This episode marks our four-year anniversary doing the Inside Economic podcast, and we devote the conversation to responding to listener questions. We’ve been getting lots of great Qs, ranging from the global trade war and DOGE cuts to immigration and productivity growth. Keep the questions coming.
This episode marks our four-year anniversary doing the Inside Economic podcast, and we devote the conversation to responding to listener questions. We’ve been getting lots of great Qs, ranging from the global trade war and DOGE cuts to immigration and productivity growth. Keep the questions coming.
Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s Analytics
Follow Mark Zandi on 'X', BlueSky or LinkedIn @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn
Mark Zandi: Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics. This is a rare treat, it's just the two co-hosts and me. Wow! Marisa DiNatale and Cris deRitis, that's rare, isn't it, guys?
Marisa DiNatale: Yeah, I love it.
Cris deRitis: It definitely is. Just the family.
Marisa DiNatale: It's been a while.
Mark Zandi: Yeah. It's been a while since we just had the floor to ourselves, so it feels good. We're taping the podcast a little bit early. This is a Thursday afternoon. Why are we doing that exactly? Why not Friday?
Marisa DiNatale: Well, we have a half-day tomorrow.
Mark Zandi: Oh, is that right?
Marisa DiNatale: Leading up to Easter. Is that why? I don't know.
Mark Zandi: Yeah, that may be it.
Marisa DiNatale: I don't know why we're doing it early.
Mark Zandi: That may be it. Yeah.
Marisa DiNatale: Yeah.
Mark Zandi: Early Easter. We have half the day off tomorrow?
Marisa DiNatale: We do.
Mark Zandi: Oh, cool. Did you know that, Cris?
Cris deRitis: I did not know that.
Mark Zandi: Yeah.
Marisa DiNatale: You didn't?
Mark Zandi: Cris views that as a time to get ahead of everybody else. Everybody else shuts down-
Cris deRitis: It's a nice, quiet time. Can get a lot of work done.
Mark Zandi: Yeah. Get a lot of work done.
Marisa DiNatale: I'll be using to write a commentary that's a week overdue.
Mark Zandi: Oh, right. We'll all be working.
Marisa DiNatale: Yeah.
Mark Zandi: Sarah told us before we got on, this is the four-year anniversary of Inside Economics. Four years at this podcast. Wow. That's pretty amazing.
Marisa DiNatale: Congratulations.
Mark Zandi: What do you think?
Marisa DiNatale: Well, I haven't been on for four years. I think I've only been on for two-and-a-half.
Mark Zandi: Two-and-a-half?
Marisa DiNatale: I can't believe it's been that long, actually.
Mark Zandi: Yeah. Right. Most TV shows, they end after four seasons. What do you think?
Marisa DiNatale: I think not anymore.
Mark Zandi: Not anymore?
Marisa DiNatale: Now they drag on for ...
Mark Zandi: Lots of seasons.
Marisa DiNatale: Eight, nine, 10.
Mark Zandi: Okay, then. We'll be on for a while then, right?
Marisa DiNatale: We're going to drag this out, yeah. Until people can't stand it anymore.
Mark Zandi: Yeah, yeah, we'll drag this out. Yeah, good. Yeah. It's been a good four years. We've covered a lot of ground in four years.
Cris deRitis: Yeah.
Mark Zandi: Yeah. A lot of things going on. Of course, we're in the middle of a pretty serious global trade war, a lot going on there.
Cris deRitis: Really?
Mark Zandi: Yeah. You've been following? A lot going on. The most recent thing is Chair Powell, Fed Chair Powell gave a talk at the Economic Club of Chicago. Did you guys read that? It was a really short speech. Did you guys read the speech?
Marisa DiNatale: I watched it live.
Mark Zandi: Oh, you watched it live?
Cris deRitis: Wow.
Marisa DiNatale: Then I watched the interview afterward, yeah.
Mark Zandi: Yeah. Why don't you paraphrase? What did he say in the talk?
Marisa DiNatale: He thinks that, given heightened uncertainty, the Fed is going to be having to bank likely inflation with slower growth. The upshot of that, his comments were ... He thinks that the trade war will do damage to the economy. They're still focused on their dual-mandate of full employment and bringing inflation down to the 2% bound. He said that, when asked about this push-and-pull between slower growth and inflation and how they're going to deal with that, he said that they've decided that what they're going to do is they're just going to have to look at the data and see which mandate they're further away from. Which one seems more pressing at the time, and deal with that. If it looks like growth is hanging in there, but inflation is running away, then they may raise rates. If it's the opposite, they may lower rates. He seems really focused on data.
Those were his remarks. Then there was an interview after that, where they delved into other things. Such as Fed independence.
Mark Zandi: That came to the fore overnight and today, because I guess President Trump has been posting on social media, what would be the right word, his annoyance with Chair ... The bottom line of Chair Powell's statement speech was that, at least from my vantage point was, he's not going to be moving on rates any time soon. Certainly, not cutting rates.
Cris deRitis: Right.
Mark Zandi: Because inflation is going to be the initial effect of these higher tariffs. Inflation expectations are pretty elevated, certainly consumer inflation expectations are elevated.
Marisa DiNatale: Yeah.
Mark Zandi: Given that, that argues for, I don't know that it argues at this point for rate increases, but it certainly doesn't argue for rate cuts, so he's going to sit on his hands. President Trump sounded like he got pretty annoyed at that and said, "You're always too late." And intimated, I thought, correct me if I'm wrong, that he might try to figure out a way to replace Powell before Powell's term is up, which I believe is May 2026, a little over a year from now.
Cris deRitis: Yeah. He said his "termination can't come fast enough."
Mark Zandi: That's what he said, right. Right.
Cris deRitis: Yeah.
Mark Zandi: What do you think of that, Cris? What's your-
Cris deRitis: Yeah, does that mean May 2026 can't come fast enough, or is it-
Mark Zandi: Right.
Cris deRitis: Or is he going to accelerate the timeline here?
Mark Zandi: Yeah. Yeah.
Cris deRitis: I'd be surprised that he'd actually ... Well, I don't know if I would be surprised anymore. That he would actually take action, because that's going to be a legal fight as well.
Marisa DiNatale: Well, there's a case before the Supreme Court right now that kind of deals with this. It's looking at a precedent that goes back to the 1930s that says a president can't fire a political appointee for policy differences. This was in response to Trump firing the head of the NLRB and another agency, I can't remember. Powell commented on this yesterday. Which I think is part of the other reason President Trump-
Mark Zandi: Got annoyed.
Marisa DiNatale: ... responded.
Mark Zandi: Yeah.
Marisa DiNatale: Jay Powell said, "I don't think that this applies to the Fed," this law. But he's not concerned, he thinks the Federal Reserve Act and precedent give the Fed independence, and it's against the law to fire him without cause. I think partially, President Trump's response was to those comments as well.
Mark Zandi: Got it.
Marisa DiNatale: Then of course, the European Central Bank cut rates this morning.
Mark Zandi: Right.
Cris deRitis: Right.
Marisa DiNatale: That added fuel to the fire too, I think.
Mark Zandi: Well, of course, the Europeans aren't raising tariffs like the US is.
Marisa DiNatale: No, they just have to react.
Mark Zandi: Yeah. Of course, the growth effects in Europe are much more significant. Yeah.
Well, Cris, what do you think about what this all means for Central Bank Fed independence?
Cris deRitis: It's at risk certainly. Even if the direct actions aren't taken, even if he doesn't terminate him or it takes a while, whatever, still, it's polluting the waters.
Marisa DiNatale: Yeah.
Cris deRitis: It's certainly got to make investors nervous that maybe there won't be that independence. It's just not clear. I don't think it helps the cause, let's put it that way.
Mark Zandi: Yeah. Absolutely. It feels like a direct affront to Central Bank independence. He's saying, "Hey, cut rates or I'm going to terminate you." I don't know how else you articulate what's going on here, other than that's a direct affront to Central Bank independence. To the point where Chair Powell is actually having to explain why he can't be thrown out.
Marisa DiNatale: Right.
Mark Zandi: That's pretty significant stuff. A couple things perplex me about that. One is I would have expected a more negative reaction in markets. This all happened, Powell was yesterday, on Wednesday. President Trump was posting on this last night and talking about it earlier today, Thursday. The markets, I don't know where they ended, but they weren't up, but I don't think they were down that much either. I found that a little perplexing.
The other thing, more fundamentally, it just feels counterproductive to me, for the president to hammer the Fed chief over this. Then he's saying, "Look, I don't want you to use your best judgement about the economy, and the dual-mandate of low and stable inflation and full employment. I want you to lower rates because I'm more worried, from a political perspective, I think that's better for how this will all play out." If I were an investor, a bond investor listening to all this, I'd get the heeby-jeebies. I don't know if that's a word, but that describes what I'd get, the heeby-jeebies.
Cris deRitis: Is that worse than the yips?
Mark Zandi: I think it's worse than the yips, in my nomenclature.
Cris deRitis: Okay.
Mark Zandi: The yips, I keep thinking of golf with the yips. The heeby-jeebies, you're shaking all over. This is really scary stuff!
That would argue for higher long term rates, all else equal. Even if you got the Fed to lower rates, it would result in higher long term interest rates, intermediate term rates. Which, from a macroeconomic perspective, for what it means for the real economy, it's probably worse because that means mortgage rates are higher, that means auto loan rates are higher, that means small business loans are higher, all those kinds of things. I find it really odd where one can think that, by jaw-boning the Fed, by browbeating the Fed, that that actually ends things in a way that is in your favor. It just shows ... I don't know what that shows. I'm just perplexed by it. Greed?
Cris deRitis: He should have asked for quantitative easing.
Mark Zandi: That's right. Yeah. Yeah, go out and buy bonds.
Cris deRitis: He could ask for anything.
Mark Zandi: Yeah, go out and buy bonds. Right. That would help. Yeah, right.
Okay, well, we got to watch this carefully. I do think that one of the cornerstones of a well-functioning economy, a market economy, I think this has been well-established over the decades, is an independent Central Bank and independent Fed. They set policy based on what's going on in the economy and achieving their goals, as opposed to anything political, which always ends badly historically. This needs to be watched carefully.
It also raises the ante on who the president appoints for the next Fed chair.
Marisa DiNatale: Yeah.
Mark Zandi: Right?
Cris deRitis: Yeah.
Mark Zandi: That's going to be a real tell. I don't know, it doesn't feel like it's a great time to be a bond investor. You got a lot of things to worry about. Big deficits in debt, trade wars, questioning of the reserve currency status, the safe haven.
Cris deRitis: The falling dollar, yeah.
Mark Zandi: What's that?
Cris deRitis: The falling dollar.
Mark Zandi: The falling dollar. Holy cow, what a mess.
Cris deRitis: Are you surprised that the bond market hasn't interacted more forcefully?
Mark Zandi: Yeah. Yeah, I guess so.
Cris deRitis: Rates at 4.3.
Mark Zandi: Yeah, 4.3. Yeah, it got as high as four-and-a-half. Yeah, 4.3.
Cris deRitis: Still pretty clean.
Mark Zandi: I did see a really interesting, and I think I sent it around to everybody, this interesting study. I apologize to the authors, I don't remember who they were. That showed the relationship between the spread between the 10-year treasury yield and the 10-year German bund, and the change in the euro-dollar exchange rate. These things are very closely related because interest rate differentials are key to determining short term movements in currency. They show this nice chart where the relationship is very, very strong. Then everything breaks apart since early April, since Liberation Day, where the 10-year yield has gone up and the dollar, the euro-dollar, the dollar's value against the euro has gone down. It's so counter to anything and strongly suggests that investors are nervous about the safe haven status of the US as a result of all of this.
It's not up as much as I thought, but still, it's up, which is not what you would expect, given what's going on.
Cris deRitis: Yeah, I heard an interesting bund investor talking about the US behaving much more like an emerging market-
Mark Zandi: Oh, yeah!
Cris deRitis: ... than a developed market, in terms of the bund relationship and the value of the dollar. It's counter to what you would expect in a developed economy, but not counter to what you might expect in an emerging market where there's some political unrest.
Mark Zandi: Oh, oh, I see. Yeah, that's what you would expect in an EM economy.
Cris deRitis: We need to change our framework.
Mark Zandi: Yeah, exactly. I hadn't thought about it that way, but that's exactly right. Well, that's a sad commentary.
Cris deRitis: Yeah, yeah.
Mark Zandi: Geez. Anyway.
Well, this podcast is going to be different. We don't have a guest. We've had lots of guests recently. We're not going to play the game. We're just going to take listener questions. We've been getting a lot of questions and I thought we'd just spend the rest of our time fielding ... I haven't looked at the questions. Cris, I don't think you have. I think only Marisa has.
Maybe, Marisa, you can lead the way here and just fire away, and we'll take a crack at answering these cues as best we can.
Marisa DiNatale: Yeah, there's a ton. Please keep sending them in. We don't do this very often because we usually have a guest on, so we don't have time to take questions. Because I know what the questions are, when we can, we try to work the answers in, or steer the conversation to answer some of the questions. Appreciate everybody's questions.
Guys, we have really smart listeners. We really do, we have very thoughtful, smart listeners that ask really, really good questions.
Mark Zandi: Are you sucking up to the listeners? Is that what you're doing?
Marisa DiNatale: Yeah!
Mark Zandi: Yeah.
Marisa DiNatale: I don't think we do-
Mark Zandi: I think she wants fan mail, Cris. You see how she's doing this?
Marisa DiNatale: No, that's not what I want. I just want to say thank you to people. People write really nice stuff to us and we don't often give it back.
Mark Zandi: Say thank you. Yeah, you're right.
Marisa DiNatale: I'm just saying we love that.
Cris deRitis: You're right.
Mark Zandi: You're absolutely right. I'll suck up. I love our listeners.
Marisa DiNatale: Yeah.
Mark Zandi: You guys are great! Keep the questions coming.
Marisa DiNatale: Okay. There's lots of different topics. We can go tariff, we can go labor market, we can go Fed. Let's see.
Mark Zandi: Spin the wheel.
Marisa DiNatale: Do you have a preference?
Mark Zandi: I thought maybe we should go tariff first, because all the rest flows from that. Don't you think?
Marisa DiNatale: Sure. Yeah.
Mark Zandi: No? I didn't mean to interrupt. Go ahead.
Marisa DiNatale: Yeah, yeah.
Mark Zandi: Do it the way you want to do it.
Marisa DiNatale: That's the way I have it organized.
Mark Zandi: Oh, okay. Okay, great.
Marisa DiNatale: If we're sick of tariffs.
Mark Zandi: I don't want to micromanage. I'm good at that.
Marisa DiNatale: You're really not.
Mark Zandi: I'm not? Okay, good.
Marisa DiNatale: No, you're not.
Mark Zandi: Oh. That's good to hear.
Marisa DiNatale: You're a macro manager.
Mark Zandi: I'm just the opposite. You're criticizing me because I'm not, I'm a macro.
Marisa DiNatale: That wasn't a criticism.
Mark Zandi: That's right.
Marisa DiNatale: Okay, here we go. Concerning tariffs, "Do you think that maybe one of the reasons for these tariffs could be, because we hear a lot of reasons, every day, there's a new reason justifying this seemingly, could be to diversify supply chains to the US? I don't see jobs being created in the United States, given things could change in the next term about the absolute latest. But for pushing trade to other nations that may or may not be to our favor, that might make more sense, but it comes with repercussions. What are your thoughts?"
Mark Zandi: I don't know. What do you think, Cris?
Cris deRitis: I see it as a consequence certainly, but I don't see it as the motivation. Certainly, there are other ways you could diversify the supply chain more effectively if that's really the objective than just broad-base tariffs.
Mark Zandi: Yeah. Is the thinking that the supply chains are not resilient enough? I guess they used the word diversify-
Marisa DiNatale: Right.
Mark Zandi: Therefore ... I see. Well, I definitely don't think that's a motivation.
Cris deRitis: Right.
Mark Zandi: What you're doing there then is raising costs, presumably significantly. It's making the supply chains less efficient. You would think you'd want to let the market ... I guess the way I would think about this is what's the market failure here? What are you trying to solve? Don't you think the marketplace ... Because this is pretty complex. These supply chains, they're long, there's a lot of moving parts, they're very complex. You would think the market would be the best arbiter of what is the most efficient way of organizing around these supply chains. And they learn. I think we learned a lot after the pandemic.
Marisa DiNatale: Right.
Mark Zandi: We learned quite a bit when the supply chains had been disrupted by different Houthis in the Red Sea, and the problems in the Suez Canal and the Panama Canal. There's been a lot of stresses put on the supply chains, and they've responded and reorganized.
Really, using tariffs to try to get supply chains to move in a certain direction, that's pretty tenuous. It seems almost impossible to execute on. I'm not even sure, I just don't see that working out well for anybody. I just really don't. I haven't heard that explanation and I think with good reason. It's just not at all intuitive to me that that's what's going on here.
Cris deRitis: Maybe a targeted tariff you could make that argument. If you thought that we were overly dependent on China and you want to move that supply chain around. But the broad-base tariff, tariffing Canada, tariffing Mexico, all around, that just throws everything in disarray.
Mark Zandi: Let me say one other thing and that is the way the tariffs are being set.
Cris deRitis: Right.
Mark Zandi: It's not consistent with the idea that there's any-
Cris deRitis: Exactly.
Mark Zandi: Any grand plan here. I have a 10% across the board tariff, that's not going to change anything. Then I have these so-called reciprocal tariffs that are based on nothing.
Marisa DiNatale: Right.
Mark Zandi: Other than, "I'm making this up," which has been shown very clearly that the formula used here is just the trade deficit. It has nothing to do with anything. Certainly not with supply chain resilience or even fair trade. It's just the deficit is large, therefore you got to pay a higher reciprocal tariff. I think it's being revealed to us that there's no grand plan here. It has nothing to do with anything other than God knows what.
Marisa DiNatale: Okay.
Mark Zandi: Yeah. Do you have anything to add there? Did we miss anything, Marisa?
Marisa DiNatale: Well, I do think there was certainly, post-pandemic, there was an effort by the Biden Administration to try to divert production of semiconductors, chips, batteries, that kind of thing, bring that more to the US so were less reliant on China for that. Part of that was coming out of supply chain concerns. But to your point, that was very targeted. Whereas, this time around, if there was a strategy to divert supply chains or diversify them, then you would think there would be carve-outs somewhere where they wanted those supply chains to go or divert to. But since we're tariffing everyone, it's not clear really who has any advantage here if everyone's being hurt by it.
Mark Zandi: Yeah. The other thing is, and this is a good place to talk about the difference between what President Trump is doing with the tariff and the trade war, and what Biden did with tax incentives around the CHIPS Act and the Inflation Reduction Act. Those were big pieces of legislation that provided a tax subsidy to the private sector to get the private sector to invest more in manufacturing activity, particularly things like chips and clean energy, things that are deemed to be relative to national security.
In my view, the tariff approach absolutely will not work because no one knows what the tariffs will be next week, let alone 10 years from now, when these investments come to fruition. Whereas, we know for a fact, it's empirical, you can go take a look, the tax subsidies worked. By better than expected, in fact. If you look at investment in manufacturing facilities, that's construction put in place by manufacturing facilities, factories, I'm making this up, but you can Google it or ChatGPT it. Before the CHIPS Act was passed in 2022, investment annually in manufacturing was about 75 billion per annum, give or take. Some years a little higher, some years a little lower. Last I looked, we were at over $200 billion annualized. That was a slam dunk success in getting chip plants to move here.
Then the other, the Inflation Reduction Act, that's been over-subscribed. There was no limit on how much tax subsidy could be taken down and it was taken down by orders of magnitude. Now, you could say that tariffs generate revenue and the other is a tax subsidy, but if you look at the legislation for the IRA and for the CHIPS Act, those pieces of legislation were paid for. They had other paid fors, tax increases and spending cuts, to pay for it, so they were deficit-neutral and they were able to accomplish that.
I think the targeted nature and the very specific focus in this tax subsidy, that's a success to reorient manufacturing back here at home. But the tariffs, I really don't see it. I just don't see that happening.
Marisa DiNatale: Okay. Here's another tariff question. "One the episode State of the American Consumer," which I think is when we had Scott on last. "You discussed the risk to retailers of rising energy prices. It seemed you were referring primarily to gas prices." I think we were saying that rising prices at the pump would lead to pullback in consumer spending, that's what we were saying.
Mark Zandi: Okay.
Marisa DiNatale: "If that is the case, what are your thoughts on the mid-'25 to late '26 impact of tariffs on Canada driving up energy, IE oil and gas prices at the pump here in the US? How do you think this further plays into the theme over the past few years of the strong American consumer? Could this further impact corporation supply chain costs from a transportation standpoint, leading to additional price hikes in goods and services? In turn, less consuming. And then further, a broad market pullback. Talk me off a cliff, ha-ha."
Mark Zandi: Well done, well executed. Well, I guess I'll take the first crack at that. Well, higher energy prices, higher oil, gasoline, natural gas prices would be a hit to the consumer. It saps real purchasing power and hurts confidence and sentiment. If you're paying more at the pump, nothing gets people more upset and hurts more than paying more at the gasoline pump. It would result in higher costs for grocery stores, because a big part of getting food from the farm to the store shelf is diesel, and it'll effect other prices as well. That's very negative. The tariffs don't help there, all else being equal. If there's tariffs on Canadian oil and energy products coming into the US, then that adds to that concern.
But I will say I don't think we're going to see too large an increase in oil prices in the current context because the higher tariffs and trade war are crushing demand. They're weakening the economy. The global economy, not just the US economy. The Chinese economy is a big consumer of energy and they're going to consume less. Their manufacturing base must be starting to shut down because these higher tariffs are killing trade. That's probably effecting manufacturing, and therefore their consumption of energy.
Oil prices are actually down. We're at 60 bucks I think, close, on the West Texas Intermediate, 65 or so on Brent. Costs of a gallon of regular leaded and diesel is going to come in. I'm less worried about higher energy prices in the current context just because of the hit to growth and the hit to demand.
I don't expect oil prices to fall much further, unless we really get into a rip-roaring recession and demand really gets crushed, because we're now at break-even prices. The Dallas Fed just came out with their annual study of costs of producing in the fracking fields. The marginal costs of the marginal fracking field is about, I believe if memory serves, is about 60 bucks a barrel, 65 bucks a barrel, so we're there. If prices go much lower, they're going to start pulling back on production and supply.
Yeah, you're right, higher oil, energy prices, higher tariffs, all else equal, not good. But I think there's all these other forces at work, dynamics that suggest oil prices will remain down and not really play that much of a role in how things play out here going forward.
Cris, any other perspectives? Do you have a different perspective or any other perspective?
Cris deRitis: I agree with all that. The weakness of the demand is likely to offset any major increase in price. I guess conceptually, it runs counter to this idea that we want to actually attract more manufacturing back to the United States. One of the most attractive features of the US is that we have a reliable, fairly low cost of energy. Outside of the tariffs, that's one reason why firms have been coming to the US. Now, if we are instituting this very large tax, it seems like on the one hand we are giving, on the hand we are taking away. In terms of how companies make their decision, I think that just adds to the complication of a manufacturer trying to decide, "Should I really open this plant in the US or not?" The tariffs are one thing, but now I have maybe higher costs potentially down the line due to higher energy prices.
Mark Zandi: I think that's an interesting point. We're getting into second, third, fourth, fifth order of effects here.
Cris deRitis: Yeah, yeah.
Mark Zandi: Which is I think important. Certainly, the folks setting this policy should be doing that. That would be nice if they thought about that more deeply.
One thing that occurs to me is, one, we had our webinar this week on the trade war. By the way, folks, I thought it was a pretty good webinar. It was long, but it was good, on the trade war. I think there's a replay out there, you might want to take a look. We had Gaurav Ganguly on, who's our economist in Europe who runs that economics team. He was talking about the EU and what is it that they could buy more of from the US to help bring down the tensions here around EU trade with the US. One thing was natural gas. The natural gas prices are still relatively high in Europe. They spiked when Russia invaded Ukraine because the Europeans got a lot of their natural gas from Russia. A lot of LNG, liquified natural gas, is now flowing from the US into Europe.
On one level, that's a good thing I guess because we're exporting more. But it's raising the price of natural gas here in the United States. Natural gas prices are up for probably lots of different reasons, including a cold winter in many parts of the country. Natural gas, the last I looked, we're close to $4 for a million BTU, up from three. The low natural gas prices was one of the calling cards to have manufacturing here in the US. If you have more LNG and more natural gas flowing from here to there, and that our prices go up, their prices go down, then it becomes less attractive as a destination for manufacturing. That's probably a fifth order effect, but it's still something to consider, how complicated this is in trying to disentangle what it all means for the economy.
Marisa, do you have anything to add on that, on the energy question?
Marisa DiNatale: No. We do import a lot of energy from Canada. I think the Canadian marginal cost of producing is also quite high, particularly in some of the, what is it called?
Mark Zandi: Oh, yeah, the heavy-
Marisa DiNatale: Where they have to bring it out of the sand.
Mark Zandi: Tar sands.
Marisa DiNatale: The tar sands, that's right.
Mark Zandi: The tar sands, right.
Marisa DiNatale: That's very expensive to produce, too. Yeah, I think with energy prices going down, with weaker demand around the corner happening, and also potentially intensifying that probably offsets any tariff impact. We also-
Mark Zandi: One thing about ... No, go ahead.
Marisa DiNatale: We are producing a lot here, too. We are now the world's largest oil producer, so we have plenty of our own energy that we could cover the cost of, I think if for some reason, the tariffs distorted energy imports to the point where it was actually causing real economic harm.
Cris deRitis: Good question. It goes to the supply chain, because we think oil is just oil, but it's very specific.
Marisa DiNatale: Yeah.
Cris deRitis: We have refineries that are very keyed in to that Canadian pipeline. They've optimized their processes around it. Now, if you take that away, they have to source it from somewhere else. That can add increased costs.
Mark Zandi: Oh, it most certainly will.
Cris deRitis: Commodities seem like they're just commodities, but there's a lot of variation within them.
Mark Zandi: Yeah, because it's heavy ... I'm sure I'm not going to get this exactly right, but Canadian oil, the tar sands heavy oil, it has to be refined in a certain way. The Midwest refineries are, as you said, optimized to process that kind of oil and there's no other options here. It's not like you can ship that oil somewhere else, or these refineries can take oil from other places. You're mucking with a system that's been optimized and making it, just by definition, inefficient. Yeah.
Cris deRitis: Right.
Mark Zandi: And raising costs. Right. Good, that's a good one. What's up next?
Marisa DiNatale: There's so many good ones.
Mark Zandi: Really? Okay, cool.
Marisa DiNatale: Okay, here's a good one.
Mark Zandi: Tariff?
Marisa DiNatale: No, this is recession related.
Mark Zandi: Recession related? Okay, fire away.
Marisa DiNatale: This is a direct response, Mark, to something you/Sarah posted on LinkedIn.
Mark Zandi: Oh! Cool.
Marisa DiNatale: "The possibility of recession is elevated-"
Mark Zandi: By the way, I like being linked to Sarah like that. Mark, you/Sarah.
Marisa DiNatale: We know who's pulling the strings here.
Cris deRitis: Yeah, everyone knows.
Mark Zandi: We know what's going on here. All right.
Marisa DiNatale: Okay. "The possibility of recession is elevated and trending up because, quoting and abridging Mark's LinkedIn post from a couple of weeks ago, one, tariffs and possible trade war. Two, stock prices are down. Three, haphazard DOGE cuts. And four, government shutdown and debt limit. But in that same post, Mark states that a recession occurs every six to seven years, presumably not related to political changes. My questions are why are we trying to fight against what is normal and inevitable? And two, going even further, why did we want a 'soft landing' at all seems, like we would just want to keep flying, to stay with the analogy?"
Mark Zandi: Well, the six, seven years is on average.
Marisa DiNatale: Right.
Mark Zandi: We've had much longer expansions and there's no reason why we can't enjoy those longer expansions. Generally, recessions come to an end because there's some significant, for lack of a better term, imbalance in the economy. Too much leverage, over-valued asset prices, I'm thinking of the housing market in the financial crisis. A pandemic. I think if we have a recession here, this would be the first ... I'm trying to think. I was going to say this might be the first recession that's entirely self-induced. There's no reason why we're experiencing this recession other than policy, other than the trade war, and DOGE, and those other policies that you mentioned.
It's not inevitable. Certainly, this was no where close to inevitable. In fact, we came into the year, the economy was in a really good place. Strong growth, lots of job creation, unemployment was low. The stock market was at record high, housing values were at record highs. Inflation was a bit elevated, but it's coming in. As we can see with the more subsequent data through March, it was going to come right into target, thus the soft landing. There's nothing inevitable about a recession, certainly not this recession. Completely our own doing, based on the policy steps that are being taken. I don't think we need to be here talking about this.
What was the other part of that question? There was a corollary to that. Inevitable ...
Marisa DiNatale: Oh! "Why did we want a soft landing?"
Mark Zandi: Oh.
Marisa DiNatale: Instead of just keep going at the pace we were going.
Mark Zandi: Oh, I see. Yeah. A definition of a soft landing in my nomenclature is that the economy grows at its full potential, if it's at full employment. Once you get back to full employment, and I think we've been there, 4% unemployment rate, that's where we've been for the past three-plus years, that would be very consistent with a full employment economy. When you're there, what you want and the best you can do is have an economy that grows at its potential, meaning that it's consistent with the growth in the labor force and the productivity growth of that labor force. If you have growth that's stronger than that for an extended period and your unemployment continues to fall, that'll in genitor inflationary pressures, higher interest rates, and ultimately you may in fact suffer a recession. That would be a recession that's more typical, the way that past business cycles come to an end.
The ideal world is one where your economy is operating at full employment, it's growing at its potential, and inflation's at target. We were pretty close to doing that at the beginning of the year, and now we've blown that all apart with the policy decisions that have been made.
Cris, anything to add there?
Cris deRitis: Yeah, all good. I guess if you wanted to fly higher, you would increase the potential growth on the supply side.
Mark Zandi: Good point.
Cris deRitis: Certainly, a soft landing is the objective, but that doesn't mean we stop there. We still would like to increase the supply side, whether that's increasing immigration so we have the labor force we need, or other supply constraints. I would say that potential growth where it is should be our ultimate target. We would like to continue to grow that as well.
Mark Zandi: Yeah. Actually, a lot of that potential depends in part on policy. Like, for example, immigration policy.
Cris deRitis: Right.
Mark Zandi: One reason why the economy was able to grow so fast in 2024 was the large number of immigrants that were coming into the country adding to the labor force, they went right to work. The immigration had other costs, but one of the benefits was the fact that it allowed for more job creation and more economic growth. We grew 2.8% in 2024 calendar year. In more typical times, we would think that's well above the economy's potential. But no, the unemployment rate actually stayed low. And actually, I think it moved up a little bit, we could have grown even a little bit more in 2024.
The other thing is technological change, things that are much more difficult to know and predict certainly the timing of. We saw some very strong productivity gains in 2024. We've had podcasts in the past discussing what that's all about, there's a lot of theories. But there's also things like artificial intelligence that are coming down the pike here that might lift, I don't know, potential growth.
In the near-term, what's going to happen in the next year, the goal would be you want to have an economy that's growing very close to its potential if you're at a full employment economy. If you're below full employment, then have at it, we want more growth. If we're at full employment, if you grow much above that, you'll get inflation and that's not what you want.
Cris deRitis: Have you revised your potential growth forecast? As you [inaudible 00:38:19] some of these policies.
Mark Zandi: I think, all else equal, these policies will diminish the economy's potential growth, yes.
Cris deRitis: Yeah.
Mark Zandi: One thing we've learned about tariffs, and I think I mentioned this before in other podcasts. There was a study out from the Fed showing that the productivity of the steel and aluminum industry has fallen very sharply since the tariffs that were put in place back under President Trump's first term. The explanation or intuition is that, with tariffs, these industries are protected, the markets are less competitive, and there's less incentive for them to innovate and to adopt new technology. Actually, they do the opposite and we get a reduction in productivity.
Yeah, I think if these tariffs remain in place, or anything close to them, they will diminish longterm productivity growth, and therefore the potential growth rate of the economy. Yeah. There's other things going on that could more than offset that effect. I mentioned AI. The more we use artificial intelligence, the more we understand it, the more innovation that's occurring there, the faster changes are occurring. They're not occurring very quickly. It's hard not to become more of a convert to the idea that this is going to generation a lot of productivity growth at some point. There's a lot of productivity gains to be had here from AI. I don't know, that hasn't kicked in yet, but it feels like that, at some point down the road here in the not-too-distant future that it will.
Agreed?
Cris deRitis: Yeah. You sounded a little like President Reagan there.
Mark Zandi: Really?
Cris deRitis: On the protectionist tariffs. Yeah, he had a whole speech about protectionist tariffs.
Mark Zandi: Oh, that's right, he did.
Cris deRitis: In the '80s, remember?
Mark Zandi: Yeah, yeah. I think you passed that around.
Cris deRitis: He mentioned the same things about lack of innovation from a protected industry.
Mark Zandi: Right, right. Exactly. Great. Marisa, do you want to do another question?
Marisa DiNatale: Oh, yeah.
Mark Zandi: Okay.
Marisa DiNatale: Yeah, let's keep going.
Mark Zandi: Keep going.
Marisa DiNatale: Okay. This one is actually about productivity, so it's a good segue. Okay. "My question is related to an idea that Vice President JD Vance brought up in a recent speech where he said, 'Cheap labor cannot be used as a substitute for the productivity gains that come with innovation.'" Then I watched part of this speech where he says it, he linked a YouTube to it. He was talking about ... The context of the speech was about illegal immigration and cracking down on illegal immigration, so that's the context of the comment.
Our listener says, "If I understood him correctly in the speech, VP Vance was essentially arguing US businesses have become addicted to cheap labor over the last several decades and that was a main cause of the stagnation in productivity and innovation experienced in the US. I was just curious, politics aside, if the team thinks there's any merit to this idea? I'm not sure it's one I've heard before. I'm also not sure how one measures innovation, so I have no idea how to validate that part of the claim. But I do know, prior to the recent uptick, productivity had stagnated to some effect. Although, isn't US productivity generally higher than any other advanced economy?"
Mark Zandi: Yeah. Cris, do you want to-
Cris deRitis: There's a lot there.
Mark Zandi: There's a lot there, yeah.
Cris deRitis: Well, my initial reaction is if we're thinking about things over a longer period of time, I think the timing doesn't match here. If you're talking about the immigration surge since 2020, that actually coincides with a period of heightened productivity growth. The period before that, the 10 years before that, was lower productivity growth, but I don't see any evidence of massive use or increase in undocumented workers, or lower skilled or less productive workers. That part of the argument doesn't really fit for me.
Then, the other thought I have is it's a global economy. It's not just in the US, so of course capital is going to look around and find where the most productive labor is for a given activity. I don't know that that's an addiction of businesses to cheaper labor, but they're certainly looking for opportunities to increase their margins or produce more cheaply around the world. In some cases, for very manual labor, they're going to go to those parts of the world that have that resource.
Yeah, that doesn't really hold water for me, if I'm understanding the point correctly.
Mark Zandi: Yeah. I didn't see the speech, so I don't want to state too strongly. I think I need to take a close look. But it feels almost backwards to me.
The one thing I do know is that immigrants tend to be more productive than native-born. There's strong evidence of this, a lot of research.
Marisa DiNatale: And more innovative, too.
Mark Zandi: Yeah, they start companies at a higher rate.
Marisa DiNatale: Yeah.
Mark Zandi: By definition, they're risk-takers. You don't pick up and leave one country to go to another with your family unless you've got something, you've got some kind of moxie. Because that's not easy to do, it's a pretty scary thing to do for many people. Language issues, and cultural issues, and everything else. Strong evidence.
I would proffer, and here it might be a bit of a stretch, but I would proffer that one of the reasons we've seen such high business formation rates since the pandemic correlates very highly with the strong amount of immigrants that have come into the country. We've actually done some work relating, where the immigrants are settling, and there are different estimates of productivity. They line up in a way that's consistent with this thought, this view that immigrants tend to be more innovative, start companies at a higher rate, are more risk-taking, and therefore are good for productivity growth.
My sense of it is just the opposite. Immigration is not weighing on the nation's productivity, it's not a pall over productivity. It's a super-charger for productivity. We want more immigrants. Now obviously, I do think it makes a difference of what kind of immigrants you have. We do want immigrants with the right kinds of skills. Although, having said that, we need immigrants of all skill levels. High skill, for sure, people that run our companies. Go take a look at the folks that are running these big tech companies and they're all first or second generation immigrants. I think most of them are. But we need low skilled too, to be in the agricultural, and construction, and manufacturing industries because the domestic population, working age population is declining. We're getting older and it's declining.
My instinct is just to take the opposite side. Again, I didn't read the speech. I don't want to be overly combative here because I'm not sure what I don't know. Make sense?
Marisa DiNatale: Yeah. That was my-
Mark Zandi: You're take, too?
Marisa DiNatale: ... reaction was that immigration is actually strongly correlated with higher rates of productivity, and business formation, and patent filings, and those kinds of things. But those are probably higher skilled immigrants than what we're talking about here. But I'm still with Cris, I'm not sure that the dots connect on these two things.
Yes, the US does have higher productivity than a lot of other developed countries. Certainly, higher productivity than Europe. A lot of that is due to the fact that we have higher business formation rates, more entrepreneurship here. Laws that are more favorable to business formation, and that sort of thing.
Mark Zandi: Yeah, I'll tell you, this may be a corollary to the discussion but in the same ballpark, I do worry about all of the pressure being put on foreign students. Lots of stories of visas being revoked, and students being forced back, and students leaving because they're scared. And other countries, like China, providing guidance not to go to the US as students. I think it's pretty clear that the secret sauce, one of the key ingredients of the nation's secret sauce, the thing that makes us tick as a nation is that we attract and keep the best and the brightest on the planet. If we lose that, that ingredient is gone, and I just don't see us performing at all well. That will undermine productivity growth and long term potential.
The more I think about this question, the more I'm getting irritated. It's just the opposite, just the opposite.
Cris deRitis: Yeah, I was thinking about the industrial mix component of it. If the tariffs are distortionary and we end up attracting a lot of less productive type of industries, then the overall composition of the productivity is going to look a lot worse than it potentially could be. We're not optimizing. We're building, I don't know, textiles here, or manufacturing textiles in a way that's less efficient than other parts of the world.
Mark Zandi: Yeah, good point.
Marisa DiNatale: Certainly.
Cris deRitis: That's my concern here. That the tariffs, again, provide this distortionary-
Mark Zandi: Effect. There's a great Dave Chappelle clip, did you see it?
Cris deRitis: No, what's that?
Mark Zandi: Oh, you should ... My wife plays these Instagram Reels for me after dinner, just a bit of levity. Late night TV, like Colbert, or whatever. There was this one clip, I think that's the right word, clip, of Dave Chappelle. He goes, "You know, I don't want to make a Nike shoe, I want to wear a Nike shoe." I thought it was pretty funny.
To your point, do we really want to have shoe manufacturing back in the United States? That's a low value added kind of activity.
Cris deRitis: Right.
Mark Zandi: The answer is no, that's not what we want. Anyway.
Marisa DiNatale: Okay. Here's a DOGE question. "I want to know at what point do we consider all of the funding cuts a form of austerity?" Maybe it is. "What sort of effects do you foresee with the cuts? For instance, I heard of a study that says for every $1 spent on IRS enforcement, $6 in revenue are collected. If the inverse is true, or similar, could we come quite short on revenue collection? I understand conservatives' desire to cut spending, however is seemingly random firing of federal employees a good way to go about it? Do you think that they'll just end up replacing many of them with private sector contract workers? Isn't that even more costly?"
Mark Zandi: Yeah. I'm not a fan of the DOGE cuts, job cuts or funding cuts. Just because it's seemingly, and I think actually, just haphazard. It is a headwind to growth. I think not a large one, because the actual dollars that are being saved here, if you look at even the DOGE website of cost saving and obviously that's been exaggerated, but if you look at it, we're nowhere close to $2 trillion, or $1 trillion, or $500 billion. We're talking maybe tens of billions of dollars. Even then, I'm not sure. I don't know that that is really saving a lot.
The job cuts may save more and be more contractionary. Actually, from an accounting, GDP perspective, it may show up in some weaker GDP numbers. I think, and this is from recollection so I may not have it exactly right, but I believe that the way the Bureau of Economic Analysis calculates government expenditures is by looking at the number of people working in the federal government and their compensation. If you're doing big cuts to federal government jobs and comp, that's going to push down measured GDP and will be a weight on economic growth.
Yeah, these cuts are a near-term headwind to growth. But I think in the grand scheme of things, from a macro US perspective, small. Obviously, it has big regional implications for DC, which is probably now in recession, and much of the metropolitan area and some other areas that are heavily reliant on federal government employment. But for the nation as a whole, I don't know that it's that big a deal. Therefore, I don't know that it's going to go anywhere to help address our longterm fiscal situation to any meaningful degree.
I do worry that it has the potential for creating significant problems down the road, that something might break. These folks that are losing their jobs, they're doing real stuff, stuff that matters. NOAA, and FDA, SEC, FTC, CFPB, these guys are critical to making sure that a lot of what goes on in our world functions well and properly. Answering questions from Social Security recipients, and people at the VA, and so forth and so on. We're cutting these jobs and it goes well beyond anything related to improving efficiency, you're actually cutting services, then something may break. Something might go badly wrong. We may have an outbreak of measles in broader parts of the country. We may have a problem with our quality of our food and people might get ill. Inspections for pharmaceuticals may be impaired. We might not get good weather reports that are critical to evacuating people that are going to be hit by a hurricane. Or may even affect the ability to clean up after the hurricane.
I do worry about those things, but those play out over a long period of time and it's hard to connect the dots back. I think we should expect some of that as a result of all this.
What do you think, Cris?
Cris deRitis: Yeah, I'd be concerned about a lot of those longer term effects as well. Even on research.
Mark Zandi: Research.
Cris deRitis: That's the hardest one I think to quantify, because in the short term, you don't see the result. It's easy, you cut the grant and it looks like you have big saving, and nothing really changed. But then, later down the line, you realize what that research was supporting. Maybe there's greater outbreak of disease, maybe we're not prepared the next time. Or maybe, we miss out on some great innovation and that's going to our adversaries overseas. Really, there should be some more of a cost-benefit analysis with these types of cuts. Undoubtedly, there's things we could cut.
Marisa DiNatale: Yeah.
Cris deRitis: It hasn't been done in a way there's very thoughtful.
Mark Zandi: I'm listening to our answers and we're in agreement. Is there a problem ... Should we, in the coming year, add someone who's going to disagree with us? It feels like we're very consistent in our thinking. Does that mean that we're right, or does that mean something else? Just asking. Well, we can ponder it. Yeah.
Cris deRitis: Yeah. I think we're in agreement though, that it's not so much the cutting, it's the manner of cutting, right?
Marisa DiNatale: Yeah.
Mark Zandi: Yeah.
Cris deRitis: Right?
Marisa DiNatale: When you say, "Let's find waste in government and cut it," everybody would say, "Yeah, that's a great idea."
Cris deRitis: Yeah.
Marisa DiNatale: I think the problem here is this is done ... Well, for me, the problem is it's done under the guise of cleaning up the fiscal situation. This comes nowhere near that. None of this cutting of discretionary spending is anywhere near addressing the longer run fiscal problem, which has to do with entitlements and increasingly interest that we're paying on the national debt. This doesn't get there. I would have no problem with getting rid of jobs or waste in government, but I haven't seen any sort of evidence that what they're actually doing is getting rid of waste that's there, or fraud. It's just, "Let's get rid of this entire agency, and let's cut 10,000 people from this agency." I don't know how those decisions are being arrived at. It doesn't seem like there's a lot of pre-planning that's gone into it.
Cris deRitis: Yeah, I think we're confusing cuts and efficiency. The idea of efficiency is great. Let's find a better way to collect taxes. More efficient, fewer people. Let's use modernized computers, what have you. AI. But that's not what's being done here. It's just slash, and then I guess hope that we figure it out later on. It's not clear.
Mark Zandi: You want to take one more?
Marisa DiNatale: Yeah. How many more can we take?
Mark Zandi: Let's take two more, let's take two more.
Marisa DiNatale: Okay.
Mark Zandi: That would take us to probably an hour and 10 minutes, which is exactly how long every podcast, no matter how we try.
Marisa DiNatale: Okay.
Mark Zandi: It's always the same length.
Marisa DiNatale: This is also related to the fiscal situation.
Mark Zandi: Okay.
Marisa DiNatale: "How much truth is there to the idea that US federal budget deficits are the cause of the US massive trade imbalance and trade deficit? It somehow the trade deficit is cut, that it would also lower federal borrowing?"
This came up on our podcast last week when we had John Carney and Jim Parrot on.
Mark Zandi: Yeah.
Marisa DiNatale: There were several questions/comments related to that podcast.
Mark Zandi: Yeah.
Marisa DiNatale: Questioning Mr. Carney's cause-and-effect there, on the trade deficit and the fiscal deficit.
Mark Zandi: Right, right, right. Okay. Well, I've got an answer. Marisa, do you want to take that, or Cris, or do you want me to do it? Who wants to take that one?
Marisa DiNatale: One of you can.
Cris deRitis: Why don't you take it?
Marisa DiNatale: Yeah.
Mark Zandi: Yeah, okay.
Cris deRitis: As a response to the other podcast.
Mark Zandi: Yeah. I think there is a relationship between the budget deficits and the trade deficit. A trade deficit means that you're consuming more than you're producing. If you run a budget deficit, that's more likely to be the case. You're borrowing money to consume government services.
Now, I'm simplifying to a significant degree because I'm assuming that household saving is adequate, and it is I think. Corporate saving, retained earnings used for investment is adequate, and I think it is. But our deficits are large. As a share of GDP, the deficit is 6%. Even excluding interest payments, so looking at the so-called primary deficit, we're 3% of GDP. That's a large deficit in a world in full employment. We should be at zero. We should even have a positive, something of a surplus, at least on the primary deficit and we don't. Because we're running these large deficits, the government, we're consuming more than we're producing, therefore you have large trade deficit.
The question is what do you do about it? Is this a problem, and what should you do about it? I say, yeah, what's a problem is the large deficits because, again, these are being done in the context of a full employment economy. I wouldn't be as worried, except that our debt load is already pretty high, and our interest payments on that debt is rising now very rapidly as well. We're going to spend, I think, more on interest payments this year than on federal defense, and that just doesn't make sense to me or anybody else.
The solution to that is to address those deficits, and that's a whole nother 3000 podcasts. What do I do about revenue, what do I do about spending? How do I get more growth to address these deficits? By so doing, you'll get the trade deficit down. The causality is the budget deficit, consumers spending more than we are producing, and by addressing that issue, you'll address the trade deficit.
Now, trying to go at the trade deficit to address the budget deficit is working backwards and will be very counterproductive. Because the only way you're going to get the trade deficit down through a trade war is by pushing the economy into recession, that's the only way. You're going to tariff everybody, put a tax on, you go into recession. I think at the end of that process, you'll end up with a smaller deficit, trade deficit, but you're going to have a smaller economy and bigger budget deficits because all your other revenues are going to be hit by the weaker economy. You're going to less in personal income tax, corporate tax income revenue, and you're going to have more spending because of income support. Unemployment insurance, rental assistance, so forth and so on.
It's really backwards thinking. The backwards thinking, I wouldn't really worry about it too much, except that if you're thinking backwards about what's going on, you're going to get the wrong policy and that's what we're getting here. We're getting the wrong policy. They got it all wrong in terms of how things are working, therefore they got the policy all wrong. That's what's so scary about this, what makes it such a very disconcerting process. The things here that are unfolding are very disconcerting.
Cris, what do you think?
Cris deRitis: That makes perfect sense to me.
Mark Zandi: Okay.
Cris deRitis: It sounds like good [inaudible 01:01:11].
Mark Zandi: You went to Johns Hopkins, right?
Cris deRitis: I did.
Mark Zandi: PhD, Johns Hopkins.
Cris deRitis: Yeah.
Mark Zandi: Okay. If you say so. A great school, yeah. Marisa, what do you think?
Marisa DiNatale: I also went to Johns Hopkins.
Cris deRitis: She did.
Mark Zandi: Okay! There we go. Maybe that's the problem, though. Maybe that's why we're all in agreement.
Marisa DiNatale: Yeah, Cris was my professor.
Cris deRitis: I went to Penn.
Mark Zandi: Yeah. What's that, Marisa?
Marisa DiNatale: Cris was my professor, so maybe that's why we don't have different thinking.
Mark Zandi: Oh! I keep forgetting that.
Cris deRitis: There you go.
Mark Zandi: I keep forgetting that.
Marisa DiNatale: Although it was econometrics, it wasn't ...
Mark Zandi: Oh. Yeah. I keep forgetting that you had that relationship. Wow.
Marisa DiNatale: Yeah.
Mark Zandi: That is so cool. I think it's so cool every time I hear it, because I just forget it. It's like that movie. Remember that movie with ...
Marisa DiNatale: Memento?
Mark Zandi: No. That's a good movie, too.
Cris deRitis: Groundhog Day?
Mark Zandi: Yeah, Barrymore. Drew Barrymore-
Marisa DiNatale: 50 First Dates.
Mark Zandi: Yeah. Wasn't that a great movie? I love that movie.
Marisa DiNatale: You know, I don't think I've seen that movie.
Mark Zandi: You got to go watch it.
Marisa DiNatale: No. Does she have amnesia or something and forgets that she's going on a date with-
Mark Zandi: Every 24 hours, she goes to sleep and she forgets who she is and she needs to be reminded of who that is.
Marisa DiNatale: Okay, yeah.
Mark Zandi: Yeah.
Cris deRitis: You like this set up because Groundhog Day. This is very much a Groundhog Day.
Mark Zandi: I know, I know.
Cris deRitis: Repetition.
Mark Zandi: There's something going on there.
Marisa DiNatale: That's your favorite genre of movie.
Mark Zandi: It is, it is.
Marisa DiNatale: Amnesia.
Cris deRitis: Amnesia.
Mark Zandi: It's a matter of every day is about trying to make it better than the previous day.
Marisa DiNatale: Right, you get another crack at it.
Mark Zandi: You have an opportunity to make it ... You have another crack at it. If you do that every day ... It feels like that's the, I'm waxing philosophical here, but in my view, and this could be the foundation for a new faith, that is the secret of happiness. Every day, trying to make that a better day than the one that preceded it.
What do you think? You like that philosophy?
Cris deRitis: The Church of the Groundhog.
Mark Zandi: Oh, I love that. That is really good. That's really good. I'm going to have to keep that in mind.
Marisa DiNatale: I like that. A religion based on early 2000s rom-coms.
Mark Zandi: Yeah. Oh, that's the common denominator. Maybe that's what it is. Yeah, right. You got me pegged. You got me pegged. Let's do one more.
Marisa DiNatale: Okay, one more. There's actually two questions that are very similar, so I'm going to weave them together. This is a question about data, economic data. I'll read the first question in its entirety because it's short. "Hope you're all well, I love the podcast. I work in portfolio management for high net worth individuals at one of the largest US banks. The bank collects and aggregates credit and debit card spending data from all our customers, and I believe our economics team relies heavily on it. Do you all think relying on a source like this instead of typical government data is reasonable or does it have its pitfalls?"
Then there's another question very close to that, asking about other more realtime, up-to-the-minute potential data sources, one from credit card companies. This other person cites the Atlanta Fed having something like a close to realtime GDP tracking method. We also do something like that, too. "What are the benefits and the trade-offs of these kinds of data, versus your standard data collected by government statistical agencies?" That also get revised and have their own issues.
Mark Zandi: Well, why don't you take that, Marisa?
Marisa DiNatale: Yeah.
Mark Zandi: Yeah.
Marisa DiNatale: We use data like that, too. We use data that comes from private sector sources. We look at data that are aggregated by credit card companies. I think all of it, regardless of the data source, it just comes down to you have to know the data really well. You have to know where is it coming from, how is it collected, what is the sample, what are its pitfalls. If you know that, then you know how you can and cannot use it and the caveats that go along with that.
For example, data aggregated from credit card files, obviously that's not a fully representative sample of the US population. It might be, like this listener is saying he works for a bank that caters to high net worth individuals. That's not going to be representative of your average American, so you have to know that. Not that it's not useful in what it's showing us, but you have to understand that it's not showing you a representative sample of the whole country.
That's true of a lot of these private sector data sources that we see. Whereas something like a government data source, like say the BLS and its sources on consumer prices or employment, that is a designed sample that is specifically designed by scientists who have degrees in sample design that attempt to put together a sample that is representative and properly weighted of the entire US population so that you're getting a more unbiased view of it. On the one hand, that makes that data better. On the other hand, like the listener is saying, some of that data is more lagged and backward looking. It can get revised because there is this trade off between getting data out in a timely manner, versus getting all the responses in before you release it. That's why GDP gets revised three times, that's why employment gets revised three times. We get all these revisions because of that. I think they're all good sources, you just have to know what they're fallbacks are.
Mark Zandi: Yeah. Cris, anything to add there? It was well done.
Cris deRitis: I think she covered it very well.
Mark Zandi: Yeah.
Cris deRitis: I think the other thing I'd add is you have to know which question to ask. Which question can this data answer? Versus assuming that any piece of data could apply. I think it's important, as you said, to really understand the nuances of the data, and you need all of the above. You need all the private, you need the public sources to fill in the gaps and paint a complete picture of what's going on.
Mark Zandi: Great. Well, it sounds like we have even more questions. Maybe we'll do this again soon. They were all excellent questions, all great questions.
Marisa DiNatale: Yeah, really good questions.
Mark Zandi: Just to restate what you said already, keep them coming. Keep them coming.
Marisa DiNatale: Absolutely.
Mark Zandi: They're very, very helpful. Very useful.
Marisa DiNatale: Yeah.
Mark Zandi: Okay. Anything else, guys, before we call it a podcast? No?
Marisa DiNatale: No.
Mark Zandi: Okay. Well, I hope you have a great weekend. I did notice you're in Philly, it's going to be in the 80s on Saturday.
Marisa DiNatale: Wow.
Mark Zandi: Can you believe that? Yeah.
Marisa DiNatale: Yeah. Happy Easter to those who celebrate.
Mark Zandi: Happy Easter for everyone, and Passover to everybody.
Marisa DiNatale: Yeah.
Mark Zandi: Yeah. Well, with that, we're going to call this a podcast. Take care, everyone. Talk to you next week.