Moody’s Analytics own Scott Hoyt joins the Inside Economics team to discuss the state of the American consumer, as the critical Christmas buying season is set to begin. Consumers have been powering the broader economy, and the team expects that to continue. But there are a number of consumer-related puzzles, which the team works to solve.
Moody’s Analytics own Scott Hoyt joins the Inside Economics team to discuss the state of the American consumer, as the critical Christmas buying season is set to begin. Consumers have been powering the broader economy, and the team expects that to continue. But there are a number of consumer-related puzzles, which the team works to solve.
Guest: Scott Hoyt, Senior Director of Economic Research, Moody's Analytics
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 of Moody's Analytics, and I'm joined by bevy of my colleagues, my two trustee co-hosts, Marisa DiNatale and Cris deRitis. Hi, guys.
Cris deRitis: Hey, Mark.
Marisa DiNatale: Mark, Happy Pre-Thanksgiving.
Mark Zandi: Indeed. We're taping this a little early, aren't we?
Marisa DiNatale: Yeah.
Mark Zandi: A lot early. Right? It's Tuesday. Tuesday before Thanksgiving.
Cris deRitis: Right.
Mark Zandi: So we're well in advance of when we typically tape. I think we're going to put this out tomorrow morning too, so before Black Friday. And that gets to the topic at hand. We're going to talk about the American consumer and to help us with that, we've got Scott Hoyt. Hey, Scott.
Scott Hoyt: Hey. How are you doing, Mark?
Mark Zandi: That was pretty weak, I thought. Do you want to try again?
Scott Hoyt: Whatever.
Mark Zandi: Okay. I don't know. Marisa, what do you think that was ...
Marisa DiNatale: He's super excited to be here.
Mark Zandi: Yeah, are you excited to be here or what?
Scott Hoyt: Of course I'm excited to be here.
Mark Zandi: Okay. All right. Well, let's pound the table. "I'm excited to be here. Good to be with you, Mark."
Scott Hoyt: All right.
Mark Zandi: All right, very good. Now you get revved up. What are you guys doing for Thanksgiving? Are you in Florida, Marisa, visiting your mom?
Marisa DiNatale: No. No, no, no. I'm back in [inaudible 00:01:31].
Mark Zandi: You're back. Okay.
Marisa DiNatale: I have friends coming into town today and they're staying until Friday.
Mark Zandi: Oh, very good.
Marisa DiNatale: Yeah.
Mark Zandi: Are you going to cook turkey? I think we had this discussion.
Marisa DiNatale: Yeah, no, no. No turkey. You called me weird for making shellfish stew instead of a turkey.
Mark Zandi: I called you weird?
Marisa DiNatale: Last week. You did. Promptly.
Cris deRitis: But that's ...
Marisa DiNatale: Promptly said I was weird.
Cris deRitis: Promptly the course. That's nothing new.
Mark Zandi: What, that I called her weird?
Cris deRitis: Yeah.
Marisa DiNatale: Right.
Cris deRitis: Or that she is weird.
Mark Zandi: Wow. Wow.
Scott Hoyt: Can't put words in Cris's mouth.
Marisa DiNatale: Scott, this is what happens when you come on the podcast. I don't know why you [inaudible 00:02:10].
Mark Zandi: Well, Scott, do you eat turkey on Thanksgiving?
Scott Hoyt: We usually do, yes.
Mark Zandi: Yeah. Who cooks, you or your ...
Scott Hoyt: My wife, or in this case actually, my daughter-in-law is going to be cooking the turkey.
Mark Zandi: Oh, very cool. Very cool.
Cris deRitis: Do you just roast it, bake it?
Scott Hoyt: Yeah, nothing super fancy.
Mark Zandi: No deep-frying?
Scott Hoyt: No.
Mark Zandi: No.
Scott Hoyt: Although, she spices it up really nicely.
Mark Zandi: Well, that sounds good. Actually, I'm getting hungry already. Can't wait. Can't wait till my Persian food. That's what we have at Thanksgiving. Although, my new son-in-law, who's a very good cook, is going to actually cook the turkey and I think we're having that tomorrow, the day before Thanksgiving, so I'm looking forward to that.
Marisa DiNatale: Wow, interesting.
Mark Zandi: Yeah, I'm looking forward to that. Yeah. Anyway, I thought this would be a good time to talk about the American consumer, given that we're getting into the teeth of the Christmas buying season. A lot of things to talk about there, but maybe we start with kind of an open-ended conversation around the state of the American consumer. What do you think, Scott? How would you characterize the state of the American consumer?
Scott Hoyt: I think in aggregate, it's very good. Consumer spending has been contributing powerfully to GDP growth. Consumers are spending fairly aggressively, but manageably, I think the overall state of consumers is good. I mean, clearly there are pockets of weakness, as I'm sure we'll get into. It's not 100% uniform, but in aggregate I think it's very good.
Mark Zandi: So this bit of a parlor game to kind of predict/forecast the increase, or I guess decrease in bad times, Christmas sales, nominal Christmas sales. Not stripping out inflation, but overall Christmas sales. That used to be a big deal, as I recall. Maybe it seems like it's gotten to be less of a deal. Is that just me? I'm not paying attention? Or is it less of a deal?
Scott Hoyt: I mean, it certainly gets discussed a fair bit. I mean, I think part of the problem is that nearly everybody who puts out a number measures it differently, so it's very difficult to compare and I think that makes it harder to track and follow.
Mark Zandi: I guess the other thing is that Christmas sales are a smaller share of overall sales during the year. I mean, it used to be ... Am I wrong about that? I think that's right, right?
Scott Hoyt: Maybe a little bit. I mean, it's still the make-or-break season for retailers for sure.
Mark Zandi: Is it?
Cris deRitis: Isn't it spread out more, though?
Mark Zandi: I think it's spread out more.
Cris deRitis: I think it starts in July.
Scott Hoyt: Well, I mean, clearly retailers are trying to do that. I mean, that was the whole point of when Amazon introduced Prime Day and stuff like that was to try and spread. And clearly, it's less centered on individual days. I mean, Black Friday is now a week or more. It's not a day. But that doesn't mean that holiday spending in aggregate isn't a big part of the year for retailers. I mean, December is their biggest month and January is their smallest month. I mean, that's certainly still true.
Mark Zandi: Still true. Okay, so I'm sure you have an estimate of forecast for Christmas sales.
Scott Hoyt: Depending on how you measure it, we're in the 2.5%-3% range.
Mark Zandi: Okay. Meaning 2.5% if you measure it one way, 3% if you measure it the other way?
Scott Hoyt: Yeah, it depends on what you include. I mean, are you looking at overall retail or are you looking at specific "holiday segments"?
Mark Zandi: Right. Does that mean real retail Christmas sales after inflation is zero because inflation's 2.5%, right? Retail goods prices, they're flat to down or something?
Scott Hoyt: Yeah. Goods prices right now are flat to down, so no.
Mark Zandi: Okay.
Scott Hoyt: Nominal and real are very similar this year ...
Mark Zandi: Got it.
Scott Hoyt: From a retail perspective.
Mark Zandi: So that's strong. 2.5%-3% nominal, 2.5%-3% real after inflation are the same thing. 2.5%-3%, that's solid. That's a good Christmas.
Scott Hoyt: Oh, absolutely.
Mark Zandi: Okay, so ...
Scott Hoyt: Although, again, you have to be careful of your perspective. I mean, there have been a lot of years recently where nominal sales growth has been higher than that as we've come out of the pandemic, so it depends a little bit on your perspective. From an economist perspective, yes, I would definitely call it strong. From a retailer's perspective who saw two or three years that we're in the high single digits, even double digits as we came out of the pandemic, it doesn't look that strong.
Mark Zandi: Yeah, I guess. I mean, of course, sales fell during the pandemic, so you expect some catch up after we all came back.
Scott Hoyt: Yeah.
Mark Zandi: But 2.5%-3%, that feels like, as you say, from an economist perspective, from a macroeconomic perspective, right down the strike zone, doesn't it? I mean, that's solid growth. That means the economy will continue because consumers are so key to the broader economy that the economy will continue to move forward. But it's not so strong that it would raise fears that the economy's going to overheat inflation and remain persistent if they'd have to stop cutting rates, right? So this kind of thing ...
Scott Hoyt: Absolutely. I completely agree with that.
Mark Zandi: Okay.
Cris deRitis: Is there more an upside or a downside risk to that number?
Mark Zandi: If you're wrong ...
Scott Hoyt: Yeah, I don't know. I think it's fairly balanced in the near term. I mean, I have negative risks, I think, further out for the holiday season. It's fairly mixed because consumers still do have a lot of cash. They could do more. Or given their negative attitudes and stuff that we'll be talking about, maybe they stay conservative. So I think the risks for the holiday season are fairly balanced. If you're talking next year, I'd probably skew them to the downside, but not in the next couple of months.
Cris deRitis: Okay.
Mark Zandi: Well, what would be the biggest downside threat to your baseline outlook for the consumer, your kind of sanguine view for the consumer? What would upset that? And don't tell me jobs because I want reduced form. Give me something meaty.
Scott Hoyt: Are you talking the next two months or are you talking next year?
Mark Zandi: However you want to define it. However you want to define it.
Scott Hoyt: I mean, I think if you're looking out longer term, I think energy prices.
Mark Zandi: That's always a big threat, I guess.
Scott Hoyt: Yeah. Yeah. I mean, if we get a spike in energy prices, it hits spending and it hits confidence, and that definitely can have a negative impact particularly on real spending, maybe less so on nominal.
Mark Zandi: The thing about that is if I asked you that question a year ago, 10 years ago, 30 years ago, you would give me that same answer, right?
Scott Hoyt: Mm-hmm.
Mark Zandi: Okay. I'm raising the bar here a little bit, so give me something that is more idiosyncratic to the current period. And maybe there is nothing, but is there something out there that makes you a little uncomfortable, there's some disquiet there, anything?
Scott Hoyt: I guess the availability of credit.
Mark Zandi: Really? Really?
Scott Hoyt: Lending standards have been tightened. Borrowing is pulled in. The low end is suffering. If they keep pulling back, maybe it spreads. I don't know. I'm struggling. I'm reaching for straws because I think things are pretty good and it is hard to come up with an answer to your question.
Mark Zandi: Okay, let me ask it this way, and I just follow this in a cursory way. I assume you follow up more carefully. Target, the big retailer, reported earnings and they weren't good, and their stock price fell very sharply. And that's in the context of Walmart, I think, correct me if I'm wrong, reporting very strong earnings in sales, so these retailers seem to be going in different directions. Is that signaling anything broadly about the consumer or is that just idiosyncratic to those two retailers?
Scott Hoyt: I honestly think that's mostly idiosyncratic. I think Walmart is doing a good job of appealing to a wide variety of customers. I mean, they were talking in their earnings release about how a lot of their growth is coming from higher-end customers. So I think they're managing to pull everybody in right now, whereas Target, I think, is losing some of it's cache and having more trouble hitting the sweet spot with its Target customers.
Mark Zandi: Okay. All right. Okay, so this feels like you're very sanguine, which makes me very nervous that you're so sanguine. Yeah. Yeah. Marisa, what about you? You heard his characterization about the consumer broadly. Any pushback there or does that sound like ...
Marisa DiNatale: So the juxtaposition between Walmart and Target, you don't think that that represents consumers sort of trading down on price point, or do you think there's any evidence of that? I actually got this question from a client the other day. We always say, "The consumers, they're out there, they're spending. They're not acting the way they're saying they feel about the economy," but is there any evidence that people are kind of trading down on quality and price point?
Mark Zandi: And just to make this, because I don't follow this very carefully, but what you're saying is Target is kind of higher-end, a little bit higher income than the typical Walmart customer. So if the high end is under a little bit of pressure, maybe you're saying they're trading down. They're going from Target to Walmart.
Marisa DiNatale: They're substituting. Yeah.
Mark Zandi: Okay.
Marisa DiNatale: Yeah.
Scott Hoyt: I mean, I think there's some of that going on, but I also think some of it is because consumers are still emphasizing service spending.
Cris deRitis: What about the luxury segment? Is there a weakness in that side of it?
Scott Hoyt: That seems to be doing pretty well.
Cris deRitis: Okay.
Scott Hoyt: High-end retailers.
Cris deRitis: Okay.
Scott Hoyt: I mean, the high-end consumers are still doing well with stock prices as high as they are, house prices as high as they are. So I think the very high end is doing well. I think there's some trading from the middle and middle-high down, but I think some of that is to make room for service spending, both because service price inflation is still a big issue and just because the trend is towards more service spending.
Mark Zandi: So are you saying Target is more sensitive to the shift in the composition of spending towards services than Walmart is? Is that what you're suggesting, that the consumer that typically goes to Target is a little higher-end and therefore more likely to be traveling, and because they're traveling, they're not spending? Is that what you're saying?
Scott Hoyt: Some of it.
Mark Zandi: Okay.
Scott Hoyt: I mean, as I said at the start, I think a lot of it, though, is just that Walmart is hitting what their customers are looking for better than Target is.
Mark Zandi: Okay.
Scott Hoyt: I think a chunk of it is idiosyncratic and I don't want to try and read too much into it.
Mark Zandi: Okay. All right. Okay. Marisa, back to my question, anything on the consumer that's bugging you writ large? I mean, do you feel, like Scott does, that the consumers on pretty solid ground here will continue to do their thing and keep the economy moving forward?
Marisa DiNatale: Yeah, I mean there's certainly evidence if you look across different lines of credit. Delinquency rates are high for credit cards, consumer finance loans. I guess the good news there is they've stopped rising probably. They've kind of flattened out.
Mark Zandi: Right.
Marisa DiNatale: But delinquency rates on credit cards are higher than they've been since 2012, I think. This is from data that we get from Equifax, right? So there's clearly some stress there. Some of that may be more recently originated lines of credit on cards. So cards that were opened during the pandemic or shortly after the pandemic, we know, are going bad faster than older vintages, and that's kind of an idiosyncrasy of the lending that happened during the pandemic. But clearly, there's some pockets of stress and it's likely at the low end where those consumers have been hit harder from inflation and we don't see a lot of evidence of interest rates coming down, despite the Fed lowering rates by 75 basis points, right?
We've been looking at mortgage rates. We've been looking at the 10-year yields. These things are not much changed or maybe even a bit higher in the past month than they were prior to the Fed's last rate cut, so there's not a ton of relief on the interest rate front coming there for those consumers. I think there's pockets of stress, but I would agree with Scott's overall take that, I mean, when you look at it in the aggregate, it looks pretty good.
Mark Zandi: Right.
Marisa DiNatale: I was ... Go ahead.
Mark Zandi: No, no. Go ahead. Go ahead.
Marisa DiNatale: I was just going to say on the upside of things, I wonder if consumers ... They're obviously feeling a little bit better as a result of the election, right? We now have two readings on confidence post-election, but I do wonder, and we talked about this I think on the last podcast, if any spending will be pulled forward in anticipation that inflation might be higher, say next year, just given what we know about the incoming administration's plans to put significant tariffs on imports. So there's been some talk of, "Should you buy big ticket items now? Should you make purchases on things like cars and appliances and that kind of stuff?" So I wonder if that spending on that kind of stuff might be front-loaded in the recent months here.
Mark Zandi: Are you doing that? Have you changed your behavior at all in anticipation of tariffs?
Marisa DiNatale: No.
Mark Zandi: No. Cris, have you?
Cris deRitis: No, but I've heard folks say they were planning to buy a refrigerator sometime next year and they're going to do it now.
Mark Zandi: Right. They're going to push it forward.
Cris deRitis: Yeah. I don't know that that's widespread and I think it's only for someone who already had that kind of plan in place and they're just kind of moving it ahead a few months. But I don't know that it suddenly triggers a consumer to say, "Hey, I better do this now."
Mark Zandi: Right.
Cris deRitis: "I had no intention to buy a refrigerator, but I'm going to do it now because the price might go up."
Scott Hoyt: I think that's a lot more likely when there's something concrete. I mean, what was it, washers in the first Trump administration when they announced they were going to put tariffs? And yeah, people moved. I think when it's just nebulous, there may be higher tariffs and it may push up prices, but, "How much on what? When?" are all unanswered questions. I don't think you're going to see a big, big shift until it becomes more concrete.
Mark Zandi: Right, right. Cris, what about you? I mean, in terms of the general story here about the consumer. I mean, are you on board with Scott's perspective?
Cris deRitis: Yeah. If anything, in the short term, I'm actually more optimistic, I think. We have seen that confidence jump up. I think this will be a good holiday season. Yeah. So I think consumers are going to go out there and spend, I don't think they'll go crazy because of the interest rate environment, as Marisa mentioned. But I think if anything, they'll push things ahead. I think the tariff talk may actually condition their psychology a little bit. Maybe it doesn't cause them to get a refrigerator, but at least people are talking about it, and so it might be something that they think about. So on the margin, you might see some of that spending [inaudible 00:18:47].
Mark Zandi: Right. Same question to you. Anything on the downside that is out there? Marisa mentioned delinquency rates. Scott, what did you mention? What was your concern?
Scott Hoyt: I was concerned about delinquency rates as well.
Marisa DiNatale: Credit and [inaudible 00:19:04].
Mark Zandi: Okay.
Scott Hoyt: Yeah.
Mark Zandi: Yeah. Anything, Cris? You can't say delinquency rates.
Cris deRitis: I can't say gas prices.
Mark Zandi: Oh, that was what Scott said.
Scott Hoyt: Yeah. That's what I said, yeah.
Mark Zandi: It wasn't delinquency rates. It was oil prices.
Cris deRitis: A big spike in oil prices certainly.
Scott Hoyt: Same deal?
Cris deRitis: Yeah, I think so. The other thing, of course, is just, still, the geopolitics, right?
Mark Zandi: Right.
Cris deRitis: The Ukraine situation, China.
Marisa DiNatale: So what do you think that does to spending?
Cris deRitis: Well, if you did see ...
Marisa DiNatale: In the context of energy prices, you mean?
Cris deRitis: That would be the most direct route, but then even if things are heating up, let's say, I think you will see folks getting a little bit more concerned, perhaps being a little bit more conservative in their spending. You don't think so? Marisa thinks if the American consumer has a dollar in their pocket, they're going to spend it.
Marisa DiNatale: I mean, unless it has direct implications on the supply chain, my availability to get something, or prices, I'm not going to change my spending patterns because of what's going on in Ukraine.
Mark Zandi: Right. I'll have to say the thing that worries me the most about the consumer is high asset values. They feel like stock prices, lesser-degree housing values, crypto prices, which you know all about, Cris, gold prices are all really very high. Going from richly-valued to meaningfully-overvalued, bordering on frothy in a rising interest rate environment, tenure yields are up quite a bit over the last couple of months, it just feels like we could see a meaningful correction in asset prices. And it's been the high-end consumer powered by the so-called wealth effects that have really been critical to keeping spending moving forward here, which we're going to talk about in just a second. So in my mind, right now it's nothing but a tailwind with equity prices, housing values as high as they are, but it feels like that's a significant vulnerability here going forward.
Cris deRitis: How much of a decline do you need to take people off their path though?
Mark Zandi: It's got to be significant. You would say a typical correction in the stock market is 10%. I mean, that's nothing. If the stock market wasn't the stock market ...
Cris deRitis: [inaudible 00:21:31]
Mark Zandi: But if it goes down 20% or 30%, then it has to stay down. It can't be one of those things that goes down and then you get people coming in and buying again and it goes right back up. I'm not saying that. If it goes down 20%, 25%, 30%, that's a deal if it stays down for a while.
Cris deRitis: So a real Black Friday.
Mark Zandi: Yeah, exactly. Would that be a Black Friday or a Red Friday? Blood on the street kind of Friday. Yeah.
Cris deRitis: Black Friday, right?
Mark Zandi: Black Friday?
Cris deRitis: I think the same word applies to both.
Mark Zandi: Oh, does it?
Cris deRitis: In retail and then in another context it's a ..
Mark Zandi: Oh, was the 1928 crash ... I've forgotten. Was that a Black Friday?
Cris deRitis: Yeah.
Mark Zandi: I think it was Black Friday. Yeah, you're right. I forgot about that.
Marisa DiNatale: Very confusing.
Mark Zandi: Yeah, very confusing. Yeah.
Scott Hoyt: Yeah, because in the retail context, it's a good thing.
Cris deRitis: It's a good thing.
Mark Zandi: Yeah.
Marisa DiNatale: Right.
Mark Zandi: Right. Yeah, I never thought of it, but you're right.
Marisa DiNatale: What about bonuses?
Mark Zandi: What about them?
Marisa DiNatale: Well, we're kind of coming up on the time of year here when people get bonuses paid to them often. Does that have any bearing on consumer spending or the outlook on spending over the next few months?
Mark Zandi: Well, I suppose if they're different than typical.
Marisa DiNatale: Right. Yeah.
Mark Zandi: I mean, if they're much smaller or much bigger, but why would you expect that to be different in the current context?
Marisa DiNatale: I don't.
Mark Zandi: Oh, you don't. Okay, you're just asking.
Marisa DiNatale: I'm just asking the question if anyone has an opinion on that or if there's been any chatter of that.
Mark Zandi: I mean, at the employment cost index, that's probably the best measure of wages for lots of different reasons that we've talked about in the past. That includes benefits and you don't get bonuses. It feels like everything's on track there. I don't get the sense anything's coming off the rails. No reason to expect that.
Marisa DiNatale: Okay.
Scott Hoyt: And certainly, with the stock market as high as it is, you'd think Wall Street bonuses would be pretty good.
Mark Zandi: Yeah. Right. Right. Right. Okay. So we're all pretty much in agreement here. Christmas is going to be good, the fundamentals for the consumer are solid, and all the trend lines here going into next year look fine. No problem. Right? Anyone disagree? No. Okay. All right. Well, there's a few things around the consumer that kind of bug me. I'm trying to find the right word to describe it. Anomalies? I don't think that's the right word. Observations? Things that are just a little weird and just I want to throw them out there for the sake of conversation and get people's sense of it. The first is around the saving rate. We've kind of talked about this in a more roundabout way. The personal saving rate in the US, the consumer saving rate, is down from where it was pre-pandemic. What is it, Scott? 4% or 5%, something like that, roughly speaking?
Scott Hoyt: It's over 5%. Yeah, it's a little over 5%.
Mark Zandi: And pre-pandemic, it was 7-ish%. 7%.
Scott Hoyt: Well, the five-year average leading into the pandemic was a little over 6%.
Mark Zandi: Okay. And so we've seen this ... It's not a big step down, but it's a step down in saving. I just got back from Europe and they were hand-wringing about the saving rates rising in Europe. And if you look across the globe, it does feel like consumers are kind of on their back heels. I mean, take a look at the Chinese consumer for example. The saving rates are up and you don't see that here in the US, at least in aggregate. At least in aggregate. So that feels like a bit of an anomaly, right? Did I characterize that right, Scott?
Scott Hoyt: Yes.
Mark Zandi: Yeah, I did. Okay. And how do you explain that? What's going on?
Scott Hoyt: I attribute it to wealth effects. The fact that house prices are up so much, that the stock market's up so much, that consumers are spending some of that newfound wealth, and that it shows up in the aggregate statistics as less savings.
Mark Zandi: Right. I mean, stock markets, they're not up in the rest of the world? Why aren't we seeing wealth?
Scott Hoyt: Yeah, I guess I don't have as good an explanation for the US versus the rest of the world. I tend to focus more on the US. But I just see it as the consumers, they have the cash, especially at the high end, because they accumulated it during the pandemic. And so they can easily, without even having to sell anything, take advantage of the newfound wealth and they're just doing that and in a measured way. I mean, it's not like the saving rates drop three or four points, it's just down a point or so.
Mark Zandi: Right, right. And I guess you're basing this on our calculation of saving rates across different demographics, including income, and you can see that the saving rate for folks that are higher income has come down, and that's driving the overall saving rate decline. Because actually, the bulk of saving is done by people in the very top part of the distribution, right?
Scott Hoyt: Yeah. High-income folks are the dominant savers, as well as being the dominant spenders. They're more important for the aggregate statistics.
Mark Zandi: Right. And I think you were referring to so-called excess saving. Were you, in that previous comment? Remember excess saving?
Scott Hoyt: I do. I don't like that term anymore.
Mark Zandi: You don't. But you kind of referred to that to help explain why high-end consumers are still spending and drawing down their saving rate.
Scott Hoyt: Right. Right.
Mark Zandi: Why?
Scott Hoyt: Well, basically they still have cash leftover that they accumulated during the pandemic, the so-called excess savings, and in liquid forms. And so therefore [inaudible 00:27:39] ...
Mark Zandi: They see it in their money market account and their checking account, liquid form.
Scott Hoyt: Correct.
Mark Zandi: Right.
Scott Hoyt: So they see their stock portfolio go up, they're thinking, "Oh, maybe that means I should spend a little more." They don't even have to go and sell one of their assets to do it. They can just draw down that cash. It makes it incredibly easy to spend, and so they're doing it.
Mark Zandi: Right. Okay. What's going on with the low-income consumer with regards to saving?
Scott Hoyt: Well, they appear to have burned through the extra cash that they accumulated during the pandemic. And so they're the ones that are taking on credit card debt or trying to take on credit card debt and then having trouble paying it back, so they're back at zero or negative.
Mark Zandi: Because I look at this data very carefully, so I was quizzing you when I knew the answer. Yeah. Well, what's going on is the saving rate for folks in the top, say, third of the distribution of income, really the top 10%, 20%, that saving rate is still very high compared to everyone else, but it has come down meaningfully over the last year or two and that's powering the overall spending. Whereas the saving rate for the folks in the bottom part of the income distribution, that was very negative if you go back two, three years ago because that's when they were borrowing against their cards to supplement their income to maintain their purchasing power in the face of the high inflation.
Scott Hoyt: Right.
Mark Zandi: But they're not doing that now. In fact, the saving rate for that group has gone from big time negative two, three years ago to close to zero. So they have actually become more cautious in their spending, more circumspect in their spending. Right?
Scott Hoyt: Or basically, they've just stopped spending accumulated cash because they don't have it anymore.
Mark Zandi: I'm not following that. What's that?
Scott Hoyt: Well, at one point, they accumulated cash during the pandemic.
Mark Zandi: Well, that was long gone. That was gone many, many moons ago, right?
Scott Hoyt: Oh, okay.
Mark Zandi: Yeah. Right?
Scott Hoyt: Yeah.
Mark Zandi: Yeah, it's not [inaudible 00:29:45].
Scott Hoyt: And so for a season, they tried to keep maintaining their standard of living despite the high inflation by borrowing. And then after a while, they couldn't do that anymore, and so the saving comes back up to zero,
Mark Zandi: Right. So Cris, what do you think is going on here across the world? I think Scott kind of nailed it in terms of asset prices are high. And I think one the biggest things between the US and other countries is stock ownership is just much more important here in the US. Maybe it's important in the UK, but it's not important, certainly not, in China, certainly not in the rest of the EU and other places. You don't see the same kind of stock wealth effects that you see here in the US, so I think that's right. But is there something else going on? Why would American consumers be much more willing to draw down saving compared to the consumers in the rest of the world?
Cris deRitis: Yeah, I think it's wealth plus the economic growth in the US and prospects for growth next year and the year after that, relative to other parts of the world. You have to have that strong growth or expectation for continued growth in order to be willing to go ahead and do a little less saving and do a little bit more spending. And the US is just exceptional, right? GDP growth rate has been far surpassing what we see in Europe and other countries around the globe, so I think that's a big part of it as well. They have the capacity because of the wealth and then they have the willingness to do it because of the confidence. Labor market may be a little bit weaker, but it's going to continue to power through. Growth looks pretty good.
Mark Zandi: So you're saying people are nervous here, but they're downright gloomy overseas and the so-called precautionary savings is a lot higher.
Cris deRitis: Yes. Absolutely.
Mark Zandi: They feel like it's highly likely there's going to be a rainy day when they're going to need that saving and therefore they're saving.
Cris deRitis: Yes.
Mark Zandi: Whereas in the US, no one says, "I feel great," but they're not feeling gloomy and they're not saving for that rainy day.
Cris deRitis: That's right. That's right.
Mark Zandi: That makes sense to me. That's certainly the case in China, I think, for sure. You can see that in the sentiment surveys, but that's what I heard in Europe too. Same kind of deal. Yeah. Anything to add on this conversation around saving rates, this particular kind of development that we're focused on, Marisa? Anything you want to call out?
Marisa DiNatale: Yeah. I think labor market in the US is stronger than it is too. I mean, certainly Europe and China are good examples, but even look at Canada. The Canadian economy is weaker. Confidence seems shakier there. I just think the fundamentals of our economy here are better than almost anywhere else you look around the world, so that has to be a plus for consumer spending here.
Mark Zandi: Yep. Okay. Good. Okay, that's anomaly ... Do you guys have a better word for what I'm doing here? It's not really an anomaly. It's what? Observation? I don't know.
Marisa DiNatale: Point of interest?
Mark Zandi: What is it? Point of interest. It's a point of interest. That's a good one. Yeah, point of interest. Okay, the second point of interest, which we also kind of danced around a bit, is around confidence, and this kind of dovetails back into the discussion around saving rate. Consumer sentiment, at least by some measures, has been pretty dark. I mean, the University of Michigan survey, which has been around since the beginning of time, has been incredibly low, consistent with recession-like conditions. There's kind of a clear consensus that the reason why Former President Trump won reelection is because of angst around the economy created by the previously high inflation and the higher prices people are paying for groceries and rent and gasoline and other staples, yet consumers keep on spending 2.5% to 3%. Christmas sales growth, nominal, real, I mean, what's the deal? That's an anomaly. That's a point of interest, but that's also an anomaly, isn't it? How do you square that circle? Marisa, I'll start with you. How do you square that circle?
Marisa DiNatale: Okay, we talked a lot about Michigan last podcast, on Friday, because it had just come out and I used that as my statistic. The responses to that survey are very partisan. Depending on which political party you affiliate with, they ask you what political party you affiliate with so it kind of gets people in that partisan mindset when they answer. And you certainly saw that, this enormous increase in confidence among Republicans in the first post-election survey. So is it just that or is there something more fundamental going on about the way people feel about the economy? I mean, I think that people don't like higher prices and like talking about it and it really bothers them. But at the end of the day, they're still paying them.
And so these prices are still high because there hasn't been a revolt, and I think maybe there are some circumstances where there has been. But I mean for the most part, people are complaining about it, but they're still paying it. And so companies are still going to charge what they can and get away it until consumers actually pull back and stop spending. And that's why this previous conversation we had about the Walmart versus Target, one of the hypotheses was people stopping spending on higher-priced goods and trading down to lower-priced goods, and that was a question that I had and a question a client asked me a week ago. I didn't know the answer to it, but it sounds like you're saying no, that there's not a ton of evidence out there that that's happening. Do I have that right, Scott?
Scott Hoyt: Yeah. I mean, I agree with what you're saying. I think I might put it in different terminology in that, to use economist lingo, consumers don't understand the difference between nominal and real. I mean, they hate the fact that prices are up, whatever it is, 25% or something. In reality, their income is up 25% so they can still spend and they still are spending and they're seeing that in their budget and doing it, but they're still horrified at the fact that prices are up 25%.
Mark Zandi: Right, right.
Scott Hoyt: So if you ask somebody how they're feeling about the economy, they're going to say, "Terrible." But then they look at their budgets and they can still buy what they were buying before and a little bit more, and so they are.
Mark Zandi: What you're saying is they can hold two things in their minds at the same time. "I really hate having to pay a higher price for these groceries and for this rent, but at the same time I've got income I can spend and I'm going to spend it."
Marisa DiNatale: You're going to keep doing it.
Scott Hoyt: Exactly. Yeah.
Mark Zandi: Right, Yeah. Cris, does that resonate, that explanation?
Cris deRitis: It does. I blame social media.
Mark Zandi: Social media. Yeah, that's a good point. Right, social media.
Cris deRitis: [inaudible 00:37:30] fatigue, right?
Mark Zandi: Yeah. And we know the political fracturing has played a role, right? I mean, given ... What was that you were telling us, Marisa, about the last podcast about University of Michigan, Republican, Democrat, Independent?
Marisa DiNatale: Yeah. All of a sudden, the expectations for the future among Republicans shot up by ... I forget. Now I don't remember. Oh, I have it actually still written right in front of me. By almost three points. Yeah, which is one of the biggest, if not the biggest increase we've seen in a post-election survey as far back as I could look at the data.
Mark Zandi: Right, right. I guess the other thing, and you mentioned this, Marisa, but just to put a pin in it, it's measurement, right? We've been focused on the University of Michigan Survey of Consumer Sentiment, but there's also another tried and true measure of confidence called The Conference Board that's been around forever. It's kind of typical, right? It's right around where confidence has been on average historically. I think we got a data point today, didn't we?
Cris deRitis: Yes, we did.
Mark Zandi: Yeah.
Marisa DiNatale: Yeah, and it rose, and so now confidence is kind of the highest it's been in three years, but it doesn't show the same wings.
Mark Zandi: It's not bad.
Marisa DiNatale: Right.
Mark Zandi: It's above average. It's above average [inaudible 00:38:59].
Marisa DiNatale: And it's been above average, right?
Mark Zandi: Yeah.
Marisa DiNatale: It's been in an okay place for quite a while, whereas Michigan people have been saying, "I feel worse about the economy than I felt in April of 2020 when we were at the start of a pandemic," which seemed just like a wild response. But yeah, The Conference Board's been chugging along.
Mark Zandi: Chugging along.
Cris deRitis: It's still below 2019, right?
Scott Hoyt: Yeah, I was going to say it's chugging along, but it's certainly not consistent with the way, Mark, you, for example, have been describing this economy as one of the best ever or anything like that.
Mark Zandi: That's true.
Scott Hoyt: It's okay with muddling through very weak growth kind of economy. It's not consistent with this, "The economy's pooling. Everything's great, wonderful," the way Mark, for example, has been describing it. So I mean, even there, I think the anomaly stands, just to a lesser degree.
Mark Zandi: Yeah. Okay. Anything else on this point of interest, this anomaly on confidence? No. I think we've got ...
Scott Hoyt: Well, I guess ...
Mark Zandi: Formulating a title for this podcast, I think, but go ahead. Go ahead, Scott.
Scott Hoyt: I was going to say the one thing I would point out that I think is getting overlooked, we've been talking about confidence rising post-election. And clearly, The Conference Board did, and Michigan is interesting here.
Mark Zandi: A little bit, right? I mean, come on.
Scott Hoyt: Yeah, a little bit.
Mark Zandi: A little bit. Yeah.
Scott Hoyt: But Michigan, it was up a little bit in November compared to October.
Mark Zandi: Yeah.
Scott Hoyt: But the preliminary report had a bigger increase. And actually, the way the timing worked, the preliminary report was nearly entirely respondents pre-the election and virtually all of the additional respondents were post-election. So the fact that it was revised down by a little over a point actually suggests that it fell a little bit post-election.
Mark Zandi: Well, guys, we're really in the weeds now.
Scott Hoyt: I thought you guys liked to go into the weeds at least occasionally.
Mark Zandi: University of Michigan pre and post-revision. Okay. Okay, why are you bringing that up? Because of the election?
Scott Hoyt: I'm not sure we can state as definitively, as has been, that confidence rose in aggregate post-election.
Mark Zandi: Oh, okay.
Scott Hoyt: The Conference Board was up a couple of points, but Michigan was revised down over a point.
Mark Zandi: Yeah.
Scott Hoyt: Neither of the moves are probably statistically significant, so I would somewhat disagree with the point that confidence rose after the election, I think.
Mark Zandi: Oh. Yeah.
Scott Hoyt: It rose a lot for Republicans, fell for Democrats. But on net, it seems like it was pretty flat.
Marisa DiNatale: Okay, that is true. I mean, I think what I was talking about with this difference between difference political party affiliation. It's regardless of revisions, right?
Scott Hoyt: Oh, yeah. No, I'm not contradicting your point about parties.
Marisa DiNatale: But you're right on balance. On net, it didn't do much over the month because the two balanced each other out, because confidence fell for Democrats too.
Mark Zandi: Right.
Marisa DiNatale: Right.
Cris deRitis: Can we all agree we shouldn't be paying attention to this confidence measure?
Marisa DiNatale: Unless you want to predict a ...
Mark Zandi: Which one? University of Michigan?
Cris deRitis: Any of them.
Scott Hoyt: Thank you.
Mark Zandi: No, no. Well, I personally like The Conference Board when it moves in a big way. If it's moving down in a big way, for me, that's a good ... I hesitate to say foolproof, but a very good, leading indicator of recession. Because if you see The Conference Board survey coming down 5, 10, 15 points in a given month for two or three months, that signals, at least from my perspective, consumers are running for the bunkers. They're going to stop spending. Recession is at hand within a few months.
Cris deRitis: You're probably seeing UI claims rising during that time.
Mark Zandi: Oh, true. True, true. True.
Cris deRitis: Spending [inaudible 00:43:19], right?
Mark Zandi: True.
Cris deRitis: So I don't know that that's ...
Mark Zandi: Oh, no, no, no. There's more than that. In my humble opinion, a recession is a psychological event. It's a loss of faith. So something has to trigger that loss of faith, and that's the UI claims. Businesses are starting to lay off. But then it takes on a life of its own and people go, "Oh my God. This thing's going down the tubes. I'm going to stop spending because I'm not going to have a job," or, "I'm not going to get that bonus," or, "I'm not going to get a wage increase," and that's a recession.
Cris deRitis: Yeah.
Mark Zandi: You go from a tough economy to a recessionary one. And I use that Conference Board survey as kind of a barometer of that loss of faith. So I think in typical times, I totally agree with you. You can explain the ups and downs of consumer confidence with UI inflation, gas prices, maybe the stock market. But in those times when things are going south, I think that's when it becomes more valuable. At least that's the way I view it. You're smiling, Cris. You're stretching it. You're stretching it, I'm sure.
Cris deRitis: I agree with the whole construct. I just don't think we're measuring.
Mark Zandi: Well, that worked for me quite well in this recent kerfuffle around the recessions. I mean, people were screaming, "Recession," a year or two ago, and one reason why it was more sanguine was because The Conference Board survey hung in there, right? Never broke south. Never took a dive, right?
Cris deRitis: All right.
Mark Zandi: All right. Well, I need one more data point to ...
Cris deRitis: Convince me.
Mark Zandi: To convince you.
Cris deRitis: Yeah.
Mark Zandi: Probably a couple more data points, which will take two decades for that to happen, by the way. But anyway ...
Scott Hoyt: I hope so.
Mark Zandi: Yeah, I hope so. I hope so. I hope you're right. Let's do one more point of interest/anomaly observation, and then we'll play the game, the stats game. Scott, did you come prepared to play the stats game?
Scott Hoyt: I did.
Mark Zandi: Okay, very good. This observation is around the composition of spending. Let me just describe it for the listener. If you look at overall consumer spending, the growth in pre-pandemic, go back pre-pandemic, three, five years before the pandemic, take a look at what the growth rates of that spending were and extrapolate out what spending should be today, spending today in aggregate across goods, services, the whole shooting match is almost precisely where you would expect it to be. It's very consistent with that pre-pandemic trend. Does that make sense, the way I just described that?
Marisa DiNatale: Nominal?
Cris deRitis: Real.
Mark Zandi: Real, real, real.
Marisa DiNatale: Real. Okay.
Mark Zandi: Real.
Cris deRitis: It's higher nominal because of all the price increases.
Marisa DiNatale: Right.
Mark Zandi: Yeah. Real, after inflation. If I do the same thing for goods, spending on goods, everything from food, clothing, furniture, electronics, and take a look at the pre-pandemic trend, extrapolate that out, the current level of spending is higher than it was pre-pandemic. And Cris is actually bringing up a chart to show the point so for folks on YouTube, you can see this. For services, it's everything from healthcare to financial services to travel. Again, you take the pre-pandemic trend in service spending, consumer spending on services, extrapolate that out. The current level of spending on services is not quite back to where it needs to be or should be compared to its pre-pandemic trend. So the question, or the anomaly, the observation is what's going on? Why is this the case? How do you explain this? And I know, Scott, I asked you this question a couple of months ago and you've done some work around this. I can't remember what you've figured out, but what did you figure out?
Scott Hoyt: I'm actually not convinced that it's that much of an anomaly.
Mark Zandi: Okay. Okay.
Scott Hoyt: Because I think going into the pandemic, I think real service spending growth, not nominal, but real, was a bit weaker than average and real good spending growth was a bit stronger. Your chart basically assumes a 2.5% trend for both components. I think if you take the separate pre-pandemic trends for each of the components ...
Mark Zandi: No, no, no, no. No. No, no, no. I took the trend in goods spending pre-pandemic. Yeah.
Scott Hoyt: And services.
Mark Zandi: Yeah. No.
Scott Hoyt: Because when I did it, they came out about ...
Mark Zandi: About the same.
Scott Hoyt: In line.
Mark Zandi: Oh, in line?
Scott Hoyt: About in line recently.
Mark Zandi: Oh, maybe you based the period over which you calculated the trend.
Scott Hoyt: Trend, yeah. That's probably the difference. So I don't think there's a huge ...
Mark Zandi: No, there is a difference. There is no anomaly. There's no point of interest.
Scott Hoyt: Yeah, I don't think there's a big point of interest here. In fact, to me, the point of interest is that we are basically back to where we were before. And therefore, there's no more sort of returning to normal from the pandemic. We're basically done with that at this point.
Mark Zandi: We've normalized. Spending is normal.
Scott Hoyt: We've normalized, yes.
Mark Zandi: Oh, okay.
Scott Hoyt: Yes.
Mark Zandi: Okay, okay. I know you did this calculation by different components of goods spending and service spending. Anything that stands out there? Is anything higher than it was based on pre-pandemic trend or lower than it was compared to pre-pandemic trend? Anything that stands out?
Scott Hoyt: Yeah, let me just take a quick look.
Mark Zandi: Well, that's okay. I mean, if nothing you don't remember, it's probably not that big a deal.
Scott Hoyt: Yeah. I mean, one thing I did notice was that real medical spending, spending on medical goods, is high.
Mark Zandi: Oh, really?
Scott Hoyt: Yeah.
Mark Zandi: Isn't that pharmaceuticals and medical equipment and that kind of thing?
Scott Hoyt: Yeah. Pharmaceuticals, durable medical equipment, that type of stuff.
Mark Zandi: Oh, that's probably Ozempic. I mean, I'm half joking. That may be Ozempic.
Scott Hoyt: Yeah. No, that's interesting. That could be. I hadn't thought about that, but yeah. That could be a piece of it. Yeah.
Mark Zandi: Yeah. Yeah, actually we should do a podcast on Ozempic one of these times because that's a big deal. That's a really big deal.
Scott Hoyt: And transportation-related, particularly transportation service spending.
Mark Zandi: Is lower than it was pre-pandemic?
Scott Hoyt: Is lower, right.
Mark Zandi: What is that? Is that people aren't taking cabs? What is that?
Scott Hoyt: Well, in commuting.
Marisa DiNatale: Commuting to work.
Mark Zandi: Oh, commuting. Commuting, of course.
Scott Hoyt: We're all home. We're not in the office.
Mark Zandi: Yeah. Yeah, yeah. No, that makes perfect sense. That makes perfect sense. So remote work.
Scott Hoyt: Yep.
Mark Zandi: Playing a role.
Scott Hoyt: Exactly.
Cris deRitis: That's interesting.
Mark Zandi: Yeah.
Scott Hoyt: Yeah, and accommodations as well. I mean, it's still ...
Mark Zandi: Yeah. Okay.
Scott Hoyt: Which I think is probably much more. I mean, in theory, it should be measuring leisure spending more than business spending, but I'm sure they have trouble separating them. So I'll bet it's as much business travel as leisure travel that's getting picked up.
Mark Zandi: Okay. Well, I've got a couple more points of interest, anomalies, and things to consider. I still don't think I've got the right word for it.
Cris deRitis: Gripes.
Mark Zandi: Gripes, things that are bugging me around the consumer, but I'll bring them up after we play the game. Let's play the game, the stats game. We each put forward a stat. The rest of the group tries to figure it out with questions, clues, deductive reasoning. The best stat, this one that's not so easy and we never get it. One that's not so hard. What? No. One that's so easy that we get it immediately. One that's not ... I've said this so many times. How could I screw this up? ... That's not so hard that we never get it. And if it's apropos to the topic at hand, all the better. Marisa, tradition has it that you go first, so you're up.
Marisa DiNatale: Okay. There's two statistics, 4.9% and ...
Cris deRitis: Inflation expectations.
Mark Zandi: Oh.
Marisa DiNatale: Yes.
Mark Zandi: Jeez Louise. How rude is that?
Cris deRitis: Sorry. Sorry.
Marisa DiNatale: He really wanted to win this.
Cris deRitis: I did.
Mark Zandi: Is this from the University of Michigan survey?
Marisa DiNatale: Impressive. So it's The Conference Board and the University of Michigan.
Mark Zandi: Oh. Okay.
Marisa DiNatale: So The Conference Board expectations for inflation for 12 months ahead is 4.9%, and the Michigan 12 months ahead inflation expectations is 2.6%.
Cris deRitis: That's weird.
Marisa DiNatale: There's always this very large gap between the two that I don't quite understand, so I bring it up kind of as an anomaly of why are inflation expectations in the two surveys so different? And they've always been. There's always this big gap between the two.
Mark Zandi: This might be surprising, but I didn't even know that Conference Board asked a question around ...
Marisa DiNatale: They ask a lot of ...
Mark Zandi: I didn't know that.
Marisa DiNatale: Sort of interesting questions that don't get a ton of coverage. They also ask people what their expectation, their odds of a recession are in the next year.
Mark Zandi: Oh. Wow.
Scott Hoyt: That's new. They've only been doing that the last couple of years.
Marisa DiNatale: Yeah, but it's at an all-time low. It's held to an all-time low.
Mark Zandi: All-time low. Wow.
Marisa DiNatale: An all-time ... Yes, as Scott said in the beginning, like 2022.
Scott Hoyt: Since 2022.
Mark Zandi: Oh, okay. Okay.
Marisa DiNatale: Yeah.
Mark Zandi: But it sounds better when you say all-time low.
Cris deRitis: Yeah.
Marisa DiNatale: That's why I said it that way. That's what economists do. They characterize things to their advantage.
Mark Zandi: Has the question around inflation expectations been around a long time?
Marisa DiNatale: Yes.
Mark Zandi: It has?
Marisa DiNatale: Yeah.
Mark Zandi: It's always been meaningfully higher than ... And the University of Michigan obviously makes more sense because inflation is about in the mid-twos, depending on how you measure it. I don't know. That's bizarre. That's really weird. Cris, do you have any stats to play, or Scott?
Scott Hoyt: I was going to say I assume it has to do with the way they ask the questions and I haven't researched it, so I don't know.
Mark Zandi: Oh. That always matters a lot. Yeah.
Scott Hoyt: Yeah. The wording of the question and what questions come before and after it can influence things a lot. I'm not answering it, but I'm suggesting probably a good place to look for the answer.
Mark Zandi: Should we ChatGPT it? Would that be ...
Marisa DiNatale: I did. I did.
Mark Zandi: ChatGPT didn't know?
Marisa DiNatale: I went to look for the answer and I didn't get one.
Mark Zandi: Oh.
Marisa DiNatale: But I think Scott's point is probably correct that it is probably the way in which they're asking the question. Even though the two statistics are reported to be the same, "What are your inflation expectations over the next 12 months?" it might vary depending on how they ask. For example, if maybe, perhaps, in one survey they tell you what inflation has been. Like, "Inflation has been ..."
Mark Zandi: Oh.
Marisa DiNatale: Right?
Cris deRitis: Oh, anchoring?
Marisa DiNatale: Yeah, like, "2.8%. What do you think it'll be for the next 12 months?"
Mark Zandi: Oh. Good point.
Marisa DiNatale: And maybe they don't do that in another survey. And so people have no idea, so they're picking a wild number.
Mark Zandi: Right.
Marisa DiNatale: I don't know. I don't know if that's the case, but yeah, we should find what the survey questions are.
Cris deRitis: Another reason not to rely on these surveys, right?
Mark Zandi: Yeah, good point. And both are 12 months ahead surveys?
Marisa DiNatale: Yes.
Mark Zandi: In terms of inflation?
Marisa DiNatale: Yeah, they ask about inflation over the next 12 months. Yep.
Mark Zandi: Right. Okay. Oh, interesting. Okay. Scott, you want to go next?
Scott Hoyt: Yes. I'm trying to decide what to do here because Marisa stole half of my statistic.
Marisa DiNatale: Oh.
Mark Zandi: The inflation expectations? You had the same one?
Scott Hoyt: I had the same one, although I was going to do it differently. I had two numbers. I had her 2.6%, but then I also had 3.2%.
Mark Zandi: Oh. Was that two, three years ahead or something?
Scott Hoyt: Yeah, because the Michigan asks one year ahead and they ask five years ahead.
Mark Zandi: Oh, five years ahead. Right. Five years.
Scott Hoyt: And what I found interesting about that is that the one-year ahead, the 2.6%, is the lowest in nearly four years, but the five-year ahead jumped up to 3.2%, which is the highest, I think, in exactly a year.
Mark Zandi: To Cris's point. I think this is a bunch of noise.
Scott Hoyt: Well, actually, I think it may play into the tariff argument. That consumers are seeing tariffs down the road, but they're not worried about it in the short term.
Mark Zandi: Oh. Really? I don't know. You're really in the weeds, Scott, man. I'm just telling you. You got to stop smoking that weed.
Scott Hoyt: Okay. Well, anyway, since she stole my primary statistic, I'll go to my backup.
Mark Zandi: You didn't think that was funny, Scott? I thought that was great. You didn't think that was funny? I thought that was so good the way I did that. No? All right.
Scott Hoyt: Absolutely. I just thought you guys liked to be in the weeds. I listen to the podcast every week.
Mark Zandi: Oh, you don't smoke weed. You do the gummies. That's what's going on. Oh, now he laughs. Okay. Now he laughs.
Marisa DiNatale: [inaudible 00:56:55]
Mark Zandi: Not Scott, no. Not Scott. Definitely not. Just joking, of course. Okay, one more.
Scott Hoyt: Okay.
Mark Zandi: Oh, did you have another stat that you wanted to do?
Marisa DiNatale: He had a backup.
Scott Hoyt: Yeah, I do. I do.
Mark Zandi: Okay, go ahead. Go ahead.
Scott Hoyt: I have my backup.
Mark Zandi: Sorry.
Scott Hoyt: Okay. 3.9%.
Mark Zandi: A stat that came out this week?
Scott Hoyt: A little over a week ago. I had to reach a little bit for my backup.
Mark Zandi: Inflation related?
Scott Hoyt: No, consumer related.
Mark Zandi: Oh, consumer related.
Marisa DiNatale: Retail sales related,
Scott Hoyt: Yes.
Mark Zandi: Oh, probably. Probably retail sales. That's not year-over-year control retail sales?
Marisa DiNatale: Is it retail sales?
Scott Hoyt: It's core.
Mark Zandi: Core retail sales.
Marisa DiNatale: Okay. Core.
Scott Hoyt: Yep. Year-over-year.
Mark Zandi: Core being X auto, X gas?
Scott Hoyt: Correct.
Mark Zandi: Okay. Okay. It's 3.9% year-over-year through the month of October. Yes? No?
Scott Hoyt: Yep.
Mark Zandi: Why are you delaying?
Scott Hoyt: Oh, actually I misread it on the chart. It's 3.8%.
Mark Zandi: Oh, my.
Cris deRitis: Oh.
Scott Hoyt: I'm sorry, 3.9% in September. It's 3.8.
Mark Zandi: Holy crap. Come on.
Scott Hoyt: I know.
Mark Zandi: That makes all the difference in the world.
Marisa DiNatale: Do I still credit for getting it right?
Scott Hoyt: Oh, yeah. You still get credit. But my point was where we started out with no inflation, we're talking about something close to 4% in real core retail sales growth.
Mark Zandi: Yeah. That's a lot. That's good.
Scott Hoyt: Through October, yeah. And that just testifies to the strength of consumer spending that we're seeing right now, and that it's in goods. It's not just in services.
Mark Zandi: Well, there's a so-called concept of control retail sales, which excludes spending on building materials, right? Because that control is what goes into consumer spending in the GDP report, so when trying to calculate consumer spending for GDP.
Scott Hoyt: Yep.
Mark Zandi: Do you know what that is by any chance? Just very curious.
Scott Hoyt: I don't have that in my fingertips.
Mark Zandi: That's okay.
Scott Hoyt: They don't have that in the release and I was just pulling this from the release.
Mark Zandi: Okay, no worries. Okay. All right. Well, let's do one more. Cris, what's your stat?
Cris deRitis: All right. This one is about me because it's always about me. $3.12 cents.
Mark Zandi: It's not gas prices. The cost of a gallon of regular unleaded?
Scott Hoyt: Pretty sure it's $3.12.
Cris deRitis: I think it's under $3 now, right?
Mark Zandi: Is it under $3? I haven't looked recently. Is it under $3?
Cris deRitis: I saw under $3 recently. I don't know if that's the average.
Mark Zandi: Wow. Wow, that's not like a cup of your weird coffee, is it?
Cris deRitis: Oh, I'm going to give it to you.
Marisa DiNatale: That's ...
Mark Zandi: You are? It's your kombucha tea.
Cris deRitis: No, no, it's the price ...
Mark Zandi: It's your moldy ... The price of what? Go ahead.
Cris deRitis: It's the price of coffee.
Mark Zandi: Oh.
Cris deRitis: $3.12 a pound.
Mark Zandi: Oh, okay. I think I was close.
Cris deRitis: That's close enough. It's a record high going back to the '70s.
Mark Zandi: Oh. Really?
Cris deRitis: It's up 75% over the last year.
Mark Zandi: Weather related?
Cris deRitis: Weather related in Brazil, there's drought. In Costa Rica, there's flood.
Marisa DiNatale: Oh, yeah.
Mark Zandi: Oh, boy.
Cris deRitis: But I'm a big coffee consumer so this is personal.
Mark Zandi: Yeah, we'll just cash in one Bitcoin and you'll be fine. I'm not worried about you. Just not worried at all. Isn't a Bitcoin $100,000 or something now?
Cris deRitis: Got closed and then it backed off.
Mark Zandi: Oh, so you feel poor now. Now he feels poor because he's less than $100K on that Bitcoin. Yeah. That's a good one. Good, good. Okay. Well, I've got a couple other points of interest/anomalies. Maybe we'll do those and we'll call it a podcast. Does that sound like a good idea?
Marisa DiNatale: You don't have a statistic, Mark?
Mark Zandi: What's that?
Cris deRitis: You don't have a stat?
Marisa DiNatale: You don't have a statistic?
Mark Zandi: I think we should move on. Yeah.
Cris deRitis: Oh, it's not very good.
Mark Zandi: Yeah, yeah.
Marisa DiNatale: What is it, that one [inaudible 01:00:41]?
Mark Zandi: I had one, but it's not that good. I got my fill of the game. Yeah.
Cris deRitis: All right.
Mark Zandi: So let's move forward. Here's another point of interest/ anomaly: the retail space market. So this move to online spending has crushed the demand, or at least it had crushed the demand, for retail space, particularly malls, and that appears to be over. If you look at the price for retail space, dollars per square foot, which we calculate based on actual transaction volume, it's held up really well in the last couple of years. If you look at prices for multifamily, that's down from the peak a little over two years ago, now down, correct me if I'm wrong, Cris, 20%, 25%. For office, it's down 15%, 20%. But for retail, it's basically flat over the last couple three years. That just feels a little weird in the context of continued move to online retailing. What do you think is going on there? Cris, do you have a view on that?
Cris deRitis: Yeah, I think you got a couple of things going on. One is just the lack of building or supply. We haven't really built a lot of retail over this time period, so that's certainly a factor. And then demand, I think that there has been a resurgence in demand for in-person retail experiences, so I think that's part of it. You can also talk about some of the repurposing of the retail that's going on, some of these multipurpose facilities. So you have kind of mixed use properties cropping up between apartments with retail underneath, and those are certainly popular these days. So I think you have a number of things here. Yeah, I think that's the reason why we keep seeing this market.
Mark Zandi: It's just demand and supply. It always boils down to demand and supply. Pretty much.
Cris deRitis: Pretty much.
Mark Zandi: Yeah. Anything add there, Scott?
Scott Hoyt: No, I think I agree with what Cris said. I mean, I think on the demand side, if you look at the Census Bureau's estimates of online retail, it has come back in from its pandemic peak. That's probably no surprise. But if you do the same thing that we were looking at with real spending and you look at the pre-pandemic trend and where it is now, it's above that. But it's actually, to me, surprisingly little above that. The gap is not that wide. So we had a bit of a level shift towards online spending as a result of the pandemic, but it really wasn't as big as, at least, I expected it to be.
Mark Zandi: Based on the number of packages that are showing up at my door, that just doesn't resonate with me.
Scott Hoyt: I tend to feel the same way.
Mark Zandi: Yeah.
Scott Hoyt: But if you look at the statistics, that's what I'm seeing.
Mark Zandi: Okay. All right. Okay, finally. Last thing that's bugging me, observation, a little bit more forward-looking: tariffs. How big a deal is this? Obviously, it depends to a significant degree on the tariffs, how big, whom, what products, so forth and so on. But what do you think? Should we buckle in? Is this going to derail the consumer, Marisa, or not?
Marisa DiNatale: I really don't ...
Mark Zandi: You don't think so?
Marisa DiNatale: Know. It's so unclear what the breadth and magnitude of these are going to be. We keep hearing numbers, but I'm not putting a lot of stake in what we're hearing because I think a lot of that might be just sort of negotiating tactics. And who knows what the final impact will be and on what kinds of goods? I mean, I think the fear is that it'll be much more targeted toward consumer goods, perhaps non-durable consumer goods, than it was in the last round where there was a lot of tariffs on durable goods and on intermediate building materials and that sort of thing. And if it is more targeted toward end-use consumer goods, then that could have real implications for consumer spending. But I have very little confidence in predicting what it's going to look like at this point.
Mark Zandi: Right, right. Cris, Scott, anything on that?
Scott Hoyt: Yeah, I feel the same way. I don't really know what to expect. I mean, I think there's a real risk because I think if we do get tariffs that move the needle on prices materially, consumers have clearly demonstrated that they're sensitive to prices. And so it's going to have an effect not just on budgets, but on confidence. But whether that's going to be how things shake out at the end of the day, I'm highly uncertain.
Mark Zandi: Cris?
Cris deRitis: I think it's a deal particularly given the channel of the housing market, right? If building material costs go up at the same time that we have higher wages for construction workers, higher interest rates hanging around, I think we could see a sharp reduction in housing starts. And we know that's a big driver of retail overall, right? Every house we build creates a lot of economic activity. So that would be one channel, certainly, I'd be worried about if those building material costs really go up significantly as a result of tariffs.
Scott Hoyt: Although, Cris, I don't know that it affects aggregate spending as much as it affects the composition of spending. I mean, do you really think consumers, if they're not relocating and fixing up their new home, that they're not going to take an extra vacation or spiff up the home they've got or buy something else? I guess I'm not convinced. I definitely see the compositional effect, but I'm less convinced of the effect on aggregate spending.
Cris deRitis: Yeah. I do think that there will be a pullback. I think if someone sees the price going up, they're going to say, "Okay, I got to save more now for the down payment," or, "I have to delay that." I don't know that they're going to say, "Okay, forget the housing dream. I'm going to go travel." Possibly, but I see it as having potentially bigger impact.
Mark Zandi: I'll tell you what. There's absolutely no upside to this. There's nothing but downside. I mean, you're right. How do we gauge the downside? Because we can't gauge what these tariffs are going to be, how much is this bluster and how much is actually going to be implemented? This is all different shades of gray. I mean, the obvious, it's a tax increase through higher prices. It's going to raise interest rates. Rates are already up based on the tariffs and some of the other policies that are likely to ensue here in the next six to 12 months. The confidence effects. I think because of the uncertainty in the confidence effects, I think they could be quite significant. And then back to my original worry about the equity market, the equity market feels really like it's discounting nothing but good news and tariffs are all to the downside. Talk about something that's incongruous. It just feels increasingly incongruous to me, so I don't know. I think these tariffs could turn out do more damage than we think because certainly, again, there's no upside here. It's nothing but downside. Anyone disagree with that?
Cris deRitis: No. It sounds like you're thinking markets are ... Assuming there's going to be a deal, there's going to be ...
Mark Zandi: Yeah,
Cris deRitis: Some way out here.
Mark Zandi: This is no big deal. They're assuming no big deal. I don't know. That doesn't feel right to me. That doesn't feel right to me. Okay. I think we covered a lot of ground. Thanks, Scott. I appreciate that. I hope you enjoyed the conversation. So hi, Scott. How are you?
Scott Hoyt: Very much so. Great. Happy to be here.
Mark Zandi: Great. There you go. Very good. Excellent.
Scott Hoyt: And looking forward to being back.
Mark Zandi: And thank you. Thank you. We really enjoyed having you on and I think the listeners should get a lot out of that. Anything else, guys, before we call it quits and Happy Thanksgiving and all that stuff?
Cris deRitis: Happy Thanksgiving to all the travelers out there listening to our podcast right now.
Mark Zandi: Yeah, absolutely. If you get stuck in an airport, you know exactly what to do. Inside Economics. Yeah. There you go. I'm on Bluesky now, guys. I'm on Twitter, or X, and now I'm on Bluesky. You can see me, mark.zandi. I don't know what the handle is, but mark.zandi will get there, I think. But anyway, with that, we're going to call it a podcast. Dear listener, thank you for tuning in and we'll talk to you next week. Take care.