone north. So Nvidia is up again today, $1.77 trillion. And this is why I bring it up, Nvidia's market cap is now larger than the market cap of all Chinese equity.
So you had up all the market cap of Chinese stocks, because China's stock market's been pummeled here, and Nvidia's is higher than that. Which is a comment on Chinese stock, but it's also probably a comment on our own stock market, what's going on with regard to... Because I do worry a bit about, it feels really hyped here. These are great companies, that are the magnificent seven, Microsoft and Meta. And they're all good companies. But nonetheless, this is-
Marisa DiNatale: Yeah, what's the P to E ratio on that?
Mark Zandi: On Nvidia? Let me see if I can tell you. I can't tell you. I'll tell you here very quickly, I hope. The PE is 94, 94. Just for context, listener, historically PEs should be around, the S&P 500 is 15, 16, 17, something like that. So, 94. Which brings us back to China, and this is where I want to end the conversation because Bill, you spent a lot of time in China, and your early part in your career, you were focused on what was going on with China. And you already kind of mentioned this, it feels like you're kind of pessimistic about Chinese prospects here. Is that fair to say?
Bill Adams: I think you need to sort of answer... I hear two questions in your question. One, is China's stock market so cheap right now, is there too much pessimism priced in? And I think, I'm not an equity strategist, so I don't have a specific view on that. I feel like part of what's priced into Chinese equities is a combination of the economy's not doing great, but then also if you're a US investor, are you going to be forced to divest, or your shares go to zero because there's sanctions on China, if there's a conflict between China and the United States. So I think for the Chinese economy, yeah, I'm pessimistic about... Well, it's funny. I see a lot of things that are going wrong in the near-term. And my experience being like a China forecaster, and also someone who's studied Chinese economic history, is that China often gets to these points where things are very obviously going wrong.
And if you read a layer or two into the media coverage, a lot of the media coverage in the Wall Street Journal and Bloomberg. They're great journalists, but they will often notice things first, because they'll see a report in the New China News Service, run by the Communist Party that, wow, there's this issue that the Communist party and the government are paying more attention to now, we got to come up with something to fix this. So the Chinese state on a, I guess 40, 45-year time horizon, did a good job, or good is a value judgment. Did an effective job at identifying problems and coming up with changes to their system to work through those problems, and to manage those problems down. They haven't done that as well in the last couple of years though. And I think that a lot of the kind of more meta pessimism about China, both here and in China, is just that concern that that more pragmatic approach to, like you have a problem today with X, Y, and Z. Let's change the regulations for this one sector so that we can work around it.
They're not willing to make those pragmatic changes. And then also, they don't have the same positive demographics and long-term trends with urbanization and the growth of the labor force, and so forth. It's just really much, much harder to grow out of problems than it used to be in China. So yeah, I am worried about the longer-term for China's economy. And hopefully, they surprise us again in the West by coming up with some clever adaptation of their system that gets them through these problems, but don't see a lot of evidence of it right now.
Mark Zandi: I could have said another statistic, $450 billion. Now that's related to data that came out this week and related to China. $450 billion.
Bill Adams: Oh, that's not-
Marisa DiNatale: Is that a trade statistic?
Mark Zandi: Yeah, a trade statistic.
Marisa DiNatale: Is it our-
Mark Zandi: It's U.S imports from China.
Marisa DiNatale: Oh, okay.
Mark Zandi: In calendar year 2023, I'm rounding.
Bill Adams: Okay.
Mark Zandi: But imports from Mexico to the U.S now were higher than Chinese imports or exports into the US, or U.S imports of Chinese goods for the first time in 20 years. For the first time in 20 years. So that gives you a sense of how dynamics are shifting. And in terms of the pessimism around China's prospects, you didn't mention, or maybe you did and I missed it, the U.S.-Chinese relationship. It feels like that's definitely going in a direction that's not going to be very helpful for either economy. It diminishes both, I suppose, but particularly hard on the Chinese economy.
Bill Adams: Yeah, I think that it's hard to see that improving, given dynamics on both sides of the Pacific. Mexico, as you point out, a big beneficiary of that. The U.S trade deficit has continued to go up since the pandemic, in broad strokes. So it's not like we have a smaller trade deficit than we have. As all of you know, the trade deficit tends to track with the fiscal deficit over time. But where we are running that bilateral trade deficit with has really shifted. And where we're buying from... I talked to a lot of management teams at companies, talked to a lot of clients, and I think some of it is geopolitical. A lot of it is just after the supply chain problems in the last couple of years, and according to Long Beach, companies wanted to diversify. And Mexico, getting goods across U.S borders over land rather than through a port, has been attractive. So I think that's a big part of that story.
Mark Zandi: Well, very good. Well, guys, anything else you want to ask Bill while we have him? Any burning issues?
Cris deRitis: Super Bowl pick?
Mark Zandi: Super Bowl pick. Ah, yeah. This is going to be very telling, what he says here.
Bill Adams: Oh, man. I think we'll win it.
Mark Zandi: You don't follow football, really? You're not a football guy? That's interesting.
Bill Adams: It's been 24/7, trying to get these stats the last week.
Mark Zandi: I get it.
Bill Adams: And I got them all wrong anyway. No, I don't have anything for you. I'm sorry.
Mark Zandi: No, no. Marisa, do you have a pick?
Marisa DiNatale: No, I really don't. I really don't care.
Mark Zandi: You don't care. I've noticed-
Marisa DiNatale: About either of these teams
Mark Zandi: Given this whole Taylor Swift, Kelce thing-
Marisa DiNatale: Yeah, I'm sick of that.
Mark Zandi: A lot more women are engaged. No, you haven't noticed that. Okay.
Marisa DiNatale: I mean, not this woman.
Mark Zandi: Not this woman.
Marisa DiNatale: I'm really sick of hearing about Taylor Swift. I'm sick of it.
Mark Zandi: I'm not going there. I'm not going there.
Marisa DiNatale: I know. I'm probably going to get hate mail for saying that.
Mark Zandi: Cris, I'm curious. Who would you who... Oh, you know, you play bocce ball. He plays bocce ball. He doesn't play football.
Cris deRitis: Here we go again. I think she's going to make the game. That's my pick.
Marisa DiNatale: What do you mean?
Mark Zandi: Taylor?
Cris deRitis: It's all about Taylor, right?
Mark Zandi: Oh, it's all about Taylor.
Marisa DiNatale: She's going to make it.
Cris deRitis: She's going to make it. She'll be there for the game.
Mark Zandi: She's going to make the game.
Marisa DiNatale: Yeah.
Bill Adams: The flight back, yeah.
Cris deRitis: Flight back, from Japan.
Mark Zandi: Oh. I haven't been following. Boy, now he really knows what's going on.
Marisa DiNatale: Wow, you know where she is in the world. Wow.
Mark Zandi: He's stalking her. Whoa.
Marisa DiNatale: He's a Swifty. I told you.
Mark Zandi: He is a Swifty. He's a crypto... Billy, this guy is really interesting guy. This is why you could never be chief economist at Moody's, you got to be weird like Cris. You got to be crypto king, bocce ball player, sip wine in cellars in Italy somewhere every summer. We don't know where he goes in the summer. He calls us from some wine cellar somewhere.
Bill Adams: Do we get to hear Cris's good news before the podcast ends?
Marisa DiNatale: Oh, yeah. What were you going to tell Cris?
Mark Zandi: Oh, no, no, no. That's personal.
Bill Adams: Oh, Mark. Mark.
Mark Zandi: I can't do that. I can't do that. I just can't do it. It's good news though. It's good news.
Bill Adams: Okay, all right.
Marisa DiNatale: Okay. How about when will the Fed release CCAR?
Mark Zandi: Oh, geez, Louise. Yeah, Bill, do you know the answer to that question?
Marisa DiNatale: I guess not today.
Bill Adams: Excuse me.
Mark Zandi: The CCAR Stress Scenario. We're all waiting with bated breath for that thing.
Marisa DiNatale: But not Bill.
Bill Adams: Yeah, we're under a hundred billion dollars, so I watch with great interest. But the stakes are different when you're at a bank under a hundred billion dollars in assets.
Mark Zandi: Yeah, they're very good.
Bill Adams: Yeah. But good luck with all of that, I was looking at your production schedule. It's a very tight production schedule for Moody's.
Mark Zandi: Yeah, we're very tight. We take great pride in that actually, so thanks for calling that out. And thanks so much, Bill, for coming on, and being so gracious with your time and your insight. We really appreciate it. And with that, I think I'm going to call this a podcast. So take care, everyone. Talk to you next week.