The Inside Economics team is down a regular with Cris on the road, but two Moody’s Analytics colleagues, Adam Kamins and Laura Ratz, try to fill the void. Mark and Marisa recap a busy week by talking about GDP, inflation, and even Fed independence. The discussion of domestic migration features a healthy dose of Philadelphia homer-ism, and the team talks about the implications of the recent surge in immigration, along with plans for new population estimates from the Congressional Budget Office.
The Inside Economics team is down a regular with Cris on the road, but two Moody’s Analytics colleagues, Adam Kamins and Laura Ratz, try to fill the void. Mark and Marisa recap a busy week by talking about GDP, inflation, and even Fed independence. The discussion of domestic migration features a healthy dose of Philadelphia homer-ism, and the team talks about the implications of the recent surge in immigration, along with plans for new population estimates from the Congressional Budget Office.
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 a few of my colleagues. My trustee, co-host, Marisa DiNatale. Marisa, how are you?
Marisa DiNatale: I'm good. How are you, Mark? Good afternoon.
Mark Zandi: Not too bad. I've been traveling much of the week, but returned yesterday and good to be here in Pennsylvania on a beautiful sunny day, really.
Marisa DiNatale: Did you go anywhere good?
Mark Zandi: Yeah, I am on the board of MGIC, that's a large mortgage insurer, so I was in Milwaukee. I go there a couple of times a year, and I love Milwaukee.
Marisa DiNatale: Really?
Mark Zandi: Yeah, it's a great city. A very livable, I think, a great place to raise a family. It's really a wonderful place. And the interesting thing is MGIC's headquarters are right next to Fiserv Convention Center. I guess that's where-
Adam Kamins: Fiserv Forum.
Mark Zandi: Oh, Forum. Oh, yeah. You know, because a basketball fan, I'm sure, so you're watching the Milwaukee Bucks.
But the RNC, the Republican National Committee, is holding their convention there in July. So MGIC's headquarters are in a very strategic location and high demand, that kind of thing. But yeah, it was a good meeting.
And we're missing Cris. Where's Cris? Oh, and that was Adam, by the way. Adam. Hey Adam, how are you?
Adam Kamins: Good. Hey, Mark.
Mark Zandi: Yeah. And you've been on Inside Economics before?
Adam Kamins: I've been a couple of times. Actually, Cris has missed a couple of times I've been on, so I'm starting to get a little insulted.
Mark Zandi: Oh, is that right?
Adam Kamins: Yeah.
Mark Zandi: Yeah. He's not here.
Marisa DiNatale: You're our Cris replacement.
Adam Kamins: Apparently.
Mark Zandi: Yeah. Yeah. He's got more hair than you do though.
Adam Kamins: That's true.
Mark Zandi: Yeah. At least on TV. I'm not sure.
Adam Kamins: I think in real life too.
Mark Zandi: Oh, is that right? Okay.
Adam Kamins: Yeah.
Mark Zandi: All right. And who invited you on?
Adam Kamins: I think you did.
Mark Zandi: I did? Okay. Why are you here, exactly?
Adam Kamins: Because of that invitation.
Mark Zandi: Okay.
Adam Kamins: I here to talk about demographics. Mostly, I think I'll be talking about domestic migration.
Mark Zandi: Yeah. Oh, yeah. You do this really cool work with the Equifax-based credit file data. We can track the address changes of individuals, clearly based on anonymized data, but nonetheless. And it's real time. I mean, it feels real time, right? We have data through March of this year on migration flows. So yeah.
We also have Laura, Laura Ratz. Laura, good to see you.
Laura Ratz: Good to see you.
Mark Zandi: I hear you're a bit of a prima donna though. We got to watch out for you. No? You was the first time on Inside Economics and Adam said you needed two nights at a hotel, preferably something comparable to the Ritz Carlton, something like that.
Laura Ratz: Well, I got an 18-month-old, so-
Mark Zandi: Definitely.
Laura Ratz: I need some solitude. I got a barking dog. It's for your benefit that I made those demands.
Mark Zandi: Totally. I totally get it. I'm all for it. I'm all for it. Well, it's good to have you, and you're going to be talking about foreign immigration, another aspect of the demographic picture, that's really key.
Laura Ratz: Yep.
Mark Zandi: So glad to have you here. And we are doing a lot of work in this area, and it's a bit of a bear, isn't it? They're trying to incorporate these new immigration assumptions into our modeling and forecasting.
Laura Ratz: Yeah. Yeah. Bear is the right word.
Mark Zandi: Bear is the right word. Yeah. And you're leading the charge.
Okay, well, before we dive into the demographic issues, let's talk about the economy and the data this week. And Marisa, maybe I'll turn to you. What struck you as the most important statistic of the past week?
Marisa DiNatale: GDP for the first quarter of the year came out and showed that the economy slowed between the fourth quarter and the first quarter of this year. So it was 1.6% annualized in the first quarter. That's down from 3.4% at the end of last year. Consumer spending yet again was the largest contributor to growth as it typically is. That contributed 1.7 percentage points to GDP growth. Fixed investment was up. Detractors from growth. So the reason growth slowed so much between the fourth and the first quarters was that there was a drag from inventories. So the change in inventories was lower than the change in the fourth quarter. And also, international trade was a negative for growth this past quarter, and that's the first time that that's happened in well over a year. But still, one thing to note is that investment was up and fixed residential investments, so this is investment in housing structures contributed about half a percentage point to GDP growth, and that was the strongest contribution to GDP growth in quite some time.
The government contribution to GDP growth slowed quite a bit, so that contributed less than it has. That's been a strong contributor in the last six to nine months to GDP growth, government spending. It was a much smaller contribution this quarter. So this reading was a bit below what we were expecting. It was below consensus forecast. But I mean still if you look at the trajectory of GDP over the past year or so, we were growing well above potential for the past six months, the last half of 2023. This brings GDP growth back down to something a bit closer to potential.
Mark Zandi: Yeah, I mean, abstracting from the vagaries of the quarterly data, what do you think the underlying growth rate is in terms of?
Marisa DiNatale: I think it's around two.
Mark Zandi: Two?
Marisa DiNatale: Yeah.
Mark Zandi: Yeah, give or take. And two is, as you say, the economy's potential rate of growth, that rate of growth that is consistent with enough job creation to keep unemployment stable. And of course unemployment has been stable now for two years at sub 4%.
Marisa DiNatale: Yeah.
Mark Zandi: So this doesn't change your view of that? This report we got doesn't change our view of that at all?
Marisa DiNatale: No, we were expecting a slowdown. It slowed a bit more than we were expecting, but I don't think it changes our outlook or our assessment of where the economy's heading for the next year.
Mark Zandi: Yeah, I would agree with that. And the slowdown was, as you said, a bigger reduction in inventories, a bigger increase in the trade deficit, largely due to more imports, which goes back to strong consumer demand. And some weakness decline in federal government spending. Although, there's a a measurement quirk there, quarter to quarter movements are very closely tied, believe it or not, to oil prices, because that affects the deflator used to calculate real government spending. And so when you have oil prices move up like they have in the first quarter, that'll push down the measure of real government spending. I mean, I think nominal federal government spending is soft anyway, but then you throw in the mix, this increase in the deflator due to oil prices, you get that decline. So those are things that feel more or less one-off-ish, temporary. They're not going to continue. So yeah, it was on the soft side, but abstracting from those measurement and one-off factors, it feels like we're still right down the strike zone here, right?
Marisa DiNatale: Yeah, I think so. I mean, consumer spending right below 2%, it's been a bit above 2%, a little bit below 2% for the past several quarters. So that's the real driver here and that looks good. And investment actually increased, investment actually accelerated over compared to the past several quarters. So really the fundamentals of the economy, consumer spending and business spending look very solid to me.
Mark Zandi: Yeah. Hey Adam, I know you look at this data too. Any comments on the GDP number?
Adam Kamins: I had the same impression Marisa did. I thought that it seemed like the factors that were dragging it lower are not structural concerns. I mean, I think it's also worth keeping in mind the strains of the labor market in the first quarter juxtaposed with that number. I mean, it gives me more reassurance that there's nothing to be overly worried about Q1.
Mark Zandi: Yeah. Okay. Okay. Okay. Well, there's a whole plethora of data, GDP top of the list. What's on the list, Marisa?
Marisa DiNatale: Well, I would look at inflation next.
Mark Zandi: Yeah, right.
Marisa DiNatale: So we got the PCE deflator. That was up 0.3% over the month in March. That's the same reading we got in February, slightly lower than we got in January. The core PCE was also up 0.3%. So we're looking at year over year PCE inflation, and this is the Fed's preferred measure of inflation as opposed to looking at CPI, right? So year over year, the total PCE is up 2.7%, and core is up 2.8%. And I'll also note the gap between the CPI and the PCE widened a bit this month too. So markets didn't really like this inflation report. We saw mortgage rates rise, we saw bond yields rise on this report. But it didn't accelerate, which is good news. And I want to point out housing, this is what we've been laser focused on as being the major source of inflation. So house prices, housing costs in the PCE stayed the same over the month. Housing and utilities prices rose 0.5% over the month, which is the same as they rose in February. So no acceleration there. So here again, it'd be nice to get an inflation report that shows a clear deceleration in inflation. We didn't get that. We got steady. I guess it's better than the alternative of an acceleration in inflation.
Mark Zandi: Yeah. Well, so when we got the GDP number, that was on Thursday, today's Friday. So on the Thursday, April 25th, we got an estimate of the consumer expenditure deflator, the core piece, so-called core consumer expenditure deflator, core PCE excluding energy, which is what the Federal Reserve targets. When you talk about the 2% inflation target, that's the measure that's being used. And it came in strong. I think it grew 3.7% annualized. And the markets really didn't like that. We had a bad day, stock prices were down, bond yields were up thing on Thursday.
But here on Friday, we got the monthly estimate of the core PCE for March. And that came in at 0.3 as you say, just because listeners of the podcast know we're going to the second significant edition, 0.32. People calm down a bit, investors calm down because most of the increase in the quarter happened in January. That's when we saw the big pop. And that's probably mostly related to measurement issues because when you go to the new calendar year, a lot of companies raise their prices very difficult to seasonally adjust for that. And now the 0.3 is still, you want 0.2, maybe 0.1 every once in a while thrown in. You don't want 0.3, but 0.3 is in hair on fire and therefore the markets are having a much better day.
Obviously, lots of other things going on. Earnings from some of the tech companies has been pretty good, but that really helped. So if you look at bond yields, it's your barometer of how people are thinking about these inflation statistics. Bond yields are down today, stock prices are up. You add up to both days. And we no change. We're where we started.
Marisa DiNatale: Yeah, that's right. I think they saw the GDP report and they were backing out what they thought PCE inflation would be, right? And they were worried about that. Now they see the monthly numbers. It's calmed down a bit.
Mark Zandi: Calmed down a bit, right. I know I said this many times, but I'll say it again. A lot of the difference, if not all of the difference, maybe even more than all of the difference, between what core PCE is now and on a year-over-year basis, it's 2.8%. In the target, 2%, so that 0.8 percentage point difference, that 80 basis point difference is the growth and the cost of housing services for homeowners. The so-called owner's equivalent rent, the implicit cost of owning a home. If you exclude that, and I would strongly argue we should be when trying to think about monetary policy, because it's impossible to measure. And by the way, it's impossible to measure in normal times. It's like forget about it in the current situation when the housing market is as upside down as it is today. But even more significantly, this is an obvious point, but just to articulate it, homeowners actual cost of owning the home isn't rising, because 40% of homeowners don't have a mortgage. The other 60% have a mortgage, but almost all of that is 30 year fixed rate debt that they locked in at three, three and a half percent. And so their mortgage payments are rising. So their cost of living isn't really rising. It's not really rising.
Marisa DiNatale: Yeah. Their real cost of housing has actually fallen, given today's prevailing mortgage rates. Given what they have. The gap between the effective mortgage rate and the prevailing mortgage rate right now is huge. Just because we know that 75 80% of them have a mortgage below 4%.
Mark Zandi: Yeah, I mean I think the average coupon out there is three and a half. Maybe it's migrated up a little bit. So my point is that if you really want to understand what underlying inflation is, which I think is what the Fed wants to target, ultimately. Something they some control over. You need to exclude OER. And if you do, we're there, we're at target. Firmly at target. At that 2% target with no magic tricks. I'm not making stuff up. I'm not doing anything other than saying we want it to get the underlying inflation and you have to exclude OER, which by the way, the Europeans do in their measure of inflation, they don't use OER because it's, as I said, pretty difficult if not impossible to measure.
Adam, I see you shaking your head. Anything you want to comment on there or you're just agreeing with me?
Adam Kamins: I'm mostly just agreeing and also contemplating how my statistic may or may not have just been compromised.
Mark Zandi: You probably shouldn't told us that.
Marisa DiNatale: That happens a lot here.
Adam Kamins: Yeah. I know. I know. I've got a plan B.
Mark Zandi: You've got a plan B. Good. We always need a plan B and a plan C. Plan C. Okay. Any other statistic you want to call out that came out this week, Marisa?
Marisa DiNatale: I mean, we got spending data, we got personal income data, and both of those were quite strong. They were both up half a percentage point over the month. So again, the consumer looks solid. I mean, certainly there are headwinds, mostly stemming from inflation that we're talking about. We have gas prices that are higher now. We have high costs of housing and food still, these things are deflating. But yeah, consumer spending and excuse me, personal income, look good over the month. And then we got job market data too. We once again, keep joking about this, but the unemployment insurance claims, they're just not changing. It's like a straight line.
Mark Zandi: Straight line.
Marisa DiNatale: I mean, nothing. In fact, I think they fell a bit over the week. Yeah, they were down by 5,000 claims. So they're down to 207, which is just incredibly low, right?
Mark Zandi: 207,000 unemployment insurance claims, initial claims.
Marisa DiNatale: Per week, right. Yeah, as of last week. So just no signs of surging layoffs or layoffs picking up in any of the data that we're looking at.
Mark Zandi: Well, it's funny, I am on Twitter @MarkZandi just saying.
Marisa DiNatale: I think it's called X now, Mark.
Mark Zandi: Oh yeah, X. Yeah, I'm on X, @MarkZandi. And what was I going to say? What was I going to say about that? Oh, the fact that unemployment insurance claims, I think if you take a four-week moving average, I think they've been 210,000 on the nose for, I don't know, I'm making this up, four, six, eight weeks, something like that. So on X, there's all kinds of conspiracy theories going.
Marisa DiNatale: Oh, that's shocking.
Mark Zandi: Right? "BLS is making this up. How can it be so close?" And I'm thinking to myself, well, if they really were going to make this up, wouldn't they create a little bit of variation in the numbers? So there's a really bad conspiracy if they're just picking 210,000 and just writing that in. But I thought that was pretty funny. But that goes to the remarkable, probably unprecedented. We should take a look. Unprecedented stability in that number. I've never seen anything like it. Just rock solid 200.
Marisa DiNatale: Yeah, I'm looking at a chart of it. And basically since September of last year, it's just little movements, but it hasn't gone anywhere since summer of last year.
Mark Zandi: Yeah, I mean, it's just amazing. And at the end of the day, as long as businesses are not laying off workers, the economy economy's going to continue to push forward. I think a necessary condition for recession is layoffs, and that's just not happening.
Marisa DiNatale: Yeah, absolutely.
Mark Zandi: Just not happening. Hey, talking about conspiracy theories, did you see that Wall Street Journal article about folks in the former President Trump's camp, thinking about ways to, my words, capture the Fed? In fact, I think one of the ideas that was being discussed or has been discussed, and again this is coming from the Wall Street Journal, is that the president should have the ability to review any interest rate changes before they actually occur. Did you guys see that report?
Marisa DiNatale: Yes.
Mark Zandi: Yeah. Did I get that right? Did I summarize it?
Marisa DiNatale: A bit disturbing.
Mark Zandi: Just to make sure, did I get it right the way I categorized?
Marisa DiNatale: Yeah, I mean, essentially there's a group of Trump advisors that have put together a 10-page outline for how they would rejigger the Fed, which basically would put the president at the head of the FOMC for all intents and purposes. He would have final sign off and consultation on any changes in monetary policy. He could use the Treasury department to his will in terms of expanding and contracting the money supply. He could rearrange the makeup of, which of course he can do, right? He can place whoever he wants as the chairperson of the Fed. Yeah. That he would be consulted on all monetary policy decisions.
Mark Zandi: Wow. What do you think of that?
Marisa DiNatale: I think it's terrible. It's scary. I mean, the pillar of our monetary system is an independent Federal Reserve. This is not supposed to be political in any way. And we're talking about completely politicizing the economy and the financial system.
Mark Zandi: Yeah, I mean, I think politics, it's hard to say. You can't say politics don't play some role in how the Federal Reserve conducts policy because at the end of the day, they are beholden to Congress and the American people. So they have to be cognizant of the political situation. So for example, I think it is very possible that the data might be saying, if there, let me put it this way, if there was no presidential election, the data would be arguing by September that the Fed should be cutting rates. But if you get to September and you haven't cut rates and you've got a November election a few weeks away, are you really going to cut interest rates at that September meeting? Because you'll clearly be brought into the political process. You'll clearly be politicized. And is that in the best interest of the Federal Reserve longer run, maintaining that independence? The answer is probably not. So all else being equal, you'll probably wait to actually cut interest rates.
Marisa DiNatale: I agree. But that's all in an effort to try to remain apolitical. And I guess what you're arguing is-
Mark Zandi: Exactly.
Marisa DiNatale: Maybe what they should do is not what they will do because they are cognizant of any political blowback, which I agree with. But they're doing it, I think, not because they want to give one guy an advantage over another, they they don't want any impression that that could be what they're doing, right? Here we're talking about a politician actually having control over monetary policy.
Adam Kamins: And isn't that a major risk to inflation in the long run? Because what politician is ever going to condone raising interest rates?
Mark Zandi: That's the point. That's why we have independent central banks because inflation was a real problem. And that's why globally, countries everywhere, even countries with autocratic governments have central banks that are largely independent. It varies obviously from place to place. In those countries that don't, like in Argentina, I'm just throwing that out there, they got an inflation problem because you're right, it's a lot easier to cut rates than to raise rates. And your proclivity is going to be always cutting rates. And if that's the case, then you likely going to end up with inflation that's uncomfortably high and be a problem. In fact, I'd go so far as to say that a independent central bank, Federal Reserve is a necessary condition for a well-functioning economy, market economy that I don't think it works without one. Ultimately, it'll just break.
Now, hopefully, if anybody decides they want to go down the path of trying to capture Fed and politicize it and change the conduct of policies, it revolves more around politics than the economics. Investors would throw up all over that.
I mean, interest rates would, I would think, right? We're not the only ones would conclude this is going to be more inflation. So if you're a bond investor, you'd say, okay, have at it, but now you got to pay me a much higher interest rate for that. And then of course an equity investor is going to say, oh, interest rates are a lot higher, so price earnings multiples in the market are lower, so stock prices are going to go down. So it just feels like the result is going to be a lot more days with a lot of red on the screen.
Marisa DiNatale: Yeah, I mean, I can't imagine the chaos in financial markets something like this would cause
Mark Zandi: Yeah, although it's one of those things, it could be one of these things that like a boiling pot, it just changes slowly over time. The Fed gets captured over time and there's no catalytic event. It's like you're okay, and then you're not okay. And by that time, it's too late. It's too late. I don't know. But anyway, hopefully this is just talk. Fine, talk all you want, but hopefully that's what this is.
Okay. Anything else on the economic front you want to bring up, Marisa?
Marisa DiNatale: So we talked about spending GDP. House prices, we got the Moody's Analytics house price index that was up almost 6% over the month in March, year over year.
Mark Zandi: Amazing. Yeah.
Marisa DiNatale: Very strong. Down a bit from where it was in February, 6.1 in February. But yeah, we're still looking at 6% year-over-year house price increases nationally, with most markets rising. A few notable ones posting declines. But yeah, there's not a lot of inventory out there. It's a tale as old as time at this point. As we talked about, nobody's moving. It's keeping a floor under house prices.
Mark Zandi: You know what I found interesting, and maybe Adam, you saw this too in the data. This is our repeat sales index.
Marisa DiNatale: That's right.
Mark Zandi: So we get all the transactions in the country every month from courthouse records. We know the price, and then we take a look at that price on a home and look at what the price was the last time that home transacted. And we add that all up and create an index by market. And the thing that I found very interesting is the strongest price gains, guess where they are? They're in the Northeast and Midwest, which is pretty-
Marisa DiNatale: Philadelphia is one of the top markets.
Mark Zandi: Philly's doing really well.
Marisa DiNatale: And New York City.
Mark Zandi: New York, Philly. I saw the Ocean County, New Jersey, which is where we go to the beach on July 4th. I think like I saw, and this may be just a data issue, 20% year-over-year growth. Can you believe that? Yeah.
Adam Kamins: I'd be careful with Ocean County, New Jersey. There's all kinds of quirks with at least the employment data for there. But I believe the rest of what you're saying for the Northeast, I mean we've seen a lot of these is out-migration from the Northeast from big cities that slowed really dramatically. We've actually had an interesting stat on Philly. If we get the Equifax data, which we'll talk about more.
Mark Zandi: Let's talk about it now, because this is a great segue.
Adam Kamins: Want to talk about it now? Okay.
Mark Zandi: It's part of the conversation. Yeah, the demographic conversation. Yeah, go ahead.
Adam Kamins: Okay, so maybe I'll just give a little context on the Equifax data for people who aren't familiar with it. That it's a 10% cut of the Equifax credit file where we're able to track changes of address. I think you mentioned already it's anonymized, but we are able from that to back out the degree to which people are moving within the US. So we have in-migration, out-migration for every metro area for seven different age cuts. Then we also have data on metro to metro pattern. We know how many people left Philadelphia went to New York and vice versa in each month. What I was going to say about it actually is there is, the vast majority of metro areas in the US, just overall movement has declined pretty sharply over the last couple of years. And especially in 2023, just given the effect of high interest rates and-
Mark Zandi: The lock in. The lock-in Marisa was talking about.
Adam Kamins: The lock-in effect. Exactly. Exactly. There's one of the top 75 metro area divisions, the 75 largest. There's only one where actually the number of people moving in grows. So they're not a net number Volume of people moving in has risen from 2022 to 2023.
Mark Zandi: It's not Philly, is it?
Adam Kamins: It's Philly.
Mark Zandi: When you say Philly, so what are the counties you're in?
Adam Kamins: Philadelphia County and Delaware County. It's Philadelphia Metro Division.
Mark Zandi: Metro Division.
Adam Kamins: Yeah.
Mark Zandi: Okay. Wait a second. So this is in-migration?
Adam Kamins: In-migration. Just in-migration. The other 74, even places where people have been moving in rapidly, you have fewer people moving in and fewer people moving out. And so they might be looking good on net, but only Philly actually had more people move in in 2023 than move in in 2022.
Mark Zandi: And where are they coming from?
Adam Kamins: A lot of them are just coming actually from the suburbs, so a lot of them coming from the Main Line suburbs may be moving back in. I have a feeling you might have some younger people who maybe were living at home for a little while.
Mark Zandi: My sister.
Adam Kamins: And in this economy-
Mark Zandi: My sister.
Adam Kamins: Yeah,
Mark Zandi: Yeah. She's now living in Fitler. Is it Fitler Square? Fitler Square, yeah.
Adam Kamins: So that's some of it. We are seeing some movement still from New York, some other expensive areas where people have been moving in for a while into Philly. So I think it's that combination. I think you have some people coming back in from suburbs, some people from the New York, New Jersey area, but-
Mark Zandi: It's affordable, right?
Adam Kamins: It's affordable. That the big difference.
Mark Zandi: Relatively affordable. Nothing's affordable, but it's relatively affordable compared to New York and DC.
Adam Kamins: Exactly. I think that's the big difference. These big cities are faring a lot better over the past year or so than they were obviously 2020, but even compared to 2021, 2022. But they're still expensive, so it's still hard to draw people to move in large numbers. But Philly, to your point, is affordable enough that I think you do have some people coming in from some of the more expensive big cities in the Northeast or even seeing a little bit of migration from some other markets within the US to Philly. So it's pretty encouraging story for our hometown.
Mark Zandi: Well, what about net though? I mean, because you say in then you have out, and the differences is net in-migration. So what's net in-migration like?
Adam Kamins: So I think Philly is experiencing, net also improved. I believe out fell a little bit in Philly, out fell most places. So the net story, this isn't that in and out, both moved up at the same clip. Philly is, I looked at this before, I think the most improved metro area from 2022 to 2023, no surprise is San Francisco just because it was bleeding residents and it's just bleeding fewer residents basically. I believe Philly was number three on the last.
Marisa DiNatale: But is it negative?
Adam Kamins: I can't remember what number two is.
Marisa DiNatale: But is it net? Is net migration negative or positive?
Adam Kamins: I think it is still negative.
Mark Zandi: Still negative. It's just less negative on a [inaudible 00:31:16] basis.
Adam Kamins: Less negative than it was. Yeah, it's improving almost as rapidly as anywhere else. And compared to the other ones that are improving really quickly, it's in a much better starting position than say a San Francisco.
Mark Zandi: We went right to into the weeds, I mean immediately into the weeds. Maybe can we just take one big step back and can you give us a sense of what the data is saying more broadly about domestic migration? But thing number one, you said that it's really important and very consistent with everything else, is that the number of people are moving is down. So we're not seeing as much in or out migration. Just because people are locked in, they've got a 3.5% mortgage, the mortgage rate's seven, they can't move. The economic doesn't make economic sense, and so we're just seeing fewer moves. That's one thing you've observed. What else have you observed in the data?
Adam Kamins: Sure. Yeah, no, there's a bunch and yeah.
Mark Zandi: Bunch of stuff.
Adam Kamins: I can't help myself-
Mark Zandi: I knew there would be.
Adam Kamins: I can't help but to jump right into the weeds. I live in the weeds.
Mark Zandi: Yeah, we go right down to block level in Philadelphia. Yeah.
Adam Kamins: Yeah. So if we zoom out-
Mark Zandi: But anyone out there should know. I mean, this is a rare thing for Philadelphia. I mean, I've lived here all my life and never have I felt the city as good as it feels today. I mean, I know that's a very anecdotal, squishy thing to say, but it's true. You can see it in the data, right? Broadly. But okay, I digress. Let's go broad again. Go ahead.
Adam Kamins: Sorry. When I saw that data point, I figured I had to give that to you. I figured you'd eat that up. But I think big picture. What the data show us, I mean, first of all, no surprise, people have been migrating out of the-
Mark Zandi: And by the way, one more point, one more quick point.
Adam Kamins: Sure.
Mark Zandi: I can't resist this either. My view is that the presidential election is going to boil down to Philly. I'll just leave it at that. Go ahead.
Adam Kamins: Well, if people keep moving in-
Mark Zandi: And I'm not joking.
Adam Kamins: Then you might be right. Maybe it'll be half the country by the time at the end of the year.
Mark Zandi: I'm not joking.
Laura Ratz: It did last time, didn't it? I mean.
Mark Zandi: Did it? I mean it certainly must have played a big role.
Laura Ratz: It was definitely a big part of-
Marisa DiNatale: Wasn't Chester County one of the major determining counties?
Laura Ratz: Yeah, Chester County. Delaware County
Marisa DiNatale: Montgomery.
Laura Ratz: Yeah.
Marisa DiNatale: Yeah.
Mark Zandi: Anyway.
Laura Ratz: There were a lot of memes on the topic or.
Mark Zandi: We're just trying to make ourselves feel important. But anyway, go ahead. I'll leave you alone, Adam. Go ahead.
Adam Kamins: I wonder if we should construct a model where people move into an area just so that their vote can be the deciding vote. Maybe that's the motivation. Yeah.
Mark Zandi: That's an interesting concept. Go ahead.
Adam Kamins: I'm sorry. Go ahead.
Mark Zandi: Go ahead.
Adam Kamins: All right, so I guess, if I really zooming out, the big picture with migration has been for as long as this data set goes back, and even before that, and this data goes back to about 2005, there's been movement out of the Northeast, out of the Midwest into the South and into the Mountain West. And after the pandemic, that picked up dramatically. You saw a lot more movement out of big cities into the Mountain West, into the Southeast in particular. I'm not saying anything, anybody here hasn't heard a million times already, but what we've seen in the most recent data over the last year, year and a half, has been much slower movement into the Mountain West. A lot of these secondary, tertiary markets, the Boise's of the world in particular have really seen a marked slowdown in in-migration. We've seen, actually, the Southeast is still doing very well, there is a few. I won't keep quizzing you, but the state that looks like it's adding residents at the most rapid clip on a per Capita basis is South Carolina.
Mark Zandi: I was going to say that. That's not fair. I was going to definitely say that.
Adam Kamins: So I didn't want to quiz you. I didn't want to give you too much satisfaction here. So yeah, so South Carolina's growing really rapidly. We really aren't seeing any real meaningful deceleration in the Southeast. And so those are the two broad trends among the areas of the country that are the winners demographically. And then the other broad pattern we're seeing is that, like I mentioned before, big cities, these gateway markets that were losing residents really rapidly in 2021, 2022, they look a lot more like they did in 2018, 2019, which is to say they're still losing residents, but it's not anywhere near the clip that they were.
Mark Zandi: So the pandemic hits, we see the mass outflow of people from these large urban centers. The net migration was negative and deeply negative and getting more negative. I think that peaked in 2022, no? Am I right?
Adam Kamins: I'd say 2021.
Mark Zandi: 2021.
Adam Kamins: [inaudible 00:36:24]. It was near its peak still when we got to 2022.
Mark Zandi: '21 early '22.
Adam Kamins: Yeah. Yeah.
Mark Zandi: That's the peak of the remote work dynamic. And then remote work started to come back in a little bit. Businesses say, "Hey, you got to come back to work in person." And that net outflow has slowed. And last time I looked, the amount of net out migration is still a bit elevated relative to the pre-pandemic period. Is that correct? Or is it all the way back into pre-pandemic?
Adam Kamins: It is almost all the way back.
Mark Zandi: Oh, it is? Okay.
Adam Kamins: Yeah.
Mark Zandi: Okay.
Adam Kamins: But it depends on the market too. So San Francisco still looks a bit worse than it did prior to the pandemic. New York looks pretty similar. So it depends. I mean, the one thing I would say too, though, I wouldn't put all of my stocking up because you see daytime population. So if you look at commuter traffic, office vacancy rates, it's clear that these big urban centers, there's not as much activity. The economies are not as robust, especially on weekdays, as they were prior to the pandemic. But in terms of just people moving in and out, it looks very similar to 2018, 2019.
Mark Zandi: Yeah, it's so interesting. I told you, I said I was in Milwaukee. Milwaukee is a good case in point. The office towers are, the occupancy rates are a lot lower than they were pre-pandemic. Although I'd say Milwaukee, the remote work dynamic hasn't played out quite as significantly as in a place like New York or Philly or San Francisco. But nonetheless, it has happened. So you have fewer people coming into the office every day, yet you've got these large apartment towers going up everywhere for people. It feels like, how do you square that?
Marisa DiNatale: So they're moving into a city, but they're working remotely from their home in the city, they're not going into [inaudible 00:38:28].
Mark Zandi: Is that what's going on?
Marisa DiNatale: I don't know. Sounds like what you're saying.
Adam Kamins: I mean, we've seen in a lot of the data that are moving back into cities generally, that was actually one of the other trends that we're seeing consistently in this Equifax data is it's the young adults, the 18 to 34-year-old cohort is generally pretty pumped about city living again. And so a lot of them are, I think Marisa, I think you're right. They're moving into these urban apartments and they're moving there not to be close to where they work, but because they're attracted to the way of life and they want the amenities, they want the nightlife, they want all that. They're agnostic about where they live relative to their office location, because a lot of them are working remote jobs anyway.
Marisa DiNatale: I mean, that struck me at our all hands day. A couple of weeks ago, we were all together in the suburbs of Philly. How many of our younger colleagues were telling me that they all recently moved into the city? They all live in Philadelphia, and a lot of them live near each other, and they're there not because their job is there, but because they want to be in a city.
Mark Zandi: Yeah. Yeah.
Adam Kamins: An interesting conversation a couple of weeks ago about this, where offices that are located in cities that I was talking to a group and a few of them work in offices located in cities, I think particularly in DC. And they were saying the people that go into the office regularly are the young people because it's near them. And then I was saying, well, my experience, I think our experience with a more suburban office is that generally it's been some of the more experienced people that... The younger people, at least that I have worked with and on my team, they don't want to go anywhere near the office if they don't have to. So I think all of that, the people, the office occupancy and who's going in. It's just a function of where it's located. And I think basically, if you want young people around, you need to follow them into cities.
Mark Zandi: So this whole idea that remote work and the hollowing out of these office towers was going to be the death knell of these urban quarters, maybe not. It's just a reshuffling. It's an adjustment process, obviously, but it's a reshuffling, and the city's going to end up being just more residential. This is a place to live as opposed to a place to work.
Adam Kamins: That's exactly right. I think that and a place to travel for, I think tourism is still very popular, a lot of these cities. But yeah, it's a place people go to have fun as opposed to go to work.
Mark Zandi: I mean, like Philadelphia, you've got the professional sports, you've got universities having basketball tournaments, you've got all kinds of performing arts all the time. And that's very interesting. Okay, so-
Marisa DiNatale: Can I ask a question about the other part of what Adam said about people moving to the South and the South Carolina?
Mark Zandi: Yeah.
Marisa DiNatale: Anecdotes. So Adam, who's doing that? Is this sort of the baby boom retiree migration to the South that's going on? Or is this also younger people?
Adam Kamins: I think it's a little of both. I think though in the case of South Carolina, I think there is an outside share that is the retirees moving there. So Myrtle Beach, Hilton head, those are really popular destinations, and I think a lot of that is being driven by retirees. But there is, I think Greenville was another one in another metro area in South Carolina that's been very popular with movers, and I think that's more balanced, right? I think there are young workers that are following jobs there. So it's a mix, but I think the South Carolina example in particular, I think it does skew more towards seniors and retirees. I think you're seeing other areas like whether it's Nashville or Raleigh-Durham or Jacksonville, where it's more young people that are migrating to those areas.
Mark Zandi: Any other [inaudible 00:42:32] in the data? You want to call out Adam before we move to the stats game and we start talking about foreign immigration with Laura?
Adam Kamins: I think those are the key ones. I'm sure we'll circle back to some, but those are probably the biggest observations I've seen so far.
Mark Zandi: Okay. Okay. Very good. Well, let's play the stats game. The game. As we each put forward a statistic, the rest of the group tries to figure that out through clues and questions, deductive reasoning, the best stat is one that's not so easy we get it immediately, not one that's not so hard, we never get it. And if it's apropos to the topic at hand, demographics or recent economic data, all the better. And we always begin with Marisa. Marisa, you're up.
Marisa DiNatale: Okay. 3.6% year-over-year.
Mark Zandi: In the GDP numbers?
Marisa DiNatale: No.
Mark Zandi: In the inflation numbers?
Marisa DiNatale: No, but it's inflation related.
Mark Zandi: Is it wage growth?
Marisa DiNatale: No.
Mark Zandi: Is it housing related?
Marisa DiNatale: Yes.
Mark Zandi: Is it house price related? No.
Adam Kamins: Rent,
Marisa DiNatale: Yes.
Mark Zandi: Rent?
Marisa DiNatale: Yeah.
Adam Kamins: Is it?
Marisa DiNatale: Yeah. I'm going to tell you what it is. Because I went a little bit off the grid for this.
Mark Zandi: Okay.
Marisa DiNatale: Because this is data from Zillow.
Mark Zandi: By the way. That was very good, Adam. I did all the work and then you got the answer.
Adam Kamins: Hey, it's a role reversal, right? Doesn't that usually go the other way?
Marisa DiNatale: It only matters who buzzes in at the end with the correct answer.
Mark Zandi: I know. I know. I agree. I agree. So rent growth is 3.6% year over year. Okay, explain. Explain the data.
Marisa DiNatale: Yeah. This is data from Zillow, right?
Mark Zandi: Right.
Marisa DiNatale: So we are having this conversation about rent, price growth and OER showing up in the official inflation statistics put out by the government. We know there's a lag between when real-time rents get signed and when that shows up. So Zillow has a data point that they put out every month. It's a repeat purchase rent index. It includes all kinds of rent. So it includes people renting single-family homes, people renting multifamily apartments. So the latest reading that came out in April showed that rent prices, rents were up 3.6% over the year. If we go back a year ago. So if we look at the data that came out in April of 2023, rents were growing 5.8% over the year.
So this has come way in, but what's interesting is that if you look over the past few months, rents have sort of started to accelerate a little bit. So the bottom of this Zillow repeat rent index was showing rents growing at 3.3% toward the end of last year, and we're now up to 3.6%, which suggests there could be a little bit of rent acceleration in some markets. But the broader point I want to make is that this is way, way down. Whether you look at it from a year ago, or you go back several years, if you go back to 2022, we were looking at rent growth of 16% year over year on the same month. So 16% in 2022, almost 6% last year. And now we're looking at a little bit over 3.5% now.
Mark Zandi: Yeah, I don't like the Zillow data on rent.
Marisa DiNatale: Okay. Why?
Mark Zandi: I think that's the listed rent. It's not the actual-
Marisa DiNatale: Transacted rent?
Mark Zandi: It's not the actual effective rent. I think I have that right, someone should just check to make sure. I think if you look at apartmentlist.com, which I find much preferable because that goes to the effective rent that people are paying, the actual rent that they're paying. And you look at that data, the most recent data, and again, this is from my mind's eye, so I don't know if that exactly right, but it is definitely not up at all. If anything, it's down. It's still down, not a lot.
Marisa DiNatale: You mean it's a negative number?
Mark Zandi: It's a negative number.
Marisa DiNatale: I see. Okay.
Mark Zandi: It's a negative number. So I'm skeptical of the Zillow data. I don't know that I would focus on that. Adam or Laura, do you have a view on that data? Have you looked at it at all?
Adam Kamins: I've looked at it a little bit, but I've not gotten it enough to-
Mark Zandi: Gotten into in the weeds.
Adam Kamins: Yeah.
Mark Zandi: Yeah. Yeah, I think I have that right. Cris would know if he were here, but I think that's the case.
But anyway, your broader point is that it's decelerating. The level may be a high relative to the actual rent, but the pace of growth is decelerating here.
Marisa DiNatale: That's right. And if you go to the pre-pandemic, right? So if we looked at March of 2019 compared to here, I was looking at that compared to the CPI, rents are up almost like by a third according to the Zillow data. If you look at the CPI data for rent of shelter over that time period, they're up like 27%. So we're talking about roughly between a quarter and a third of rent price appreciation since the pandemic started. So we still have high housing costs relative to where we were. It's just coming in.
Mark Zandi: Oh, I see what you're saying. You're saying because of the surge in rents-
Marisa DiNatale: Cumulatively, right. Cumulatively, since the start of the pandemic, rents are up by somewhere around 30%, depending on the source [inaudible 00:48:39].
Mark Zandi: In my mind's eye, before the pandemic, the typical rent for a single bedroom was like $1,000 a month. Again, I'm making all this up, but roughly speaking. Now, I think it's like $1,250 a month, something like that.
Marisa DiNatale: Yeah. The Zillow median was almost 2,000 a month as of this march compared to about 1,900 a month.
Mark Zandi: That may be the other thing. Zillow might be more at the high end of the market than the total market. This feels like it. If the median is 1900 bucks, I would think that sounds high for the entire market.
Marisa DiNatale: Yeah.
Mark Zandi: But anyway. But anyway. That's a good one though. That's a really good one. Laura, do you want to go next?
Laura Ratz: Sure. I have two. I was trying to keep mine within my topic of immigration.
Mark Zandi: That's fair.
Marisa DiNatale: That is what you're supposed to do.
Laura Ratz: Yeah. So do you want the easy one or the more obscure one? The easy one might be too.
Mark Zandi: Let's see how easy it really is. Because if someone says it's easy, it's not easy, but go ahead.
Laura Ratz: Well, I'm going to say it might be, and Adam, I might have to ban you from guessing until a few moments go by, but I don't know, maybe not.
Adam Kamins: I'll be fine.
Laura Ratz: Well, mine's a year, 2040.
Mark Zandi: Say that again.
Laura Ratz: Mine is a year actually, in which something will happen. 2040.
Mark Zandi: When a minority population outpaces the White population.
Laura Ratz: No, but in that realm, yeah.
Mark Zandi: In that realm.
Laura Ratz: You're on the right track.
Mark Zandi: When the foreign born is high... No, no, that can't be. Foreign-born won't outpace native born by 2040. That can't be it, right? That's not it.
Laura Ratz: So it's the year, per the CBO estimates, which we're all really invested in right now. That is the year at which natural population growth will cease to support overall population growth. And immigration will be the sole source of US population growth.
Mark Zandi: That's a good one. So you're saying-
Laura Ratz: You got it in three seconds.
Mark Zandi: You're saying if there was no immigration, then by 2040, the US population will start to decline.
Laura Ratz: No. Well, yes, yes, yes. If immigration went to zero in 2040.
Mark Zandi: Yeah. If immigration was zero, the natural births and deaths would-
Laura Ratz: Essentially, natural population change will go negative. Deaths will outpace births.
Mark Zandi: Right? Yeah. That actually is a very good one. So 2040, so that's 16 years from now, that'll be the case?
Laura Ratz: Yeah. Yeah. And that's one estimate. There are others that put it a little bit sooner actually.
Mark Zandi: Oh, what about the minority versus the White population? I think I got that roughly right. It could be [inaudible 00:51:36].
Laura Ratz: That I can't say for sure, but I would say it's around the same time.
Mark Zandi: Around the same time.
Laura Ratz: Yeah.
Mark Zandi: Yeah. Interesting. Okay. [inaudible 00:51:44] the harder one.
Marisa DiNatale: Could be sooner.
Laura Ratz: I would think. Sooner, yeah, or so.
Marisa DiNatale: I mean, it's already the case in California.
Laura Ratz: Yeah. It's already pretty close. Yeah.
Mark Zandi: What is already the case?
Marisa DiNatale: That the non-White population is larger than the White population?
Mark Zandi: White population.
Marisa DiNatale: Yeah. Right.
Mark Zandi: You want to give us the hard one?
Marisa DiNatale: What's the hard one?
Laura Ratz: The hard one-
Mark Zandi: Is too hard.
Laura Ratz: Well, if we had talked about immigration already, maybe I circle back to that.
Mark Zandi: Okay, we'll save it.
Laura Ratz: Let's do that at the end.
Mark Zandi: Yeah, let's just save it, because Marisa's got to leave a little early anyway.
Laura Ratz: We don't we don't want to deprive Adam his turn.
Mark Zandi: Yeah, exactly. Adam, what's your stat?
Adam Kamins: All I'll say, because I know I don't want to take too long. I'll give you one that it might be a little bit easy. It goes back to something we were talking about before, but go to the 3.781%.
Marisa DiNatale: Wow. Three digits on that one.
Adam Kamins: That's three digits. I'm upping the ante.
Mark Zandi: Is demographic related?
Adam Kamins: No. Well, it'll come back to a point about demographics. But this is not specifically demographic, is it?
Marisa DiNatale: Is it about OER?
Adam Kamins: It is not, but you're in the ballpark. It's housing related.
Mark Zandi: Housing related. 3.781%. Is it year over year growth rate?
Marisa DiNatale: Is this a growth rate?
Adam Kamins: It's not a growth rate.
Marisa DiNatale: It's a proportion of something.
Adam Kamins: It's a rate of something.
Mark Zandi: It's a rate. That's not the share of the population that moves in a given year, is it? Oh, no, that's demographic.
Adam Kamins: No, that was a statistic I wanted to go to, but it was hard to find. Well, I'll get into that.
Mark Zandi: It's hard to find. Yeah.
Adam Kamins: Yeah.
Mark Zandi: Housing-related
Laura Ratz: Is the three decimal points, is that telling? Should that?
Mark Zandi: Yeah, is that [inaudible 00:53:41]?
Adam Kamins: It's just how it's reported.
Laura Ratz: Okay. So that is how it reported.
Adam Kamins: And I'll tell you. It's from, I believe it's from the bowels of the GDP report.
Mark Zandi: Oh, so something to do with the... Oh, is that-
Marisa DiNatale: Is it a deflator?
Mark Zandi: Is that the mortgage rate? The effective mortgage rate?
Adam Kamins: Yeah. Yeah. It's the effective mortgage rate.
Marisa DiNatale: Oh.
Mark Zandi: Effective mortgage rate.
Marisa DiNatale: Oh. Oh. Oh.
Adam Kamins: For, yeah.
Marisa DiNatale: For outstanding mortgages?
Adam Kamins: For outstanding mortgages. Which is actually down slightly from Q4.
Mark Zandi: Really?
Adam Kamins: It's almost flat. So I was surprised that it was down. I'm not sure if that's just a statistical anomaly. It's only about a hundredth of a point that it's lower. But I mentioned that only to just reemphasize a point that we've already made here, but that gap that, Marisa, that you were talking about, between the effective rate on-
Marisa DiNatale: Prevailing.
Adam Kamins: Outstanding debt versus the actual prevailing rate, that rate lock effect has kept people tethered to their homes. And it basically is really evident in a lot of the domestic migration data that we're seeing. And basically the mover rate, it's hard to get 2023 data, although there are some sources out there that are reporting 2023 data and the mover rate. And basically, it's not clear exactly what that number will be, but it's pretty clear it is the lowest mover rate on record. And that goes back to the 1940s. And then you combine the rate lock effect with the aging population and the reduced mobility associated with that. Just people aren't moving at the same clip they used to.
Mark Zandi: Yeah. Yeah. You want me to give you my statistic real fast?
Marisa DiNatale: Yeah.
Mark Zandi: Okay. Two numbers. 62% and-
Marisa DiNatale: 62%?
Mark Zandi: 62% and 66%. And it's actually 65.9%, but I'm rounding to 66.
Marisa DiNatale: That sound like home ownership rates.
Mark Zandi: Yeah, but that's not it. But you're right, the ownership rate is 66%. Yeah.
Marisa DiNatale: Consumption's share of GDP.
Mark Zandi: No, it's demographic related.
Laura Ratz: Does that anything to do with the labor force participation, Mark?
Mark Zandi: It does indeed.
Laura Ratz: Is it foreign-born participation?
Marisa DiNatale: Versus native-born?
Mark Zandi: Which one's foreign-born?
Laura Ratz: What were the numbers again?
Mark Zandi: 66% and 62%.
Laura Ratz: 66, I will say is foreign-born participation.
Mark Zandi: Exactly.
Laura Ratz: 62 is native.
Mark Zandi: Very good. Excellent. Yeah, that was fantastic.
Marisa DiNatale: [inaudible 00:56:20].
Mark Zandi: Yeah. Very, very good. Laura.
Laura Ratz: That's funny. That was on my list. I'm wishing I had done that now. That wasn't my hard one, but that was on my list.
Mark Zandi: That's a good one. Well, 66. The participation rate for foreign born is back to pre-pandemic, and it really hasn't changed in 10 years.
The native-born is 62%, and that is down a bit from pre-pandemic. It was 62.5%. So we were down a little bit. And that goes back to older native-born Americans leaving the workforce and not coming back. But yeah, that's another reason why foreign immigration tends to support economic growth. Because it's not only about people... It lists labor force more because it's the people and the fact that they, a higher share of them go into the workforce looking for work or working.
But that's a good segue into the last topic that we'd like to discuss, and that's foreign immigration. And maybe Laura, you can give us a sense of the motivation, why we're focused on this.
Laura Ratz: Sure.
Mark Zandi: I mean, it is obvious in some respects, but in other respects not so much. So maybe you can talk a little bit about that.
Laura Ratz: Yeah. I think you've teased this topic a little bit before in your previous speaking events. But basically earlier this year, the CBO released new estimates on their demographic projections. And among other things, this included different immigration numbers. When I say different, I mean different than the Census Bureau, which has long been the definitive source for all things demographics.
And basically, going back a couple of years, the CBO is saying that immigration numbers into the US have just been way higher than originally believed. Just for point of reference, in 2023, the Census Bureau has it at about 1.1 million immigrants came into the country. The CBO, the Congressional Budget Office, has it at about 3.3 million, so quite a bit higher.
What's really interesting about this is that it helps to explain a lot of employment data that we've been seeing. And if you go back the past couple of years, this discrepancy started back in 2021, where the CBO is estimating much higher immigration than the Census Bureau. And that's roughly around the same time that employment data started to just roll in quite a bit higher than we were expecting. And economists were scratching their heads. And now we have a better understanding of why that there was just so many more people in the labor force to help the economy add these jobs.
Mark Zandi: So CBO, the Congressional Budget Office, the nonpartisan government agency that does the budgeting for the US, they have to do an economic forecast that goes to how much tax revenue's going to be generated, what government spending is going to take place to do the budget, to do a forecast of the budget. And of course, the economic outlook is very closely tied back to demographic assumptions in the long run, over a ten-year horizon. And they actually go out 30 years for some of their forecasting. And foreign immigration is a big part of that. And so that's why they're focused. They've been focused on this, and they have gone back taking a look at data coming from the border and the data showing how many people are being stopped at the border by Border Patrol because tracked on a monthly basis. And they've used that to construct estimates of how many folks are coming across the border. And they estimated total immigration, both legal and undocumented at 3.3 million in 2023. And if you go back pre-pandemic in the years leading up to the pandemic, typically it was closer to a million. 250K, undocumented, the rest, legal visas and everything else. And so that you're saying is having a big impact on the labor force and therefore on economic growth?
Laura Ratz: Yes, exactly.
Mark Zandi: Yeah. Okay. Okay. So if you look at the CBO forecasts, so they have to do a forecast, right?
Laura Ratz: Mm-hmm.
Mark Zandi: They have this strong immigration continuing in 2024. It comes in a little bit in '25 into '26, I believe, by 2027, 2028. It's backed down to that million per annum that prevailed prior.
Laura Ratz: Yeah, just over a million. [inaudible 01:01:18].
Mark Zandi: Of course, we have to do a forecast. We're now in the process of incorporating these new estimates on immigration into our own estimates. So we're not going to be using census data, we're going to be using estimates that are based on the CBO methodology. And of course, we have to do a forecast. And our forecast doesn't necessarily have to be the same as the CBO. In fact, it certainly won't be. What do you think's behind the CBO? And this is a high degree of speculation, but let's speculate away. Under what circumstances do you think you get the CBO forecast, and do you think that's the best forecast going forward?
Laura Ratz: Sorry, I don't understand the question. Under what circumstances?
Mark Zandi: Well, okay, so I gave you the CBO forecast.
Laura Ratz: So they're basically saying that this current surge will continue over the next few years. When it does start to come a little bit, they offer a variety of explanations. One is just that so much of this surge has been... They put into the, so-called other category. And that includes people that you might call illegal, but it also just includes people who, they came into the country, they had an interaction with Border Patrol, but they're now in awaiting worker authorization. They're awaiting a day in court essentially to decide their status. That number will come in a little bit just as the system adjusts to allow for this, to accommodate this surge coming into the border. Essentially, not as many people will be allowed in to await immigration proceedings. That's a big part of what will bring that number in the next couple of years.
Marisa DiNatale: Meaning they're expecting a change in policy around immigration?
Laura Ratz: Policy to an extent, but just the system's wherewithal to handle that many people coming into the country.
Marisa DiNatale: So they'll turn more people away.
Laura Ratz: Yeah, essentially.
Marisa DiNatale: Okay.
Mark Zandi: Oh, okay. So right now the border is completely overwhelmed. People are pouring through the Border Patrol and other resources aren't adequate to address this, and therefore we have lots of people coming in. But the policymakers aren't standing still, they are working to regain control of the border and those flows. And the CBO is assuming in their forecast that that is going to be successful over the course of the next several years. As you look towards the end of the decade, immigration will be back to something that's more typical.
Laura Ratz: Yes. Yes. That's it. Sorry, I apologize. If you guys can hear the dog going nuts in the background.
Mark Zandi: No, no. Forget about the dog. It doesn't matter. There're dog everywhere. Yeah. Don't worry about that.
Laura Ratz: But is essentially it.
Mark Zandi: Yeah. Okay.
So do you think that that's a good forecast, what they have? I mean, we have to do a forecast. We haven't gotten there yet. We're in the process of going in that direction. And again, this is something we have to discuss in iron out, but I'm asking you, your intuition at this point, do you think that's a good forecast going forward?
Laura Ratz: Under the current climate? Yes, I think so. I think so much just depends on immigration policy. To a large extent, I feel like these latest numbers, they're a smoking gun in the immigration discussion. There's an argument to be made that the US economy has done so well the past few years because of immigration. And as I said, in 16 years, the US population growth will depend entirely on immigration. So I think that is a policy motivator to change things. Now as for not this is valid? Yes. Under the current policy environment? Yes, I think so. But a lot depends on that and what changes may or may not come, probably won't come. As in-
Mark Zandi: And that's what you're not saying, but I'll just say it and you can shake your head up and down or sideways. It does depend on how the election?
Laura Ratz: Exactly. Yeah. Yes. But even then, immigration policy has been stuck in the weeds for decades. It's going to take some significant political will to make any meaningful changes.
Mark Zandi: Well, it feels like whether it's Biden or whether it's Trump, they both want to control the border, right? I don't think there's a difference there.
Laura Ratz: Yeah.
Mark Zandi: And if that's the biggest part of the surge in immigration, then under both-
Laura Ratz: Which it is. Yeah, either way. Well, and that's exactly what the CBO is forecasting, is that in time the system will get a better handle on it and they'll be turning more people away at the border, essentially.
Mark Zandi: Regardless of who's president and who's in Congress?
Laura Ratz: Yeah.
Mark Zandi: Okay, so it feels like it might be a reasonably good forecast then.
Laura Ratz: Yeah.
Mark Zandi: Right. Okay. And then I guess what will be driven by the election results perhaps is what happens with the number of visas, how many people can come into the country legally, that may vary under both, whether you get a Biden or Trump. And the other thing that may vary is policies with regard to illegal or undocumented immigrants that are already in the country. Right. I think former President Trump has been talking about deportation. Now, I don't know-
Laura Ratz: Yes. And how quickly these cases are processed through. I mean, right now there's significant backlog.
Mark Zandi: And just again, to state the obvious, I mean, if you have deportation, these are net numbers, these are the number of people coming in less than the number of people that are leaving. Right now, there aren't a whole lot of people leaving. But if you had deportation, mass deportation, then you get much smaller net inflows or maybe even a negative number depending on what the magnitude of the deportations are. Correct?
Laura Ratz: Yeah.
Mark Zandi: Okay.
Laura Ratz: I mean, just for point of comparison, in 2019, we had less than half a million immigrants coming into the country. So it can definitely make a significant impact, who is in the White House.
Mark Zandi: Yeah. Okay. All right. Well, this is to be determined and we had work this through. But in the meantime, you're working really hard to incorporate these new estimates into our own numbers and forecasts.
Laura Ratz: Yep. And share it down to the state level so we can get a picture going forward there as well.
Mark Zandi: I mean, why stop at the state, right?
Laura Ratz: Well, Adam will tell you, I say state and I just mean that as in regional. Yeah, state, metro.
Mark Zandi: That's the next stop on the train, right?
This has to go all the way down, to metros or counties, metros the whole way down, doesn't it?
Laura Ratz: Yep. Yep.
Mark Zandi: Okay. Okay. Well, okay, so you got a lot of work ahead.
Laura Ratz: Yeah, we have a meeting week after next.
Mark Zandi: Who's we? Am I in that meeting?
Laura Ratz: You're in that meeting, yeah.
Mark Zandi: Okay. All right. We'll figure this out. Yeah. Okay. All right. Anything else on the...
I mean obviously there's a lot of implications for what it means. You alluded to it in the context of the data. One of the reasons why we have this gap between employment in the payroll survey, the survey of businesses and the household survey, the survey of households is that the payroll employment data comes directly from the businesses. And that would include, there's no distinction whether that person that's working is an immigrant or not. Whereas the household surveys, that data is a survey that's benchmarked ultimately to population counts. And those population estimates at the current point in time are the census estimates, not the CBO, and they're therefore undercounting what's going on in terms of everything, labor force growth, employment growth, everything else. Correct?
Laura Ratz: Yeah. That's what's part of the big discrepancy in terms of the household survey versus the payroll survey numbers.
Mark Zandi: Okay. All right. I mean, in my view, the most obvious way to lift the economy's growth rate, underlying growth rate, that potential growth rate we talked about at this top of the podcast is to have rational immigration reform. Control the border. I mean, that's beyond economics. That's a national security issue. You've got to control the border. But then after that, have immigration reform that reforms the system in a way that we bring in immigrants into the country that are most beneficial to the country's economic health going forward. And if we do that, that could supercharge growth, raise the economy's potential, and ultimately have enormous benefits to our long-term fiscal problems. I mean, if we can have somewhat stronger growth here, more people working, more production, higher tax revenue, goes a long way to address around a long-term fiscal problems. Anybody find umbrage with that? Any disagreement with that statement?
Marisa DiNatale: No.
Adam Kamins: No.
Laura Ratz: No. And I would say at the state level, that's very stark. Certain states will benefit quite a bit more than others. And I'm talking about big states too, New York, California, and that'll have significant regional [inaudible 01:11:02].
Mark Zandi: Because that's where the immigrants go.
Laura Ratz: Exactly.
Mark Zandi: Right. Yeah. Okay. Okay. Okay. Well, there's a lot to be worked out here. Anything else you want to say, Laura, before we call it a podcast? Anything else?
Laura Ratz: No. And I think I got to let Marisa go pick up her niece.
Mark Zandi: We're going to do that. Anything else, Adam, that you want to bring up before we?
Adam Kamins: I think we covered the highlights.
Mark Zandi: Okay. Okay. Very good.
Marisa DiNatale: I just want to say, call back to my statistic from Zillow. It is asking rents not effective rents for sure.
Mark Zandi: Yeah.
Marisa DiNatale: Yeah.
Mark Zandi: That's good to hear. So I was kind of sort of right then.
Marisa DiNatale: You were right. Yeah,
Mark Zandi: I was right. Okay.
Marisa DiNatale: Yep. Yep.
Mark Zandi: I always like to hear that. "You were right, Mark."
Marisa DiNatale: As usual.
Mark Zandi: But you can always say, Mark, you're wrong. And I have no problem with that, by the way. If I'm wrong.
Marisa DiNatale: It doesn't happen a lot. But, yeah. Good to know that I can take that opportunity when it happens.
Mark Zandi: Anytime, anytime. Anytime. Okay, Marisa, go get your niece. And guys, Adam, Laura, really appreciate you taking the time with us. And we're going to call this a podcast. Thank you, dear listener. We'll talk to you next week.