WEBVTT - New Risk: Self-Fulfilling Recession Calls 0:00:14.000 --> 0:00:17.320 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:17.400 --> 0:00:19.680 My name is Mike Reagan. I'm a senior editor at 0:00:19.680 --> 0:00:23.360 Bloomberg and I'm downa higher across acid reporter with Bloomberg 0:00:23.760 --> 0:00:26.599 at this week on the show, Well, that inflation just 0:00:26.800 --> 0:00:29.319 keeps going higher and higher, doesn't it. According to the 0:00:29.360 --> 0:00:32.600 latest data out this week, the consumer price index climbed 0:00:32.880 --> 0:00:35.680 nine point one percent in June, the most in almost 0:00:35.720 --> 0:00:38.879 forty one years, and not markets are pricing in an 0:00:38.920 --> 0:00:42.080 even more aggressive response from the Federal Reserve to team 0:00:42.159 --> 0:00:46.080 surging prices with interest rate hikes. But is triggering a 0:00:46.159 --> 0:00:49.240 recession the only way the Fed contained inflation? What we'll 0:00:49.240 --> 0:00:52.240 get into it with a very well known economist who, 0:00:52.360 --> 0:00:54.920 by the way, the don is from my hometown of Westchester, 0:00:55.160 --> 0:00:58.160 p A. I'm very excited, but I thought I also 0:00:58.200 --> 0:01:01.560 had to ask you. Um, I keep reading about these 0:01:01.840 --> 0:01:06.920 problems with airlines and and everyone's flight being delayed. I 0:01:06.959 --> 0:01:08.600 think it's all your fault. I was about to say, 0:01:08.640 --> 0:01:12.039 you're about to blame me. Every week you're off to 0:01:12.080 --> 0:01:15.880 another exotic location. I did go to Florida last week. 0:01:16.080 --> 0:01:18.759 Did you clog up the airlines? No? I flew from 0:01:18.800 --> 0:01:23.080 the Trenton Airport, the Trenton Trenton, New Jersey. It really 0:01:23.120 --> 0:01:25.640 shouldn't be publicizing this because I want to keep it 0:01:25.680 --> 0:01:28.080 a secret. It was so easy to get in and 0:01:28.120 --> 0:01:30.600 it literally took two minutes to get off the plane, 0:01:31.360 --> 0:01:33.520 Like no, there were no people there. It was the 0:01:33.560 --> 0:01:36.640 easiest process in the world from the Trenton, New Jersey airport, 0:01:36.720 --> 0:01:38.600 which I know well from my days in Trenton. Did 0:01:38.600 --> 0:01:40.840 they serve like pork roll on the on the flight, No, 0:01:41.040 --> 0:01:43.319 that's that actually would be mustard part of them. No, 0:01:43.520 --> 0:01:45.800 But it's like my parents lived really close to it. 0:01:45.959 --> 0:01:48.800 I went with my parents to Florida. It was the easiest, 0:01:48.840 --> 0:01:53.560 easiest process in the best flight, Like so so easy, 0:01:53.680 --> 0:01:56.040 you can not be advertising it. But possibly our guest, 0:01:56.200 --> 0:01:59.040 who actually I think lives close by to Trenton as well, 0:02:00.080 --> 0:02:04.360 he might be utilizing this airport, not them, talked it 0:02:04.440 --> 0:02:08.240 up so so much. But I want to welcome Mark Sandy. 0:02:08.280 --> 0:02:11.040 He's the chief economist for Moody's Analytics and he's the 0:02:11.080 --> 0:02:14.120 host of the Inside Economics podcast. Thank you so much 0:02:14.120 --> 0:02:16.040 for joining us. It's good to be with you. I 0:02:16.360 --> 0:02:19.040 had no idea you could fly from Trenton where in Flori. 0:02:19.040 --> 0:02:21.120 Did you fly to so you can fly to I 0:02:21.240 --> 0:02:24.000 flew to Fort Lauderdale. I hung out with our old 0:02:24.000 --> 0:02:28.840 colleague Sarah Ponzac actually Mike and who who she lives 0:02:28.840 --> 0:02:31.840 in Fort Lauderdale now, um, and it was just the 0:02:31.960 --> 0:02:34.760 easiest process. It was, honestly like, I'm never going to 0:02:34.800 --> 0:02:36.799 New York again. I was gonna say, you can only 0:02:36.800 --> 0:02:41.160 fly from Trenton to Camden is the Yeah, that's it, 0:02:41.240 --> 0:02:44.320 But but you can. It's it's very smooth flying. Yeah, 0:02:44.360 --> 0:02:48.399 it was. It was really Yeah to check that out. 0:02:48.680 --> 0:02:50.800 I have a home and vera Vera which is just 0:02:51.320 --> 0:02:53.960 up the coast from Fort Lauderdale, so oh, you gotta 0:02:54.000 --> 0:02:57.639 do it. It was, yeah, check that out. And sticks 0:02:57.639 --> 0:02:59.840 were okay priced. Oh they were so cheap. I don't 0:02:59.840 --> 0:03:02.600 even don't want to tell you. Yea very good. I'm 0:03:02.639 --> 0:03:04.400 really talking this up. You're gonna go and have a 0:03:04.400 --> 0:03:09.160 bad experience. Mike, I should ask you what high school 0:03:09.160 --> 0:03:13.840 did you go to? West Bishop Shanahan High School? When 0:03:13.840 --> 0:03:18.400 I was still in the borough Westchester. Now they well, yeah, 0:03:18.720 --> 0:03:21.640 you try, I try. You know tall. Did you play basketball? 0:03:23.040 --> 0:03:26.200 My reputation precedes me. I did indeed play best j 0:03:26.360 --> 0:03:30.640 V j V well, you know basketball. Yeah, and we 0:03:30.680 --> 0:03:32.600 had a good squad back then. We were state champions 0:03:32.600 --> 0:03:35.760 in I did not play on the stage. He wasn't 0:03:35.760 --> 0:03:37.320 on that. He was on the team in like the 0:03:37.320 --> 0:03:42.440 thirties or something. Yeah, I can make fun of Mike, 0:03:42.520 --> 0:03:47.280 but it sounds like she's abuse of me. I feel like, yeah, 0:03:47.920 --> 0:03:50.440 we've reached our limit on that. Yeah, No, I think 0:03:50.560 --> 0:03:52.760 there's more to go. So Mark, I want to start 0:03:52.920 --> 0:03:55.600 with the CPI print, which we got this week, and 0:03:55.600 --> 0:03:57.360 then I saw you actually tweet about it. You said 0:03:57.360 --> 0:03:59.760 it was predictably ugly, and then it might take eighteen 0:03:59.800 --> 0:04:01.920 to twenty four months for us to get back down 0:04:02.000 --> 0:04:05.760 to Another thing you said was that rent growth will 0:04:05.800 --> 0:04:09.760 be an impediment. There's a shortage of affordable homes. So 0:04:09.880 --> 0:04:11.800 can you can you talk to us about what we 0:04:11.880 --> 0:04:16.599 got this week and what you're forecasting? Yeah? Right, Uh, 0:04:16.839 --> 0:04:19.720 nine point one percent. You're over your CPI inflation through 0:04:19.720 --> 0:04:21.960 the month of June. Uh. Just here's a good here's 0:04:21.960 --> 0:04:24.160 an interesting fact, toy. I mean, I think it strikes 0:04:24.200 --> 0:04:27.920 the point home. The average or the typical American household 0:04:28.760 --> 0:04:31.640 who makes about this sixt k year, they need to 0:04:31.720 --> 0:04:35.919 spend almost five dollars more a month to buy the 0:04:35.960 --> 0:04:38.680 same goods and services that they were purchasing a year ago. 0:04:38.800 --> 0:04:41.800 So just think about that for a second. That's pretty painful. 0:04:42.400 --> 0:04:44.520 And you know there's no way around the high inflation. 0:04:44.560 --> 0:04:47.000 I mean you took at gasoline prices. I mean you 0:04:47.080 --> 0:04:49.920 gotta go to work, you gotta go grocery shopping, you 0:04:50.000 --> 0:04:52.960 gotta go to school, So no way around that. Rents 0:04:52.960 --> 0:04:57.200 are up a lot, uh, given the affordable housing shortage. 0:04:57.720 --> 0:04:59.720 Food prices are up. A lot of that goes back 0:04:59.760 --> 0:05:02.520 to energy because of diesel prices, you know, getting the 0:05:02.560 --> 0:05:05.239 things for the food from the the from the farm 0:05:05.240 --> 0:05:07.920 to the store. Sheelf. But everything's up a lot, very 0:05:07.920 --> 0:05:09.640 few in fact, is you know, I was looking through 0:05:09.640 --> 0:05:12.760 the report for things that had fallen in price, and 0:05:14.040 --> 0:05:16.640 I can count them on one hand. Really, like smartphones 0:05:16.680 --> 0:05:19.479 are down, and that's because of improvement in technological change 0:05:19.520 --> 0:05:23.960 and technology. Men's pants, believe it or not, they're selling 0:05:24.000 --> 0:05:27.919 for less today than a year ago. I you know, 0:05:28.000 --> 0:05:31.360 I'm in my short right now. Somebody's gonna say sweatpants 0:05:31.400 --> 0:05:35.559 are sweatpants now they think about it. How many pairs 0:05:35.560 --> 0:05:37.480 of pants have I bought in the last year? I can't. 0:05:37.560 --> 0:05:42.240 I can't tell you anyway. So prices are up a 0:05:42.240 --> 0:05:45.920 lot and it's really hurting. Um, I will, I'll just 0:05:45.960 --> 0:05:47.520 tease it and I'll stop, but I you know, I 0:05:47.560 --> 0:05:51.039 do think that will be the worst of it. I 0:05:51.040 --> 0:05:54.000 say that with intrepidation because I said that before in 0:05:54.040 --> 0:05:56.960 the last few months, because you know, pegging the peak 0:05:56.960 --> 0:06:01.240 and inflation is intrepid because it depends on oil prices 0:06:01.240 --> 0:06:03.599 and gasoline prices, which goes back the Russian invasion of 0:06:03.680 --> 0:06:06.719 Ukraine and sanctions and the timing and sanctions. Hard to 0:06:06.720 --> 0:06:09.719 get that right. But it feels like we're moving on 0:06:09.760 --> 0:06:12.680 the right side of the inflation picture. Now. A long 0:06:12.720 --> 0:06:14.560 way to get back, because I said eighteen twenty four 0:06:14.600 --> 0:06:17.039 months to something we all feel comfortable with. But I 0:06:17.080 --> 0:06:20.479 think we're on our way and it fingers crossed. You know. 0:06:20.520 --> 0:06:23.520 The one weird thing I've noticed mark with people trying 0:06:23.520 --> 0:06:26.120 to call the peak and inflation is that it's such 0:06:26.160 --> 0:06:28.720 a moving target as far as what's driving it. I mean, 0:06:28.760 --> 0:06:33.320 obviously energy, oil, gasoline prices, um. But you know last 0:06:33.400 --> 0:06:37.080 year everyone was looking at lumber when lumber prices peaked, 0:06:37.080 --> 0:06:39.680 they thought, oh, that's it, that's the sign that inflation 0:06:39.760 --> 0:06:43.240 is peaked. Now I have to wonder about rent owners 0:06:43.279 --> 0:06:46.640 equivalent rent in the CPI report UM. And I talked 0:06:46.640 --> 0:06:49.800 to Rob Barnett of a few months ago of Research Affiliates, 0:06:50.360 --> 0:06:53.440 and he was sort of very hawkish about inflation because 0:06:53.480 --> 0:06:57.599 he said, look, home prices have risen something like thirty 0:06:57.680 --> 0:06:59.920 some percent since the end of two thousand and nineteen, 0:07:00.040 --> 0:07:03.200 and and his in his thinking, that has to trickle 0:07:03.360 --> 0:07:07.520 into the owner's equivalent rent or the other shelter components 0:07:07.520 --> 0:07:12.000 of c p I. UM. So, even if energy comes 0:07:12.080 --> 0:07:15.200 off the boil, how how big of a deal is 0:07:15.240 --> 0:07:17.640 rent going to be going forward? Do you think? I mean, 0:07:17.680 --> 0:07:20.840 is there still some of that? How home price appreciation 0:07:21.280 --> 0:07:23.520 as are not predicts that that has to trickle into 0:07:23.560 --> 0:07:27.320 the rent UH component of CPI. Yeah. The reason well, 0:07:27.400 --> 0:07:29.880 I mean, just give give a set of numbers to 0:07:29.960 --> 0:07:32.360 make a concrete I mean, let's say inflation inflation we 0:07:32.400 --> 0:07:36.320 know now is nine point one. If oil prices simply 0:07:36.360 --> 0:07:40.520 go flat, and that means gasoline prices we'll start will 0:07:40.520 --> 0:07:42.640 come down a bit, diesel prices will come in a bit. 0:07:42.800 --> 0:07:44.960 Jet fuel because we've been paying a lot more for 0:07:45.200 --> 0:07:47.280 air fare, except if you fly from Trent and apparently, 0:07:47.480 --> 0:07:50.960 you know, you can pay more for air fare. Airfares, 0:07:51.880 --> 0:07:54.200 they'll take about half the inflation away. So you go 0:07:54.320 --> 0:07:57.600 from nine to you know, four and a half five, 0:07:57.760 --> 0:08:01.640 you know, something like that, and that getting from five 0:08:01.800 --> 0:08:03.760 to two and a half, which is kind of the 0:08:03.840 --> 0:08:07.480 upper end of the Vetch target for CPI inflation, that's 0:08:07.480 --> 0:08:10.200 going to be much more difficult because that goes to 0:08:11.840 --> 0:08:15.440 some supply chain, some product services, excuse me, products that 0:08:15.480 --> 0:08:18.920 have been disrupted by supply chain issues like the vehicle prices. 0:08:18.960 --> 0:08:21.040 But the big chunk of that is, in fact the 0:08:21.120 --> 0:08:23.920 higher rent rents that were now paying and they're in 0:08:23.960 --> 0:08:27.239 the very strong rent growth, which is actually the market 0:08:27.280 --> 0:08:29.120 rents have been rising now for more than a year 0:08:29.720 --> 0:08:33.040 double digit, but it's only now getting into the because 0:08:33.040 --> 0:08:36.840 of measurement methodologies by the er of labor statistics, only 0:08:36.880 --> 0:08:40.640 now getting into the c p I for rent in 0:08:40.640 --> 0:08:43.360 in in a full fulsome way. In a full way, 0:08:44.080 --> 0:08:48.240 I will say, though, uh that it feels like market 0:08:48.320 --> 0:08:52.200 rents growth is has topped out, that it is starting 0:08:52.200 --> 0:08:54.960 to roll over. And that goes to the fact I 0:08:54.960 --> 0:08:57.560 think a couple of things. One is, renters just can't 0:08:57.559 --> 0:09:00.360 afford these rents, you know, they're balking, and they're just 0:09:00.400 --> 0:09:02.600 they're gonna double up, the triple up, go back to 0:09:02.640 --> 0:09:05.480 their parents house. You're not gonna see households formed because 0:09:06.040 --> 0:09:09.360 you know, kids can't afford in households can't afford these rents. 0:09:09.440 --> 0:09:13.240 So that that's starting to I think, uh affect the 0:09:13.280 --> 0:09:16.960 ability of landlords to increase the rent growth and more 0:09:16.960 --> 0:09:20.280 supplies coming uh. You know, we're actually putting up a 0:09:20.280 --> 0:09:23.040 lot of multi family units by historical standards, and a 0:09:23.120 --> 0:09:25.720 lot more is in train. In fact, there's a record 0:09:25.840 --> 0:09:30.199 number of of units multi family units in the pipeline 0:09:30.240 --> 0:09:33.480 going towards completion. They've been delayed because of the pandemic 0:09:33.520 --> 0:09:35.400 and the supply chain issues, which have got back to 0:09:35.400 --> 0:09:38.120 your point about lumber. You know, it's disrupted all kinds 0:09:38.120 --> 0:09:41.599 of building materials and it's affected labor markets. So construction 0:09:41.600 --> 0:09:44.520 workers have been been they've been builders have been having 0:09:44.559 --> 0:09:47.160 troll finding construction workers in some parts of the country. 0:09:47.160 --> 0:09:48.760 But is that that gets ironed out, I think rent 0:09:48.800 --> 0:09:52.360 growth will roll over even further. It will remain high, 0:09:52.520 --> 0:09:54.920 you know, kind of high mid high single digit your 0:09:54.920 --> 0:09:56.760 over your growth, but it's gonna start to come in. 0:09:57.160 --> 0:09:59.840 And once that does, by this time next year, rank 0:10:00.040 --> 0:10:03.520 rint growth will become less additive to inflation. That will 0:10:03.559 --> 0:10:05.800 become still add but less additive. And I think it 0:10:05.800 --> 0:10:09.920 will allow inflation broadly to moderate back down close to 0:10:09.920 --> 0:10:12.160 the Fed Reserve's target. But but again, it's gonna take 0:10:12.160 --> 0:10:14.840 a while to get there. What about all the other 0:10:14.880 --> 0:10:19.600 pieces of inflation besides housing, Because you know you have 0:10:19.679 --> 0:10:22.520 this projection about the next eighteen to twenty four months. 0:10:22.800 --> 0:10:24.560 What else is going to be happening over the next 0:10:24.600 --> 0:10:28.040 eighteen to twenty four months. I know you have downgraded 0:10:28.120 --> 0:10:32.480 your GDP outlook for this year and next, right, I have, uh, 0:10:33.000 --> 0:10:35.599 still no recession. Obviously, recession risks or high and we 0:10:35.640 --> 0:10:38.000 could talk about that. I mean, clearly when inflation is 0:10:38.000 --> 0:10:41.320 so high and the Fed is on de con one 0:10:41.720 --> 0:10:45.640 and really rightfully focus on getting that inflation down by 0:10:45.679 --> 0:10:49.320 jacking up interest rates and and and sentiment is miserable, right, 0:10:49.360 --> 0:10:54.960 I mean I talked to CEO CFOs investors, you know, friends, family, 0:10:55.240 --> 0:10:58.160 to the person, they think we're going into recession. I've 0:10:58.160 --> 0:11:00.160 never seen anything like it. I mean, I you know, 0:11:00.200 --> 0:11:01.800 you can look at my hairline. I've seen a lot 0:11:01.840 --> 0:11:06.760 of business cycles now and no one predicts recessions. Uh. 0:11:07.040 --> 0:11:09.880 You know, but in this one, everyone is predicting a recession. 0:11:10.400 --> 0:11:12.840 So when sentiment is so fragile, it's not gonna take 0:11:12.880 --> 0:11:14.720 a whole lot to push us in. You know, I 0:11:14.720 --> 0:11:16.440 think with a little bit of luck, we can talk 0:11:16.480 --> 0:11:19.080 about what that means, and some reasonably good policy making 0:11:19.120 --> 0:11:20.640 by the FED, and we can talk about what that means, 0:11:20.960 --> 0:11:22.840 we're gonna be able to avoid recession. But I don't 0:11:22.880 --> 0:11:24.600 say that with a lot of confidence. I think that's 0:11:24.640 --> 0:11:27.679 you know, recession risks are are very high, but I 0:11:27.720 --> 0:11:29.520 don't think we need a recession to get you know, 0:11:29.559 --> 0:11:32.600 inflation back in. You know, all prices are gonna roll over. 0:11:33.120 --> 0:11:36.360 Natural gas prices are gonna fall. We're gonna see vehicle 0:11:36.400 --> 0:11:39.080 prices come down as supply chain issues airing themselves out, 0:11:39.120 --> 0:11:44.480 we get more vehicle production, UM, commodity prices, more goods prices, 0:11:44.520 --> 0:11:47.360 more broad they are going to come in. UM. So 0:11:47.640 --> 0:11:50.800 you know, I think, uh, again, with a little bit 0:11:50.840 --> 0:11:53.920 of luck and some reasonably deft policymaking by the FED, 0:11:53.960 --> 0:11:56.079 we should be able to navigate through. But you know, 0:11:56.120 --> 0:11:59.240 obviously it's gonna be a close call. Well It's it's funny, Mark, 0:11:59.320 --> 0:12:03.280 because there's once again, there's this debate about what exactly 0:12:03.320 --> 0:12:05.680 is the definition of a recession. You know, if you 0:12:05.840 --> 0:12:08.880 boil it down to the most simplest form, people tend 0:12:08.920 --> 0:12:12.079 to say, well, two quarters of negative GDP growth, which 0:12:12.480 --> 0:12:15.240 we might actually get for the first half of this year. 0:12:15.360 --> 0:12:18.360 But then everyone else says, well, now, the the National 0:12:18.360 --> 0:12:22.360 Bureau of Economic Researchers, Uh, they're the ones who decide 0:12:22.520 --> 0:12:24.720 if it's a recession, but they have a long list 0:12:24.760 --> 0:12:30.080 of other items. Are you pretty comfortable um in sort 0:12:30.120 --> 0:12:32.320 of wrapping your head around what it takes for the 0:12:32.400 --> 0:12:35.160 m b e R to declare recession or is there 0:12:35.240 --> 0:12:37.960 some wiggle room there? Is there some sort of qualitative 0:12:38.880 --> 0:12:41.600 elements with that that would allow them to say, yeah, 0:12:42.040 --> 0:12:45.480 this one doesn't count, you know, especially you know, especially Mark, 0:12:45.480 --> 0:12:46.839 when you think of this job market. We still have 0:12:46.920 --> 0:12:49.960 eleven million job openings in this country. You know, is 0:12:50.000 --> 0:12:56.280 it you know, two quarters of negative growth? Uh? Yeah, yeah, 0:12:56.320 --> 0:12:59.080 I mean it's worked in the past. It correlates very 0:12:59.080 --> 0:13:03.040 well with the decisions by the academics sitting on the 0:13:03.080 --> 0:13:05.959 Business Cycle Dating Committee of the National dar of Economic Research. 0:13:06.400 --> 0:13:08.760 But you know, GDP is like one thing they look 0:13:08.800 --> 0:13:10.120 at and I only even think at the top of 0:13:10.120 --> 0:13:12.080 the list of things that they look at, I mean, 0:13:12.160 --> 0:13:16.600 it's employment, it's income less transfer payments, it's manufacturing and 0:13:16.600 --> 0:13:19.319 trade sales. There's a lot, a lot of different indicators 0:13:19.360 --> 0:13:21.760 that they gave. They look at the gauge. What you know, 0:13:21.800 --> 0:13:24.600 whether this feels like saying, by the way, the way 0:13:24.600 --> 0:13:26.439 they define a recession, I think it's right now. I'm 0:13:26.440 --> 0:13:28.000 gonna paraphrase, so I don't got I don't know the 0:13:28.000 --> 0:13:30.280 wording exactly right, but don't get the get the gist 0:13:30.320 --> 0:13:36.120 of it. It's a broad based, persistent decline in economic activity. 0:13:36.240 --> 0:13:39.640 Lots of wiggle room there in that definition. No, I 0:13:39.679 --> 0:13:41.800 don't what we experienced the first half of the years 0:13:41.880 --> 0:13:44.400 that is not a recession. I mean, can't create were 0:13:44.400 --> 0:13:46.720 creating what we created four or five a dozen jobs 0:13:46.720 --> 0:13:48.439 on average per month in the first half the year. 0:13:48.760 --> 0:13:51.360 And I think the if you look at layoffs, you know, 0:13:51.440 --> 0:13:54.880 as measured by a claims round employment insurance, I think 0:13:54.880 --> 0:13:56.640 that's at a record law in the first half of 0:13:56.679 --> 0:13:58.880 the year. I mean, it's just that's not a recession. 0:13:59.160 --> 0:14:01.120 And I don't think they'll call not that, you know, 0:14:01.480 --> 0:14:03.880 a recession isn't dead ahead that you know, obviously there's 0:14:03.920 --> 0:14:05.760 a lot of risk, but that what we've experienced so far, 0:14:05.880 --> 0:14:08.000 that's a non recession. And here's a here's an intrepid 0:14:08.040 --> 0:14:10.600 forecast for you. You have to ask me back, you know, 0:14:10.640 --> 0:14:12.240 five years from now. But once we get all the 0:14:12.320 --> 0:14:15.880 GDP revisions in and GDP gets revised, you know, it's 0:14:15.880 --> 0:14:19.120 an imprecise representation of reality like most data. But once 0:14:19.160 --> 0:14:21.760 it gets you know, revised with all of the data 0:14:21.800 --> 0:14:25.240 that comes available, my guess is, uh, these declines could 0:14:25.280 --> 0:14:30.000 get completely Q one. That decline may not get completely 0:14:30.080 --> 0:14:32.560 borrowsed away, but Q two, if we get a small decline, 0:14:32.720 --> 0:14:35.280 I'm guessing that gets revised away. I just don't think 0:14:35.320 --> 0:14:38.640 it's it's accurately representing what's going on. And there's a 0:14:38.680 --> 0:14:41.160 lot of reasons to suspect that, given that the pandemic 0:14:41.200 --> 0:14:44.480 has created havoc with you know, all the different economic 0:14:44.520 --> 0:14:46.880 statistics that we look at. Yeah, I also wonder, Mark, 0:14:46.960 --> 0:14:51.960 does it really matter whether Recession Dating Committee says yes, 0:14:52.000 --> 0:14:54.440 it's a recession, No it's not. You know what, what 0:14:54.480 --> 0:14:58.160 difference does it really make? Well, obviously makes a political 0:14:58.160 --> 0:15:03.480 difference that I mean, besides that, I'm just trying to 0:15:03.480 --> 0:15:06.760 think because there's some bond covenant somewhere that's triggered. You know, 0:15:06.800 --> 0:15:09.840 anything like that. I'm at a loss for you know, 0:15:10.960 --> 0:15:14.920 if whether there's a material distinction between well it feels 0:15:14.960 --> 0:15:19.000 like a recession and someone you know, rubber stamping and saying, yes, 0:15:19.040 --> 0:15:21.760 this is technically a recession. You know what I mean? Yeah, 0:15:21.800 --> 0:15:25.840 I mean policy probably, you know, policy probably if they 0:15:25.880 --> 0:15:28.320 come out if the business cycle dating committees that came 0:15:28.320 --> 0:15:31.240 out and said recession started in January, Uh, you know, 0:15:31.920 --> 0:15:35.920 that might uh light of fire under policy makers and 0:15:35.960 --> 0:15:38.600 they say, oh, maybe we need to do X, Y 0:15:38.680 --> 0:15:40.800 and z, so it might have some impact there. There 0:15:40.840 --> 0:15:43.000 are some interesting line up that you bring it up. 0:15:43.600 --> 0:15:48.600 There's efforts uh to codify where we are in the 0:15:48.640 --> 0:15:52.040 business cycle for different types of economic policy. So you know, 0:15:52.040 --> 0:15:54.440 for example, of unemployment rises by a certain amount over 0:15:54.400 --> 0:15:58.440 a certain period of time, then you automatically trigger you know, 0:15:58.800 --> 0:16:01.840 supplemental unemployment ssurance benefits or some other form of benefit. 0:16:02.080 --> 0:16:04.640 You know, we have these automatic whether we call automatic 0:16:04.680 --> 0:16:07.560 stabilizers in the federal budget, things that help the economy 0:16:07.600 --> 0:16:10.720 out when it's not doing well. But you could you 0:16:10.720 --> 0:16:14.080 could reinforce those out of automatic stabilizers by you know, 0:16:14.160 --> 0:16:17.520 pegging two recession dates or something like that. But that's 0:16:17.560 --> 0:16:19.640 not the case now. But you're right. I mean, you're 0:16:19.720 --> 0:16:24.440 right whether the recession began in March or April or May, 0:16:25.960 --> 0:16:28.360 you're right. I don't, I don't. It matters a whole 0:16:28.440 --> 0:16:31.440 lot to the in the grand scheme of things. So Mark, 0:16:31.480 --> 0:16:34.960 when you downgraded your GDP growth outlook, I think you 0:16:34.960 --> 0:16:37.760 said odds remain that the economic expansion will continue. And 0:16:37.800 --> 0:16:40.200 I wanted to ask you what specifically you were thinking there. 0:16:40.320 --> 0:16:42.880 Was it the jobs figures we were just talking about, 0:16:42.920 --> 0:16:46.400 or what goes into that thought? Well, bunch of stuff, 0:16:46.400 --> 0:16:49.040 But I'll name one thing. The thing that that that 0:16:49.120 --> 0:16:53.400 I take the most soulless in is that, in my mind, 0:16:54.160 --> 0:16:58.640 the firewall between a continuing growing economy and a recession 0:16:58.720 --> 0:17:01.960 is the American consumer. American consumer hanks tough, just do 0:17:02.160 --> 0:17:04.400 their part, you know, spend like they've always been spending, 0:17:05.320 --> 0:17:07.520 will avoid a recession. And by the way, if the 0:17:07.520 --> 0:17:10.800 American consumers hanks tough, they'll they'll keep the global economy 0:17:10.840 --> 0:17:12.560 moving forward as well. You know, some parts of the 0:17:12.560 --> 0:17:15.000 global economy will go in but you know, the US 0:17:15.080 --> 0:17:17.639 consumers kind of driving the train, right now. And if 0:17:17.680 --> 0:17:20.600 you look at the American consumer and pretty good chick. 0:17:20.600 --> 0:17:23.040 I mean, obviously they're getting hammered by the high inflation 0:17:23.600 --> 0:17:25.119 right now, but you know they've got a lot of 0:17:25.160 --> 0:17:27.560 excess saving they built up during the pandemic, and just 0:17:27.680 --> 0:17:31.159 cross all income groups. For the typical American household, by 0:17:31.240 --> 0:17:35.479 my calculation, they as of June had seven eight thousand 0:17:35.480 --> 0:17:38.840 dollars and excess savings. So if I'm paying five more 0:17:38.840 --> 0:17:41.800 a month for the for the higher inflation, and I 0:17:41.840 --> 0:17:43.919 have seven eight thousand dollars in nextless saving, you can 0:17:43.920 --> 0:17:46.880 do the arithmetic. That buys me a little bit of time, right, 0:17:47.000 --> 0:17:50.720 I can use that excess saving to supplement my income 0:17:50.760 --> 0:17:54.600 to compensate to offset the ill effects of the high inflation. 0:17:55.119 --> 0:17:58.000 That is low, That service burdens are about as low 0:17:58.040 --> 0:18:01.240 as they've ever been. That services, what share people's income 0:18:01.320 --> 0:18:04.959 is going to servicing their debt, interest payments, principal payments. 0:18:04.960 --> 0:18:07.720 That's pretty close to a record low. People have locked 0:18:07.720 --> 0:18:11.840 in the previously low record interest rates through refinancing way, 0:18:11.880 --> 0:18:14.920 so they're very insulated from the higher rates. The stock 0:18:14.960 --> 0:18:18.320 prices are down, but house prices are up. People are 0:18:18.359 --> 0:18:22.200 wealthier today, particularly middle American households are more wealthy today 0:18:22.280 --> 0:18:24.000 than they were a year ago, and a lot more 0:18:24.040 --> 0:18:26.120 wealthy than they were three or five, ten years ago. 0:18:26.200 --> 0:18:28.560 So I can go on. But that just gives me 0:18:28.640 --> 0:18:32.640 a sense that the consumers are gonna they're gonna hang tough, uh, 0:18:32.680 --> 0:18:34.960 and they're gonna continue and just not They're not gonna 0:18:35.080 --> 0:18:37.280 They're not gonna spend with abandoned they haven't been doing that. 0:18:37.840 --> 0:18:41.000 But if they just simply spend at a rate that 0:18:41.080 --> 0:18:45.320 they have consistently done in recent history pre pandemic, uh 0:18:45.320 --> 0:18:48.200 and up and through the pandemic, I think we should 0:18:48.200 --> 0:18:50.480 be able to get through this without you know, going 0:18:50.480 --> 0:18:53.119 into a full blown recession. So number that's at the 0:18:53.200 --> 0:18:56.080 very top of the tippity top of reasons. Why you know, 0:18:56.119 --> 0:18:59.520 I'm still saying when I say that with intrepidation, I 0:18:59.560 --> 0:19:03.240 don't want to sound Pollyannish. Obviously, my recession odds are 0:19:03.560 --> 0:19:07.520 pretty high, uncomfortably high. But but nonetheless, I you know, 0:19:07.680 --> 0:19:10.000 that gives me some confidence that you know, again, with 0:19:10.040 --> 0:19:11.560 a little bit of luck on the pandemic and the 0:19:11.600 --> 0:19:14.800 Russian invasion and some death policymaking, we come make we 0:19:14.800 --> 0:19:17.560 can make our way through without an actual recession. Yeah, 0:19:17.560 --> 0:19:20.280 I think you're from the note I read, your recession 0:19:20.280 --> 0:19:23.879 probability is like in the next twelve months, in the 0:19:23.880 --> 0:19:26.119 next twenty four months. You know, if you look at 0:19:26.119 --> 0:19:29.200 like a recession probability index that is that's alarmingly high. 0:19:29.240 --> 0:19:32.760 You know, they get that. I mean, I'm very and 0:19:32.840 --> 0:19:34.960 I again I go back to the sentiment, it's just 0:19:35.400 --> 0:19:40.679 very very dark consumers. You saw the small business UH 0:19:41.000 --> 0:19:43.720 survey from the National feuure at Fish Independent Business. I 0:19:43.720 --> 0:19:46.720 think that did that hit a kind of all time lower, 0:19:46.760 --> 0:19:49.280 pretty close lower than even the teeth of the pandemic. Yeah, 0:19:49.280 --> 0:19:51.200 it's very low. I don't know if it hit the record, 0:19:51.200 --> 0:19:53.840 but yeah, yeah, it's say, are you guys feeling it's well, 0:19:53.920 --> 0:19:57.880 let's say the the vibes recession? I think I like that. 0:19:58.040 --> 0:20:07.760 Have you heard that vibes recently? Mark? I wanted to 0:20:07.760 --> 0:20:10.320 get back to that. You know, you you touched on 0:20:10.600 --> 0:20:15.080 the home price that this amazing acceleration in home prices 0:20:15.119 --> 0:20:19.760 we've seen over the last uh two years. Um. Obviously, 0:20:19.760 --> 0:20:23.520 everyone I've talked to UH says, well, housing cool off. 0:20:24.160 --> 0:20:27.000 The financial systems on much better footing than it was 0:20:27.080 --> 0:20:31.000 in the days of subprime liar loans and whatnot, and 0:20:31.000 --> 0:20:33.920 and this you know, structured finance that got out of 0:20:33.960 --> 0:20:37.160 control in the in the mortgage market. But I can't 0:20:37.160 --> 0:20:40.879 help but wonder if we are in for a pretty 0:20:40.960 --> 0:20:45.080 nasty cooling off of the housing market. Um. And given 0:20:45.160 --> 0:20:48.600 its importance to your point to sort of household net worth, 0:20:48.880 --> 0:20:51.600 to the labor market, when you're talking about uh, new 0:20:51.640 --> 0:20:54.920 home construction, to the retail market, when you're talking about 0:20:54.920 --> 0:20:58.520 people buying and selling homes and and doing uh home 0:20:58.560 --> 0:21:02.880 improvement projects, it should such an important component of the economy. 0:21:03.040 --> 0:21:05.600 What what does housing look like to you in the 0:21:05.640 --> 0:21:08.720 next year too, um? And sort of what are the 0:21:08.720 --> 0:21:12.359 potential ripple effects of it? Uh, potentially cooling off on 0:21:12.400 --> 0:21:14.520 the rest of the economy. Oh no, it might gets 0:21:14.560 --> 0:21:19.080 cooling off. It's going into deep freeze pretty fast here. Uh. 0:21:19.280 --> 0:21:22.760 You know, mortgage rates at just north of or just 0:21:22.840 --> 0:21:25.080