John Leer, Chief Economist from Morning Consult and frequent Inside Economics guest, joins the team to discuss the past week’s slew of (mostly) very good economic data. John discusses the latest consumer sentiment surveys and why they have diverged so sharply from observed consumer behavior. He also talks about changing expectations for the upcoming Presidential election and Senate races in light of the past week’s political events.
John Leer, Chief Economist from Morning Consult and frequent Inside Economics guest, joins the team to discuss the past week’s slew of (mostly) very good economic data. John discusses the latest consumer sentiment surveys and why they have diverged so sharply from observed consumer behavior. He also talks about changing expectations for the upcoming Presidential election and Senate races in light of the past week’s political events.
Today's Guest: John Leer, Chief Economist of Morning Consult
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Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s Analytics
Follow Mark Zandi on 'X' @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn
Mark Zandi: Welcome to Inside Economics. I'm Mark Zandi, the chief economist at Moody's Analytics, and I'm joined by my two trusty cohosts: Cris deRitis and Marisa DiNatale. Hi, guys.
Cris deRitis: Hi, Mark.
Marisa DiNatale: Hi, Mark. Happy Friday.
Mark Zandi: How was vacation, Marisa? You were away?
Marisa DiNatale: Oh, it was lovely. Yeah, it was really nice. Went up to the central coast of California by Big Sur, very nice. Beautiful up there.
Mark Zandi: You got some wine. You were talking about red wine.
Marisa DiNatale: Had some wine, yep, yep.
Mark Zandi: Jump in the ocean? Do any of that?
Marisa DiNatale: No, it's freezing up there.
Mark Zandi: Oh, is it?
Marisa DiNatale: It's absolutely freezing. Yeah, yeah, no jumping in the ocean, but stayed on the ocean, which was nice.
Mark Zandi: Sounds nice. Now, I haven't been in that part of the country in a long time. In the middle of-
Marisa DiNatale: It's absolutely beautiful.
Mark Zandi: Weird thing about California is it's pretty empty that part of the state, isn't it? I don't recall many people living there. It just seems pretty wide open.
Marisa DiNatale: Yeah, I mean you're south of the Bay Area and then north of the Central Valley, Ventura County. So, yeah, it's less populated, but on the coast, it's pretty decent-sized cities going on there.
Mark Zandi: Things are going on. Things are going on.
Marisa DiNatale: Yeah.
Mark Zandi: And you Cris-
Marisa DiNatale: But not nearly as crowded as it is down here.
Mark Zandi: You were toiling away this whole week, Cris.
Marisa DiNatale: Cris was?
Mark Zandi: Oh, yes. Oh, absolutely, absolutely.
Marisa DiNatale: Somebody has to.
Mark Zandi: I had to wake him up. Did you see that? He was like-
Cris deRitis: I didn't hear my name. I didn't know who you were talking to. Yes, I actually was in Arlington, Virginia this week. Lovely Arlington.
Mark Zandi: Oh, doing what? Was that business?
Cris deRitis: Business, yes. I gave a presentation on the economy.
Mark Zandi: Oh, very good, good. Did you say anything that I would disagree with?
Cris deRitis: Probably.
Mark Zandi: I'd heckle you.
Cris deRitis: No, I think maybe the emphasis. I think we're just degrees apart. We're not fundamentally apart.
Mark Zandi: Right, right. Well, thank goodness for that. And we've got a guest, John Leer. John, good to see you.
John Leer: Good to see you. I'm not that far from Arlington, so I'm a little offended right out of the gate that Cris didn't say hi.
Mark Zandi: I know.
John Leer: I'm in DC, so right around the corner.
Cris deRitis: I thought you were Boston.
John Leer: No, no, no, no.
Cris deRitis: No? Oh. Oh, next time.
John Leer: Yeah, next time you're here.
Cris deRitis: For sure.
John Leer: Got to keep you honest.
Mark Zandi: John, you're the chief economist at Morning Consult.
John Leer: Chief economist Morning Consult, that's right.
Mark Zandi: Yeah, right. And is Morning Consult headquartered in DC?
John Leer: Headquartered in Washington DC-
Mark Zandi: Oh, it is.
John Leer: ... offices in New York, Chicago, San Francisco, but DC is our hub.
Mark Zandi: Right. We were just commenting we're all in our uniform, I guess, a white shirt. Although, John's white shirt looks somehow better than my white shirt. How's that possible? The same white shirt, but he looks better in it.
John Leer: [inaudible 00:03:11]-
Marisa DiNatale: Maybe he ironed it.
John Leer: I think by Friday you just go to whatever's easier. A white shirt on Friday is like, "Okay, I don't have to think." Or at least maybe that's how I approach it.
Mark Zandi: Oh, definitely. Yeah, that's why I said it's my uniform, therefore, I do not think, I just put it on. Although I have found... Have you seen these new... And I don't mean this to be an advertisement, but it might sound like one. These Peter Millar clothing line, have you seen this? It's pretty cool, yeah, and very comfortable pants. Again, I don't want to advertise, yeah.
Cris deRitis: But no jeans. No jeans, right, Mark?
Mark Zandi: No jeans, no jeans, no jeans, yeah. You know what I'm talking about John or you're not into-
John Leer: I do. I know it from the gold world.
Mark Zandi: Yeah, golf world.
John Leer: They've made golf polo shirts for a long time. They're pretty comfortable, yeah.
Mark Zandi: Yeah, yeah, but now they have pants. The pants are really very comfortable, and to Marisa's comment about ironing, they're crease-proof.
John Leer: Non-iron, yeah.
Mark Zandi: Yeah, that kind of thing.
John Leer: I think maybe slightly too preppy for me. It's just maybe a little too-
Mark Zandi: Oh, really?
John Leer: Yeah, yeah, yeah, I think... Yeah.
Mark Zandi: Too much. Too much.
John Leer: Yeah, it's a little much.
Mark Zandi: Are you saying I'm preppy?
John Leer: I might be. I think we're learning through revealed preferences here what's going on.
Mark Zandi: Exactly, which goes to surveys. So, how are things going at Morning Consult? What's going on? How's business?
John Leer: Business is going really well. I think we've seen 2023, for a lot of companies, was a tough year, and I think that has meant, on net, good thing for a company like Morning Consult that comes in and tries to help folks who are dealing with some of those demand uncertainties and challenges. It's a global data intelligence company, so we're able to come in and help folks across the C-suite, but really focused on that demand forecasting, demand outlook perspective.
Mark Zandi: And am I butchering things if I say it's largely based on the surveys you do?
John Leer: It's entirely survey-based, yep. We collect about 30,000 surveys a day across 43 countries, so it's high-frequency global survey data across a really wide range of issues, and what I really love about my job right now is going through and trying to figure out these connections across our economic and brand, and political data. I find right now you guys probably are hearing this too, if you go into the boardroom or something, they're hyper-focused on politics and trying to figure out what this means for their business.
Mark Zandi: Yeah, absolutely. There's seeming disconnect between economists like me, perhaps you. Tons of happy talk, GDP, jobs, unemployment, stock market, house prices, everything, but the person out there that you survey, I'm sure, is still pretty depressed about things. Doesn't really buy into this happy talk that economists are spouting. Is that right? Do I have that right?
John Leer: I think on average, although I would say where we're moving, I think it's not just the survey space, I think it's the data space in general is trying to move away from looking at averages thinking about distributions. We maybe would use box and whisker plots would be the older way of doing it, but the econ speak would be heterogeneity in consumers and consumer outlook.
I think that's widened recently in large part because we have this economy where folks who are invested in the stock market are long-time homeowners. They're really doing quite well financially, and you contrast what with folks who are renters, and we could talk about the rental market. You know it well. The rental market is really tough right now. And then there's a lot of folks out there who just do not have access to a 401(k) or don't have many invested in the stock market, so booming equity prices doesn't really mean anything for them. And I think that's the disconnect that we're seeing in our surveys.
Mark Zandi: Okay, I want to come back to that, but let's talk about the data first because we've got a lot of economic data this week. Generally good, I think, but Marisa, you want to go through some of the data? The highlights and how you feel about things based on the data.
Marisa DiNatale: Yeah, we got quite a lot. I think the biggest release was second-quarter GDP, which really surprised on the upside. We were expecting growth in the second quarter of about half of what it actually came in at. So, GDP annualized came in at 2.8%, we were expecting growth of 1.4%, which was actually a little bit lower than what consensus was expecting. But even consensus expectations were too low this quarter. And growth in the first quarter, as a reminder, was 1.4%, so double the rate of growth in the second quarter as we got in the first.
The second-quarter growth was really led by, I would say, two things primarily. One consumer spending and we got a lot of other data on the consumer. We got personal income and spending data. We got the PCE deflator, so we'll get to those things as well, but consumers are still powering the economy. It added about 1.6 percentage points to growth over the quarter, and that's compared to about one percentage point in the first quarter. And we got a big inventory swing in the second quarter as well, so inventories added almost a percentage point to growth.
Mark Zandi: I think that was our biggest miss, right? I mean, as you said, the number was 2.8, our expectation was 1.4-1.5.
Marisa DiNatale: 1.4, right.
Mark Zandi: And the big difference was inventories, which are very difficult to measure just because they're so lagged. The data is lagged.
Marisa DiNatale: That's right, and it's the change in inventories over the quarter that matters, so this tends to sometimes whipsaw GDP growth in either direction if you get a big downshift in inventory build or vice versa. This was a big swing in the other direction here, so it was primarily where our miss came from.
Trade was a drag on growth, so net exports detracted from growth more so than it did in the first quarter. Government spending is still pretty solid, not at the rate that we saw maybe a year ago, but it is still contributing to growth. And we got actually a negative on fixed residential investment, so that was a small drag on growth after three consecutive quarters of it being a positive for growth. So, the economy is still growing above potential, right? And we thought that this would be a [inaudible 00:10:30]-
Mark Zandi: I'm going to stop you right there. How can it be growing above potential if unemployment's rising? It's just the opposite, no? I mean the economy is, despite the 2.8% in the second quarter, despite year-over-year real GDP growth of close to 3% over the past year, the unemployment rate has risen half a point. So, that means the economy is growing below potential.
I mean potential goes up and down and all around. What's in your mind is potential's 2%, that's cutting through the business cycle. But at this point in time... Am I wrong, Cris? How would you think about that?
Cris deRitis: No, I don't think you're wrong.
Mark Zandi: This is something that is confusing me a little bit, right?
Marisa DiNatale: Yeah, yeah.
Cris deRitis: I would say near potential. I don't think you're advocating that it's-
Mark Zandi: Sustainable.
Cris deRitis: Right, sustainable, or radically or sharply different from potential. I don't think you're making that claim.
Mark Zandi: Well, if you use Okun's law... Remember Okun's law? Okun's law would say for every percentage point difference in the GDP relative to potential, you get a half a point difference on unemployment. So, if the unemployment rate has risen a half a point over the past year, and it has, that would suggest the economy has been growing a full point below its potential. That's what it would suggest.
And actually, it's intuitive, right? Because we've got all this labor supply, we got the surge in foreign immigration, so that could be... Typically, labor force growth is a half a point. Right now, it could be at one-and-a-half percentage point, I'm making it up. And then the other is we know that productivity growth has actually been reasonably strong. That could be another 2%. So, potential growth right now could be, and the data would suggest that it is, three-and-a-half to 4%.
Now, it feels like I'm overstating the case, but that's what the data would suggest if historical regularities hold here. The so-called Okun's law. Remember Okun, for those folks out there... Well, he was a econ... He never won the Nobel Prize I don't think, but he was a very well-known economics academician, and he found this regularity in the data that doesn't hold all the time but holds most of the time. John, do you have a position on this?
John Leer: So, I think Marisa probably was citing the CBO estimate, that would be my guess for a potential. They used to estimate potential, for a long time, using the NAIRU, this non-accelerating unemployment rate. And then I think the math there became so challenging to defend to folks that they just selected an unemployment rate that they thought in perpetuity was the non-accelerating inflation unemployment rate. Which I think they pinned at 3.5% or 3%.
Mark Zandi: The NAIRU?
John Leer: Yeah, yeah.
Mark Zandi: It was four, closer to four.
John Leer: Was it four?
Mark Zandi: Yeah, four. Yeah. I only know this because I'm on the board of advisers for the CBO, so I advise the [inaudible 00:13:51]-
John Leer: Oh, yeah, yeah. Well, I think what we would say is, right now, this experience would suggest that it is probably lower than that estimate, or at least in this time period, certainly, it's lower.
Mark Zandi: Yeah, I would agree with that. I would say it's three-and-a-half to four, but their estimate is 4.1, 4.2 something like that. But this, what may be going on... How to square this circle maybe that these rules of thumb we have. That potential growth, real GDP growth is 2%. And by the way, folks out there, the potential means at that rate of growth, you're generating enough jobs to maintain stable unemployment. That's the definition.
The 2% is through the business cycle. It's what's sustainable over time, but that doesn't mean that it can't vary at any point in time. It can vary quite a bit at any point in time, and at this point in time, it feels like the data is saying the economy's potential is actually a lot higher than two. And again, it's intuitive with all the immigration and the stronger productivity gains we've been getting.
John Leer: There's something to be said too for folks coming in. Labor force participation rate has been... While unemployment is higher, we've seen some positive developments in terms of labor force participation. Longer-term trends is labor force and productivity are going to be what drive that potential number.
Mark Zandi: Yep. Cris, you were going to say something?
Cris deRitis: Yeah, I was going to say the usual. Let's be a little cautious on the data. Subject to revision there are going to be restatements here, so-
Mark Zandi: Yeah, yeah. Well, the unemployment rate won't be revised. That won't be revised, but the GDP definitely will be revised. But it doesn't feel like... Year-over-year through the second quarter of this year, it's 3% on the nose, I think. GDP growth is three. So, even if it gets revised down a little bit, it's not two.
Cris deRitis: Yeah, yeah, agreed. Okay, so it's a question of magnitude.
Mark Zandi: So, Marisa, that was a good question, but it's been something that's been bothering me. It's been something that's bothering me.
Marisa DiNatale: Yeah, we've talked about that in the context of the labor market in terms of job growth too. How is it that we keep getting job growth that is averaging above 250,000 a month if the unemployment rate has risen over the past year? We used to think 250,000 a month on job growth was amazing. Now, it seems to be like meh, normal, average.
Cris deRitis: Pedestrian.
Mark Zandi: Exactly.
Marisa DiNatale: Yeah, so-
Mark Zandi: Going back to my point about labor supply.
Marisa DiNatale: Exactly, there's just so much more labor supply out there that maybe we need to readjust our thinking on all of this upward.
John Leer: I think this could be-
Mark Zandi: Right, exactly-
John Leer: The shifts coming out of the pandemic in terms of how we think about the labor market, I think there's a lot that we don't know there in terms of unlocking potential as a result from working from home. I think the gig economy is something that I know the BLS is trying to get their arms around, but it's transforming in many ways. So, the way that people who previously were on the margins of the labor market are thinking about working.
And so, my guess is, on net, the pandemic is probably going to be good for labor force participation because it has reduced some of the barriers that folks face. Especially if you think about folks with disabilities and other physical challenges.
Mark Zandi: Totally. Also, on the business formation side, I wonder because we've seen all these businesses form post-pandemic. I haven't seen any good research, have you? On what's going on there, but I suspect remote work has got to be playing at least partly a role here, right? In terms of the new business formation. Because there's more flexibility as a result of the remote.
Cris deRitis: There is, but the formations are broad-based across the industry, not just in-
Mark Zandi: They are, they are. You're right, yeah.
Cris deRitis: Right?
Mark Zandi: [inaudible 00:17:47]-
Cris deRitis: So, I'm sure that's part of it, but I think there's opportunity throughout.
Mark Zandi: Right, right. Okay, so you mentioned the inflation number. The PCE, the consumer expenditure deflator.
Marisa DiNatale: That's right.
Mark Zandi: So, you want to talk a little bit about that?
Marisa DiNatale: Sure, so PCE inflation month-over-month rose .1% in June. That was up from no change in May, but the year-over-year total PCE is two-and-a-half percent right now. So, we're right above that 2% target, closing in on it. That is down from 2.6 in May, so we are coming down on PCE. Core PCE was 2.6 for the second straight month year-over-year.
We got, let's see, goods prices, and we've already gotten CPI, right? So, we already had insight into what this would look like, and it is in line, generally, with what we saw in the CPI report for June. So, goods prices continue to fall, particularly for durable goods, and particularly motor vehicles. Non-durable goods prices are falling according to the PCE as well. Some of that is the price of gas coming in over the past few months.
Services inflation has moderated from where it was at the beginning of the year, so growing .2% on total services, and we see both housing services and shelter prices moderating as well. There's some difference there between the PCE and the CPI as we know things are weighted differently. We've talked about this before. The basket of goods that the BEA uses for the PCE and the basket that the BLS uses for CPI are a little bit different.
We saw a larger decline in shelter prices in the CPI, and part of that is because hotel prices came in in the CPI, and hotel prices are weighted more heavily in the CPI than they are in the PCE. But nevertheless, housing services in both reports slowed, which is the big thing we're looking at because we know that much of the stickiness on inflation is coming from the measured shelter and measured rents.
Mark Zandi: Yeah, in fact, we haven't done the calculation for this month, but I'm pretty sure that when we do, the so-called harmonized PCE, harmonized consumer expenditure figure... So, this is the deflator excluding the implicit cost of homeownership, the so-called owners' equivalent rent, which there's actually now growing... Have you seen the research that's coming out now in the Fed system saying they should exclude OER in trying to assess inflation to determine monetary policy? If you do, then we're at 2%, below 2%-
Cris deRitis: Below.
Mark Zandi: ... on a year-over-year basis. We've been below two for, I think, almost a year, maybe more. Maybe more than... So, we're there. We're there.
Marisa DiNatale: I haven't seen that. I haven't seen the recent, what you're referring-
Mark Zandi: Yeah, I think it's the Minnesota Fed. They just put out a really... I thought it was a good piece because it agrees with my view.
Marisa DiNatale: So, what's their argument for excluding it? The same thing that it's just difficult to measure and-
Mark Zandi: Well, so it's more about the supply side and the Fed doesn't have any impact on the supply... What the Fed's doing here in terms of monetary policy is more on the demand side. Trying to weigh on demand, and that's more related to what's going on on the supply side. So, it doesn't add anything to their understanding of how monetary policy will affect the economy and inflation at the end of the day.
Marisa DiNatale: So, perhaps they're-
Cris deRitis: It could even be counterproductive, right? That's-
Mark Zandi: Even be counterproductive, yeah. Which I made that point in that Washington Post op-ed.
Marisa DiNatale: Like it is right now.
Mark Zandi: Yeah, like it is right now. Like it is right now.
John Leer: That's the view of Erdoğan as well that rising interest rates actually lift inflation.
Mark Zandi: Thank you for that, yeah. Of course, he's the Turkish prime minister or the president? I can't remember what-
John Leer: President, I believe.
Mark Zandi: President, yeah. Yeah, thank you for that, John. Thank you. So, the inflation... Oh, by the way, I believe the core PCE was up .18 on the month. See, we've been reduced to going to the second and third significant digit here. That's right on target, isn't it? If I annualize that, that's pretty darn close to 2%. I'm just saying, okay.
John, so let me ask you this. These numbers are good, I mean objectively good. Growth is strong, lots of jobs, low unemployment, inflation is back in within spitting distance of target if not at target. But then I look at the surveys. I look at your survey, and then I keep bringing up the University of Michigan survey just because it's been around a long time, and I know in one of the surveys you conducted I paid real close attention to, you ask the same questions that the University of Michigan asks in their survey, and it makes sense for continuity's sake.
Obviously, your survey is based on a lot more survey respondents and they're much more timely. But the University of Michigan survey, and we got a data point today from them for the month of June I believe, very, very weak compared to historical norms. The value was, just to give context, 66.4 in the month of June. The average since the beginning of time is 85. It's more than a standard deviation below its average. Why? What's going on there? Do you have any sense of that? Why are people so down?
John Leer: Yeah, I think there are a couple of phenomenon. First of all, we see something similar in our data, which is still 20 points below where folks were prior to the start of the pandemic. I think the pandemic was a one-two punch. Obviously, we had the initial shutdown, and then the associated inflation. While you were talking about the Minneapolis Fed paper, I've been thinking a lot about Larry Summers and his coauthors talking about excluding the cost of credit from our measures of CPI. And I think that helps explain some of the gap, especially as we think about how consumers have financed their spending over the last two years. Have been drawing down on savings and taking on additional credit.
I think the other data point that I side a lot is we have a working paper out with the researchers from the Cleveland Fed, and we look at how consumers don't expect to be made whole from inflation. So, they expect, in other words, that their wages are not going to keep pace with inflation, and that delta helps explain some of the gap.
And then the last is, I would say, prices remain pretty high. For a lot of folks, they're looking at levels rather than growth rates, which is what inflation actually is. In terms of even responding to elevated prices, that's where we've actually seen a real positive response from consumers recently where relatively few consumers are surprised by the price of goods and services when they go in to make a purchase right now.
I think, slowly but surely, there's a normalization that's occurring. That this is the cost of a car, or this is the cost of a restaurant meal, and maybe that takes a while for folks to internalize that, but we've seen a lot of that play out over the last few months.
Mark Zandi: Yeah, but the data is objectively good. The way consumers are behaving, it's not like they're at all depressed. I mean we got a data point today on real consumer spending, that's overall spending after inflation. That's growing year-over-year 2.6% in June. That is a strong number.
John Leer: Yeah, but how are they financing that spending?
Mark Zandi: But it's not by credit. It's not. I mean the amount of credit card debt outstanding has not increased since the beginning of the year-
John Leer: But it's increased significantly. They've drawn down on savings at the very least. We see a group of consumers who have outstanding credit card delinquencies. That's been the graph floating around on Twitter recently. So, I think there's a group of people out there, again, who are seeing real wages not keep pace with inflation. Drawing down on savings, relying on some form of credit, either traditional credit cards or buy now, pay later. And I think that that weakened financial position helps explain where they are now relative to the start of the pandemic.
Mark Zandi: Okay, let me throw in one more data point. The Conference Board survey of consumer sentiment, another survey of sentiment, it's fine. It's 100.4, which is above its long-term average of 95, going back to the beginning of time. Same time period that I did calculation for the University of Michigan. That number is much more consistent with what we are observing in terms of spending and behavior, right?
John Leer: They measure very different things. So, Morning Consult and the University of Michigan are really focused on consumer's personal finances and broader business conditions. The Conference Board is very focused on local labor market conditions. There's also a difference in the time horizons. We tend to focus on 12-month expectations, Conference Board was very focused on near-term.
And so, I think what you're seeing from the Conference Board is this micro perspective. What people are seeing around them and how they're expecting things to play out over the next six months. What you're seeing from Morning Consult or the University of Michigan is this longer-term anxiety over the next 12 months, particularly as it relates to pocketbook issues.
Mark Zandi: But if I'm an economist, and I am an economist, and I'm trying to understand consumer spending, what's going to happen to the consumer... It feels like, to me, I should be looking at the Conference Board, and not the University of Michigan. I mean it just feels that way, right? If I look at the University of Michigan, spending should be very weak. If I look at the Conference Board, it should be where it is, no?
John Leer: Well, we have a lot of work where we... I mean the Chicago Fed is one example where they take this high-frequency data, Morning Consult's, and put it into a nowcast to come up with a real-time view of retail sales. I think understanding what's going on with consumers' personal finances, particularly on an inflation-adjusted basis, right? So, let's go through and adjust consumer spending for inflation, I think it tells a different picture.
Mark Zandi: Okay. Okay, let me throw one other data point in the mix. You didn't mention people's political perspective because if you look at the survey responses, and I know this for the University of Michigan, I think it's for also Morning Consult. If you identify as a Republican, you're very, very pessimistic. It's like teeth of the pandemic pessimistic, the heart of the financial crisis pessimistic.
Independents, they're feeling a little bit better. They're not feeling great, but they're feeling a little bit better. Democrats are feeling okay. They're feeling okay. I wouldn't say they're rip-roaring optimistic, but they're feeling pretty good. And those things, obviously, those Democrat, Independent, Republican, switch places with Biden's election win over Trump. And I assume they would switch right back in the other direction if Trump wins this election.
So, how do you think about that? I mean doesn't that muddy the information you get from the survey responses if people are looking at it or thinking about it from their political views?
John Leer: I think I would say how should we think about relating something like sentiment to spending? As I see other folks who do this, they often look at some sort of change over time in sentiment, and they connect that, maybe it's a log or something, to change over time in spending. And so, as soon as you do that, you're abstracting away from the level differences. And so, what you've just described is the big-level differences with Republicans and Democrats.
But when we actually look at the trends, and I'm just pulling this up right now. As of 3:00 AM this morning, the trends of Republicans and Democrats up until the recent announcement, were very similar. Actually, right now, Democrats are trending in a negative direction. Republicans are trending in a very positive direction. So, this is the exception, maybe that proves the rule.
Mark Zandi: But I think the other thing-
John Leer: I think you should be very, very wary saying something like 60% of Republicans are positive of the economy compared to 80% of Democrats, and that means that Republicans are spending less than Democrats.
Mark Zandi: No, no, no, I don't think they're spending any differently. That's my point. I think there's this complete disconnect between what people say and how they perceive the world in what they're actually doing. I don't see any connection there. It's an [inaudible 00:31:48].
John Leer: Yeah, you just add... There's some sort of month-over-month percentage change, and all of a sudden, it tracks pretty closely to real PCE.
Mark Zandi: Well, the one thing I had noticed, and I think there was an academic piece that came out recently that showed that the Republican sentiment swings a lot more than the Democratic sentiment.
Marisa DiNatale: I saw that.
Mark Zandi: Yeah, did you see that?
Marisa DiNatale: It's not symmetrical.
Mark Zandi: It's not symmetrical at all. So, the Democrat, the change there is... It changed in a positive direction when Biden was elected, but not nearly to the degree that Republican sentiment got crushed in that election. In the wake of that election.
John Leer: That is consistent with what we see in our data. The thing I would note though is that we do see a higher level of... Or two things. So, one is what drives these big-level differences? It's not people's views of their personal finances. It's their views of broader business conditions and business expectations. The other is when we look at business expectations cut by Democrats and Republicans, and because we have daily data, we can start seeing how people respond to different news events. And we do see that Democrats are more likely to update their expectations for the economy than Republicans. The exception would be this dramatic resetting of expectations following the 2020 election.
Mark Zandi: What was I going to say? Oh, so one of the reasons you gave for why sentiment is in the dumpers is it's not inflation that matters as much as the price level. Meaning that people are still paying a lot more. Even though inflation's come in, the rate of growth in the price of goods and services has slowed and back closer to the Fed's target. Obviously, people are paying a lot more today than they were a few years ago because inflation took off back in late '21, and going into '22, the pandemic, the Russian war, that kind of thing.
So, if you look at the cost of groceries, that's up 20-25% from where it was three years ago. I'm making that up, but roughly speaking. Rents are up 20-25%, gas is up 20-25... Those are staples. And so, people still have that gnawing at them. It really bugs them, and I get it. I get it because the real wages got nailed, and as you pointed out, to supplement their income, to maintain their spending, they had to borrow more.
And it's one thing when rates are low, but when rates are high, your interest expense now, especially if you borrow against your card or buy now, pay later, you're going to be paying a lot more in interest expense. That all adds up to me. Would you put that at the top of the list of the reasons why people are feeling ugh about their financial situation?
John Leer: I think it's a very significant reason. I would add maybe a nuanced point. We have a paper out where we call it the expectations of others where we... I think one thing that has shifted over the last few years is how people form their expectations of the economy and inflation. And so, we see that this is maybe going to be a little too wonky here, but I'm going to go deep into it.
We see that people's inflation expectations are heavily influenced by their social media connections, and that people who live in... You could think about shocks to inflation across the country. We're talking about average inflation, but there are pockets of the country that are experiencing elevated inflation. Those people. Those cities tend to have an outsized impact on how people perceive inflation.
Basically, the negative news from regions with high inflation travel more across social media and have a bigger impact on people's inflation expectations. And so, it's a really challenging time now to be thinking about this relationship between expectations and reality because you think about Robert Shiller's world of these narrative economics. Well, that's been supercharged right now with social media.
And so, negative news travels more, is more persistent in terms of impacting people's future expectations. That is one of the reasons, I think, that we continue to see this depressed level of consumer sentiment despite a relatively strong broader macro perspective.
Mark Zandi: Oh, that's fascinating. So, you're saying people who suffer a negative economic shock are more likely to respond and scream more loudly than folks that are benefiting.
John Leer: Yeah, the old model that we would have, and Michael Weber at the University of Chicago still does a lot of good work here. Thinking about people go to the grocery store and those prices are very salient for folks, and they remember what they paid the last time for eggs. And so, they're updating their expectations based on what they see in the grocery store.
And what we're saying is that that's part of the story, but there's also what people experience via social media. In particular, what we look at is people's Facebook connections, and I think we're moving into a world where it becomes more and more difficult to pin down observed economic experiences and use that to explain people's expectations without taking into account the full range of information that they're using to form their economic expectations.
Mark Zandi: Fascinating, very interesting. Cris, do you have any comments on this conversation so far?
Cris deRitis: It's fascinating. I think John is right, there are a lot of shifts going on here. We're not clear exactly how people are making their expectations. And I guess the other point to make then is does it matter? How much weight should we be putting on these measures if, at the end of the day, regardless of how those expectations are getting some people are acting in a very different manner. So, how much of a signal is there really in this data that we collect? That'd be the question I would ask.
Mark Zandi: Right, right. So, John, you do these surveys all over the world, and specifically focusing on inflation because I do think that that's the thing that is gnawing at people the most. The fact that they're paying a lot more today than they were a few years ago. Particularly for things they need to buy, the necessities. Are you observing any differences across the world in terms of how people think about inflation and how it affects their general mood?
John Leer: Yeah, we see really significant differences across-
Mark Zandi: You do.
John Leer: ... major regions. So, if we look at the Americas, for example, we're seeing Argentina. They are experiencing a pretty extreme volatility in terms of economic reality, political reality, and then their expectations as well where their inflation expectations shot up, and then now they're pretty dramatically falling back.
You think about China is actually experiencing essentially deflationary inflation expectations. Really concerned about subdued growth there as opposed to other places. Japan also chronically, of course, struggles with deflation, and we see pretty low inflation expectations there. And then you can think about just in terms of consumer sentiment, Australia is a country that jumps out. They had to reverse course. Inflation has been persistently hot there. The central bank had to come out and say, "Actually, we're going to stay higher for longer." That was a surprise to a lot of folks in Australia, and we see that playing out in terms of pretty negative shock to sentiment in Australia.
Mark Zandi: Oh, yeah, I'd forgotten because sitting here in the Western world focused on inflation. But the Chinese, their problem is outright deflation. They're struggling and consumers are not spending, I guess in part because the thinking is that people will delay purchases because they think they'll get a better price if they delay. Yeah, it's a real problem.
John Leer: They're in a very tough spot because the traditional approach would be some sort of government stimulus. They used a lot of government stimulus earlier, and then they've got what happened in the US with the mortgage crisis. They have this broad debt overhang that's just weighing down on lending and economic activity and it's hard to figure out what that solution is to work through outstanding debt there.
Mark Zandi: Yeah. Well, I want to play the game, the stats game, and then I want to come back and talk about what you're learning about people's thinking around the election and how that's playing out. Before I do, one open-ended question. What are you seeing in your surveys recently that surprises you the most? You go, "Whoa, I didn't expect that."
John Leer: That's a great question. Well, I would say one thing that I feel obligated to tell everyone about, I've been tracking it for a while now, is very robust consumer sentiment in Russia. And so, we look at the shock from the pandemic, the shock from the initial invasion, and then shortly thereafter, really a persistent rebound. And then you go tie that back to the IMF just consistently trying to upgrade their forecast for the Russian economy. It's a conversation I have with a lot of policymakers right now to try to understand the extent to which these sanctions are actually affecting the Russian economy when so many countries like China and India have found really clever ways of continuing to import Russian energy.
Mark Zandi: If I were sitting in Russia, if someone surveyed me, I'd be reticent to say, "Oh, I'm so happy with this situation." I don't know, just saying.
John Leer: Well, we did see a drop when there was the initial invasion.
Mark Zandi: You did, okay.
John Leer: We saw a drop when there was the mandatory conscription.
Mark Zandi: I see.
John Leer: And so, it does seem to be sensitive to these things. Again, the levels, I think you have to abstract the levels, but just looking at the trends or the growth rate is where it feels like there's a pretty strong signal. We also do inflation expectation surveys there that spiked following the invasion and then came down dramatically, I think, when it became clear that this wasn't going to be as big of a deal for the domestic economy as folks maybe initially thought it would be.
Mark Zandi: Interesting. So, Russians are feeling pretty good about things [inaudible 00:43:19]-
John Leer: Russians are feeling pretty good. Economy seems to be humming along.
Mark Zandi: Chinese not so much, they're-
John Leer: Chinese not so much. Very low and falling inflation expectations. I can go in here and look at... Let me pull up the China data from this morning and see exactly what's going on there. They've had so many different phases to this recovery, and so, actually, it looks to me right now like sentiment seems to be increasing. People have a more optimistic view of growth in the country as a whole even as their expectations for inflation remain very muted.
Mark Zandi: Interesting. And where does the US line up in that spectrum, Russia to China? Are we closer to China or closer to Russia?
John Leer: Great question. Well, people in China are basically always very optimistic, so if you just play the game like what share of people have a high view, people are always going to say things are great.
Mark Zandi: Yeah, I see.
John Leer: And coincidentally, we do not ask people about, in Russia, their views of leader approval or in China. So, we're not going to do anything where we think we maybe jeopardize the safety or security of our respondents.
Mark Zandi: All right, got it. Okay, let's play the game, the stats game. We each put forward a stat, the rest of the group tries to figure that out through clues and questions, deductive reasoning. The best stat is one that isn't so easy we get it immediately, I don't think that's going to be a problem this go round, or one that's so hard we never get it. And if it's apropos to the topic at hand or something in the recent data, even better. And John, we always begin with Marisa. So, Marisa, you're up.
Marisa DiNatale: All right. Statistic that came out this week. It is negative .65% points.
Cris deRitis: That's the differential between the PCE and the CPI.
Marisa DiNatale: Oh, my God.
John Leer: Wow.
Mark Zandi: Wow is right because that was going to be his stat.
John Leer: Well, now I have no chance of stumping you guys. That's [inaudible 00:45:24]-
Mark Zandi: That's outrageous. He did this last week too. You weren't here, Marisa, but last week he did the same thing-
John Leer: Yeah, got lucky.
Mark Zandi: ... with one of the stats.
Marisa DiNatale: Yeah, that is correct.
Cris deRitis: Good one. That's a good one.
Marisa DiNatale: How did you get that that fast?
Cris deRitis: It was going to be-
Marisa DiNatale: Oh, your statistic.
Cris deRitis: Yeah, it was one of the ones I thought about.
Mark Zandi: Very good. You want to explain?
John Leer: That's interesting. I think we have to go look at the numbers a little bit.
Marisa DiNatale: Sure, so-
John Leer: That's not just a statistic. That's a transformation [inaudible 00:45:49]-
Marisa DiNatale: That's true. That is true, it is a calculation.
Mark Zandi: Oh, you can do that.
Marisa DiNatale: You can do that.
Cris deRitis: It's in our release on the Economic View website.
Marisa DiNatale: Right, we publish this difference when we cover the PCE or the CPI release.
Mark Zandi: We'll go over the rule book with you at some later date, John.
Marisa DiNatale: There's not much of a rule book, as you can see.
Mark Zandi: No, no, no, are you kidding me? We got to keep Marisa on the straight and narrow. We need a rule book, yeah. So, anyway, why'd you pick that number?
Marisa DiNatale: Okay, the reason I picked it, so this is year-over-year core PCE minus year-over-year core PCI. The difference is minus .65 meaning PCE growth is .65 percentage points lower than CPI growth. And that's significant because we've seen much, much larger differences between the two over the past... At least since the beginning of this year. So, this is more in the range of the normal-ish difference between these two measures. That had ballooned out to almost a full percentage point over the past few months, and it started to come in.
And it seems like part of the reason it's starting to come in is this moderation that we are now beginning to see in shelter inflation. That's really been the real difference between these two surveys, so in the CPI, shelter is weighted roughly about a third of the basket. And in the PCE basket, it's about half of that, it's 15-16% of the PCE basket.
So, given that shelter is what is driving inflation mostly now, that difference is really significant in how the two surveys weight shelter. So, now, we're starting to see them converge a bit more toward their normal difference, and I think that is reflective of the fact that we're starting to see shelter disinflation.
Mark Zandi: Got it. John, I failed to ask you when were back at the start of the conversation about monetary policy. I bet you can glean what I think the Fed should do.
John Leer: Everyone knows what you think the Fed should do.
Mark Zandi: I've been pounding that drum, I know, and I've been right. I'm just saying.
John Leer: I would say I'm not in your camp.
Mark Zandi: Oh, okay.
John Leer: I don't think July should... I don't think it will be, first of all, and I don't think it should be.
Mark Zandi: Okay. You think they should wait until September? Okay, all right, but yeah. You feel strongly about that? How strongly do you feel about that?
John Leer: I feel very strongly. I think... Let's remember, so 2% is not a ceiling. They came out with a new framework that if you think the framework is worth anything, it's essentially average inflation targeting over some period of time yet to be disclosed. So, I think you would really need to see at or below 2% for a month, two months, for the Fed to feel like they are consistent with the framework that they've outlined. Worth noting, of course, that they're updating their framework this year again, so maybe we'll see a shift.
Mark Zandi: Yeah, on the policy framework, as you pointed out, it's a 2% inflation target. The way I frame it is through the business cycle. They don't actually say that, but over time, it [inaudible 00:49:21]-
John Leer: Over time.
Mark Zandi: Over time. And I tend to go back a little bit in time, and if I go back prior to the pandemic, the problem wasn't inflation above target, it was inflation below target. So, if I go back since the financial crisis, inflation's exactly where... I think it's pretty close to where it should be. I mean the inflation [inaudible 00:49:42].
John Leer: It is not clear to me. I don't know, and I think that that was part of the framework that was intentionally left ambiguous because so much of it... That's where the calibration matters there in terms of what your length of time is. But you're absolutely right. We had the zero lower bound problem for 20 years, so if you go back far enough, then all of a sudden... I mean you really could have started cutting rates probably at 9% if you average enough of those very, very low rates.
Mark Zandi: I don't think so, but I-
John Leer: I think it would be crazy. I mean that's what I'm saying, depending on how you-
Mark Zandi: Yeah. No, no, I understand. That's why I say the business cycle, and just... Good point.
John Leer: So, I would say two things. One is getting close to 2% is not the same as being there, and you're really good at forecasting, but I think the Fed has a high level of humility, and so they really want to see the data.
Mark Zandi: No, I'm definitely not humble. That's not me.
John Leer: The Bank of England had to pivot. I don't think they want to do that. That would be maybe the worst-case scenario is they start the cutting cycle and then, all of a sudden, you start seeing a shift and maybe you get a bad reading again and Fed credibility is at stake.
Mark Zandi: Got it, got it. Okay, I digress. Do you want to go next with this, John? The stat?
John Leer: I don't really want to go after... I'll go, I'll go, I'll go.
Cris deRitis: It was a lucky break. It was a lucky break.
John Leer: All right, so my number is 3.5%.
Mark Zandi: An economics statistic?
John Leer: An economics statistic.
Mark Zandi: This past week.
John Leer: Past week.
Marisa DiNatale: Not the savings rate.
John Leer: It is the savings rate.
Mark Zandi: Oh.
Cris deRitis: Nice. Nicely done.
Mark Zandi: Very good. Very good.
John Leer: Oh, man.
Mark Zandi: Not quite as good as Cris, but very good.
John Leer: Well, you didn't have the same level of confidence that Cris-
Marisa DiNatale: Well, because, in my mind, I thought it was 3.4.
Mark Zandi: I think it is 3.4.
John Leer: Well, there's the monthly and the quarterly. The quarterly was-
Marisa DiNatale: Oh, okay.
John Leer: 3.5 was the quarterly.
Marisa DiNatale: Got it. 3.4 is the monthly, yeah.
John Leer: It was part of the GDP release. For me, the savings rate, I think... I mean we talked about it a little bit earlier, but that explains a lot of what's going on with consumers. That they've had this robust spending, but it hasn't been cost-free. It's come at a falling level of savings, and then we see that play out for some particularly exposed households with elevated levels of delinquency. So, I think it just tells some of the story of what's been fueling this pretty remarkable economic cycle.
Mark Zandi: Yeah, I'd ascribe more of that though to the wealth effect because most of the spending's done by the folks at the high end of the income distribution, right? And they're looking at their stock portfolio and... Also, a lot of that is still probably some excess saving built up during the pandemic that they haven't spent. I think that's probably [inaudible 00:52:45]-
John Leer: I think a lot of the excess savings has been drawn down. The San Francisco Fed had done a lot of work there.
Mark Zandi: Ah.
Cris deRitis: Ah.
Mark Zandi: Ah, ah, ah.
John Leer: Oh, is that contrary? Is that contrary to the [inaudible 00:52:56]-
Mark Zandi: Oh, yeah, they're bogus. Sorry, I shouldn't say-
Marisa DiNatale: We do our own estimate of excess saving, John.
John Leer: By income decile or quartile or something?
Marisa DiNatale: Yes, yeah.
Mark Zandi: I'll send it to you. I'll send you our work, yeah.
Marisa DiNatale: But yeah, it has been drawn down, but we just got a new estimate I think this morning or yesterday, and it looks like there's still over half of it left.
Mark Zandi: That's our estimate though.
Marisa DiNatale: Right, that's our estimate. That's right, yeah.
Mark Zandi: So, every month when the savings data come out like it did this morning, Scott Hoyt, our colleague, does recalculates, and it peaked at two... The excess saving, the extra saving done during the pandemic, 2.4... I want to say 2.4 trillion at the peak, which was in late 2021, and we're about half of that now like 1.3, 1.4 trillion, something like that. So, that's still a lot, but it's all at the high end-
Marisa DiNatale: And most of it is high-income.
Mark Zandi: It's all at the high end.
Marisa DiNatale: Yeah, at the high end.
Mark Zandi: All top 20% of the income distribution. Folks in the rest of the distribution... In fact, I think people in the 60-80% of the distribution income they've blown through completely all of it, completely all of it. Lower-income households it's a little more difficult just because you've got folks that they're retirees and that kind of thing that complicate the interpretation of the numbers. But anyway. Okay, that was a good one. That was a really good one. Cris, you want to go next?
Cris deRitis: Sure, 73 cents.
Mark Zandi: 73 cents. Pack of bubble gum?
Cris deRitis: No, but you're in the right... Well, it is a price.
Mark Zandi: It's a price for some food item?
Cris deRitis: Not a food item, no.
Mark Zandi: A commodity?
John Leer: Gas. Did it get changed? Weekly change in gas prices?
Cris deRitis: Nope, nope.
John Leer: It's a tough one.
Mark Zandi: 73 cents. Is it something we buy as consumers?
Cris deRitis: It is something that people buy, yes. But not as much as they used to.
Marisa DiNatale: Why... Okay, but this isn't a release, an economic statistic that came out this week, is it?
Cris deRitis: No, it's not a release. It's not a-
Mark Zandi: You're hearkening back to the rule book. Is that what you're doing?
Marisa DiNatale: I am, yeah.
Mark Zandi: You're going to disqualify-
Marisa DiNatale: Since you're so honed in on the rules.
Mark Zandi: [inaudible 00:55:20]-
Cris deRitis: It doesn't have to be a release though. We've had other prices.
Marisa DiNatale: No, I know.
Cris deRitis: Commodity prices, right?
Marisa DiNatale: Okay, it's a-
Cris deRitis: It does have a point. It's not just a random-
Mark Zandi: I'm sure, yeah.
Marisa DiNatale: I figured it had a point.
Mark Zandi: A point about inflation-
Cris deRitis: It is from a government agency.
Mark Zandi: Okay. Is the point around inflation?
Cris deRitis: Nope.
Mark Zandi: No, it's not.
Cris deRitis: Consumers buy this every day.
Mark Zandi: Every day.
Cris deRitis: They have to go to a special office to buy it.
Mark Zandi: A stamp? No.
Cris deRitis: Exactly.
Mark Zandi: Stamps are 73 cents.
Cris deRitis: Yes, yes, the Forever First-Class-
Mark Zandi: The Forevers are now 73 cents?
Cris deRitis: Now 73 cents. They were just hiked up another five cents. It's the second time they were hiked this year, and they're up 33% from 2021. I think this price encapsulates this divide between what people perceive and what they're doing. I don't know when-
Mark Zandi: Who uses stamps though?
Cris deRitis: When was the last time you bought a stamp?
John Leer: That's the question, I think. I think that probably explains the divide is probably the stamp using-
Mark Zandi: Yes, right. John, I think you should run a survey.
John Leer: I'm in, let's go.
Mark Zandi: Are you a stamp user or not a stamp user?
John Leer: [inaudible 00:56:36] back tomorrow.
Mark Zandi: There you go.
Cris deRitis: But my point is I never buy a stamp. I can't remember the last time I mailed anything, but I read this headline and I'm mad as hell. What the heck? [inaudible 00:56:49] big increase.
Mark Zandi: Well, especially the service has declined. Have you noticed the postal service is just awful? Whatever they're doing to revamp the post office, I've been following it closely, but it's a mess. [inaudible 00:57:05]-
Cris deRitis: Except for my local-
Mark Zandi: We sent out wedding invitations-
Cris deRitis: Except for my postal carrier Christie, she's great.
Mark Zandi: What's that?
Cris deRitis: My local postal carrier is Christie. She's great.
Mark Zandi: No, no, I'm not saying that. I'm not blaming on the... Now, that's not fair. I'm not blaming on the postal-
John Leer: That's like what people think about Congress, right?
Mark Zandi: That's just nasty.
John Leer: Congress is terrible but I love my congressperson, yeah.
Mark Zandi: I blame it on the muckety-mucks that are making decisions around consolidating postal machinery and that kind of stuff. It's just a nightmare. We sent out wedding invitations, that was five months ago. They're starting to get them now. What's that all about? Especially around Atlanta, I've noticed.
John Leer: And that is the change, right? They tried to take an Amazon-style kind of approach, and they consolidated the processing centers, but maybe not well.
Mark Zandi: Yeah, not so well. Hopefully, they get it together. And they're charging a lot more. Now, you got me riled up.
Cris deRitis: Yeah, there you go.
Mark Zandi: See, now I'm riled up. John, don't call me because I'd give you a really-
Cris deRitis: Negative.
Mark Zandi: ... doom-like response.
John Leer: Write a letter into your congressperson, but then you got to send it to them, and then they get you-
Mark Zandi: Then what do you do? Yeah, exactly.
Cris deRitis: Send an email.
Mark Zandi: Send an email. Okay, I got a tough one.
Cris deRitis: All right.
Mark Zandi: It's 24,872.
Marisa DiNatale: Dollars?
Mark Zandi: Not dollars.
Cris deRitis: People.
Mark Zandi: Not people.
Marisa DiNatale: People. Not people.
Mark Zandi: Peoples. Not peoples.
Marisa DiNatale: 24,872.
Mark Zandi: 872, yeah. It's a statistic that came out this week. We don't follow it regularly, at least in our discourse, but I think going forward, we will start to follow it more.
Marisa DiNatale: Is it bankruptcy filings?
Mark Zandi: What other clue can I give you that doesn't give it away?
Marisa DiNatale: So, it's not.
Mark Zandi: In the grand historical scheme of things, it's still pretty low, but it's moving up. It's steadily moving higher.
John Leer: Did we agree what the units were? The units were not people, not dollars-
Marisa DiNatale: Well, I don't think he wants to tell us the units.
Mark Zandi: I can't tell you the units.
Marisa DiNatale: The units give it away, okay.
Mark Zandi: The units give it away. Oh, maybe I'll give you this because I feel pity for you guys.
Cris deRitis: Is it a government stat?
Mark Zandi: It's a government stat. It's businesses. It's businesses. 24,872 businesses, but tell me something about that.
Cris deRitis: Not formations, is it?
John Leer: Filings, yeah.
Mark Zandi: Formations and what happens to a lot of businesses?
John Leer: Is it the birth-death rate?
Mark Zandi: It's bankruptcies, bankruptcies.
Cris deRitis: Oh, but Marisa said that.
John Leer: Oh, but Marisa, you guessed that.
Mark Zandi: Oh, I'm sorry. Did you say that early on?
Marisa DiNatale: Yeah, I said, "Is it bankruptcies?"
Cris deRitis: Right out of the gate.
Mark Zandi: No way.
Cris deRitis: Yep.
Mark Zandi: Right out of the gate?
Cris deRitis: You missed it, all right.
Mark Zandi: Oh, I apologize. I apologize, Marisa. Forgive me. Please, forgive me. I missed it.
Marisa DiNatale: You're forgiven.
Mark Zandi: Yeah, but here's the interesting thing. It's moving up, 25,000, but just for context... I'm making this up, but for context, roughly speaking. In the teeth of the financial crisis, I think it got to 70... Excuse me, 65,000. And this is over a three-month period annualized. Over a three-month period annualized, 65,000. And I think the all-time high was in 1987. I'm not sure why, maybe there was some bankruptcy law change. There was about 100,000 bankruptcies.
So, it's still very low, but it is moving up, which stands to reason given all the business formation. But personal bankruptcy, that remains very... It's off bottom, but it remains very, very low. It's still well below where it was pre-pandemic. So, by that measure, households are still doing pretty well. Anyway, do you think that was a good statistic or not? Was that too esoteric?
Marisa DiNatale: No, because I knew it because that was one I was going to pick. I was considering picking it.
Mark Zandi: Oh, I'm so sorry. Oh, I'm sorry, sorry.
John Leer: I think, I would say just by sheer chance, if you rounded it out, we covered a lot of the pillars of macro right re with some business information. Cris, I don't know where... I guess I'll say inflation. We got personal finances and savings.
Mark Zandi: Well, John, just so you know, that's the idea. That's the idea.
Cris deRitis: It's like we went inside economics.
Mark Zandi: Yeah, yeah, yeah, yeah.
John Leer: Inside economics. That's great.
Marisa DiNatale: It was a data-rich week though.
Mark Zandi: It was a data-rich week.
Cris deRitis: It was.
Mark Zandi: It was a data-rich week. Okay, let's end the conversation with what's increasingly top of mind here, the election, and I don't even know where to begin, John. I'm sure you're all over this at Morning Consult. Can you tell us anything about the state of play at this point given this whirlwind of events over the past four, five, six weeks?
John Leer: Yeah, the time horizon here matters a lot as well. In terms of the head-to-head, there's been a narrowing where we've seen greater support for Harris than for Biden. Top issue continues to be the economy, with actually, a recent uptick in folks citing the economy as being their top issue. Senate and governor rankings and races that are really, really close, the swing states.
And then, I think, as we think about on the international front or the global international policy, we see actually pretty strong alignment there. It's a pretty strong support for tariffs and broader protectionist policies across the electorate of both Democrats and Republicans.
Mark Zandi: Whoa, whoa, whoa, support for tariffs?
John Leer: Correct.
Mark Zandi: Across both Republicans and Democrats?
John Leer: Correct.
Mark Zandi: Interesting.
John Leer: Yeah, I mean this has been that kind of thing. The big shift over the last 10 years maybe is I think Democrats and Republicans used to both agree on being anti-tariff, and now they both agree on being pro-tariff.
Mark Zandi: Certainly, on different scales altogether though.
John Leer: Different scales but I mean we've had tariffs on China that weren't removed over the last four years, and in fact, it looks like they're going to be moderately strengthened at least in name.
Mark Zandi: But one candidate saying a 10% tariff on all imported goods, 3.4 trillion. 60% on Chinese imports. Another candidate, she's not even talking about tariffs, but the Biden administration has raised tariffs on $18 billion worth of Chinese product. Yeah, you're right, they didn't eliminate the tariffs that President Trump put on, but that's a complicated process that goes into lots of other issues. But nonetheless, I'm surprised that there's such broad-based... The thinking is what, jobs? It's going to create more jobs? That's the thinking?
John Leer: Well, we see as well just a broadening decrease in approval among Americans. What are their views of other countries? And we see souring views of countries like China. And so, I think there's just a growing sentiment of an America-first, the hell with the global order style outlook.
Mark Zandi: Wow. Wow, that's surprising. You also do... Let me ask you this. Polling in general seems like it's gotten a lot more difficult to do over the past few election cycles. Actually, maybe to make this even a broader question, response rates are down for at least a lot of the government surveys. Very difficult for folks to get people to participate in the surveys, and designing surveys and doing polling in a way that is accurate feels like it's gotten more difficult. Is that fair to say?
John Leer: Yeah, what we tell our clients is it's never been easier to collect the data and it's never been harder to collect good data. So, we see this with response rates for the household survey. We see it with the University of Michigan moving to an online survey. I think those broadly been this aha moment that random digit dialing of phone numbers seems as antiquated as going to somebody's front door and trying to see who's going to open the door.
Having said that, I think that there are pretty significant opportunities, and maybe this is a plug for Morning Consult, but high-frequency global survey data is something that just was not possible 15 years ago. And so, you guys are data folks. You always bring a high level of skepticism to data sets, but any data set has its basic empirical properties. You got to just dive in and understand what's going on there.
What we tend to feel is, especially globally there's a move towards internet via phones and mobile phones. So, that opens up a really expansive use where all of a sudden now you can start making population inferences in places that previously we had very low internet population penetration. We could dive into the methods and that'd be a separate discussion, but I think, like all things, economic measurement is very, very challenging. The devil's in the details, and you just have to be on top of it.
Mark Zandi: Yeah, and I know you guys are really careful of what you do, and appreciate the opportunity to talk to you. One last question before you go. Do you do an explicit forecast for the economy? Do you split a GDP, employment, unemployment [inaudible 01:07:57]-
John Leer: We do nowcast.
Mark Zandi: You do nowcast.
John Leer: That's our core strength is high-frequency measurement, and then we have a lot of clients who take that and use it for their own forecasting purposes.
Mark Zandi: Right. And so, you don't necessarily need to have some view on how the election's going to play out, what that means for fiscal policy, that kind of thing.
John Leer: That's right. That's right. I mean we can talk through it. I think about it a lot because our clients care deeply about it, and we start thinking about what these different scenarios are. My recent push has been really to dive into... I think the Senate is really where the action is going to happen because it's going to be the Senate confirmations at places like treasury and a lot of the regulatory agencies that I think are going to make the difference in terms of trade policy, immigration policy.
Mark Zandi: And what's your perspective there? Is that going to flip to the Republicans or-
John Leer: Feels like it.
Mark Zandi: Feels like it.
John Leer: Feels like it, yeah. The caveat is if the race were held today and you just... I mean part of it is just you have a couple of Democrats who are retiring from swing states, and so that puts them behind the eight-ball to start with.
Mark Zandi: Right. And for president, I mean do you have a sense of that, or a view based on [inaudible 01:09:22]?
John Leer: It's closer now than it was two weeks ago. I mean it was close a couple of weeks ago in the margin of error, but now it's really, really close. Particularly in the swing states, and I think we're starting to see from... The question we've had for the last few elections is trying to understand the extent to which some of these groups that haven't historically come out to vote, whether or not they will. We see Harris is really motivating and inspiring those groups. Think about younger voters, non-white voters. To the extent she's able to drive that turnout there, I think that's going to be really good for her.
Mark Zandi: Well, I have a suggestion for you. Just my simplistic way of looking at things. I think you need to survey everyone who lives in Pennsylvania.
John Leer: Well, I mean we can get pretty darn close there. We'll get down and we can do zip code surveys.
Mark Zandi: Yeah, just because it feels like everything's going to boil down to PA here the way things are going. But it was great to have you on, John. I really appreciate it, and hopefully, we'll get you back on soon for number four.
John Leer: My pleasure. Yeah, thanks so much for having me. I'll try to have a better statistic next time that at least turns it into a real game instead of just a wash.
Mark Zandi: Well, these guys are so good.
Marisa DiNatale: I mean we actually... Other than Cris's Forever Stamp, which who buys stamps, all of our statistics were guessed right away.
Mark Zandi: Yeah.
John Leer: Yeah.
Mark Zandi: Well, very good, and dear listener, I hope you enjoyed the conversation, and we'll talk to you next week. Take care now.