WEBVTT - Is the US Economy Dangerously Dependent on the Rich? 0:00:02.720 --> 0:00:07.200 Bloomberg Audio Studios, Podcasts, radio news. 0:00:17.239 --> 0:00:20.040 I'm Stephanie Flanders, head of Government and Economics at Bloomberg, 0:00:20.079 --> 0:00:22.560 and this is Trumps, the podcast that looks at the 0:00:22.600 --> 0:00:25.800 economic world of Donald Trump, how he's shaking up the 0:00:25.800 --> 0:00:28.960 global economy and what on earth is going to happen next. 0:00:29.360 --> 0:00:32.280 And this week we're finally talking about the K shaped economy. 0:00:32.440 --> 0:00:34.560 And I say finally, I mean it's a phrase that's 0:00:34.560 --> 0:00:37.360 been with us since at least COVID times, and you 0:00:37.440 --> 0:00:40.680 find increasingly often in the debates about the US economy. 0:00:41.080 --> 0:00:43.400 One reason we haven't talked about it until now is 0:00:43.600 --> 0:00:45.519 I can't decide what I think about it. On the 0:00:45.560 --> 0:00:48.880 one hand, the basic idea that wealthier people are thriving 0:00:49.280 --> 0:00:52.600 in today's economy while the poorer segments are doing worse 0:00:52.640 --> 0:00:56.080 and worse seems to capture how many people feel about 0:00:56.080 --> 0:01:00.320 the US recovery and about the way the world's going. 0:01:00.640 --> 0:01:03.720 More and more the rich seem to lead different lives 0:01:03.760 --> 0:01:05.800 from the rest of the population. There was a very 0:01:05.840 --> 0:01:09.360 striking episode of the New York Times Daily podcast looking 0:01:09.400 --> 0:01:12.120 at how even going to Disney World was no longer 0:01:12.160 --> 0:01:14.800 easily in reach for many middle class families and when 0:01:14.800 --> 0:01:16.839 they did go, they felt they had a very different 0:01:16.880 --> 0:01:20.400 experience from those with much deeper pockets who were jumping 0:01:20.400 --> 0:01:22.840 all the lines and all of that, and that did 0:01:22.880 --> 0:01:27.000 seem to capture something about the increasingly stratified nature of 0:01:27.160 --> 0:01:31.240 US society and of its consumption patterns. But and this 0:01:31.360 --> 0:01:33.959 is the key part for trumponomics, people who talk about 0:01:34.000 --> 0:01:36.560 the K shaped economy usually aren't just saying that the 0:01:36.680 --> 0:01:40.240 US is very unequal, but that it's getting more unequal 0:01:40.440 --> 0:01:43.839 in its wealth distribution and consumption as the economy grows, 0:01:43.920 --> 0:01:47.560 and that the recovery itself is increasingly dependent on the 0:01:47.640 --> 0:01:52.160 richest and therefore more vulnerable or lopsided than usual. So 0:01:52.240 --> 0:01:54.560 it's not just that it's sort of unappealing or maybe 0:01:54.640 --> 0:01:57.240 unfair that we have all this inequality, but that it's 0:01:57.240 --> 0:01:59.800 actually sort of risky for the economy. And it may 0:01:59.840 --> 0:02:03.760 be also explains why or suggests that the macroeconomic data 0:02:03.800 --> 0:02:06.600 that we're looking at doesn't tell the whole story of 0:02:06.600 --> 0:02:09.120 what's going on on the ground. It's all of that 0:02:09.120 --> 0:02:11.120 that I want to try and get into in a 0:02:11.200 --> 0:02:14.080 relatively short time, because I think it matters if any 0:02:14.160 --> 0:02:17.440 or all of that is true. Mark Zandy I'm very 0:02:17.440 --> 0:02:19.760 glad is joining us for this. He's chief economist at 0:02:19.760 --> 0:02:23.440 Moody's Analytics and one of the economists who's been perhaps 0:02:23.639 --> 0:02:27.400 more associated with this extremely buzzy phrase, and he has 0:02:27.440 --> 0:02:30.120 written recently in his research notes about how the economy 0:02:30.120 --> 0:02:33.200 has become steadily more case shaped. Mark, thank you very 0:02:33.280 --> 0:02:34.600 much for joining us. I think this is the first 0:02:34.639 --> 0:02:35.359 time we've had. 0:02:35.240 --> 0:02:36.800 You buzzy phrase. 0:02:39.760 --> 0:02:43.919 You're a very buzzy economist. I would say you specialize 0:02:43.919 --> 0:02:46.760 in buzziness and busyness. 0:02:46.760 --> 0:02:47.760 I'm sure there you go. 0:02:48.360 --> 0:02:51.200 We have another person making his trumpanomic's debut who's only 0:02:51.240 --> 0:02:56.400 recently joined Bloomberg Economics US team, Andrew Sacker. He's previously 0:02:56.480 --> 0:02:58.960 worked at senior levels at Jordan Park Advisors and the 0:02:58.960 --> 0:03:02.720 Managed funds associated pen Warton Budget Model, and a long 0:03:02.760 --> 0:03:05.720 time ago also the National Economic Council. Andrew, thank you 0:03:05.800 --> 0:03:06.440 for joining us. 0:03:06.680 --> 0:03:07.480 Thank you, Stephanie. 0:03:10.840 --> 0:03:11.120 Mark. 0:03:11.520 --> 0:03:13.720 You heard my sort of spiel there about the K 0:03:13.919 --> 0:03:18.359 shaped economy? Would you say that sort of stronger claim 0:03:18.440 --> 0:03:21.040 not just that the US is very unequal and rich 0:03:21.080 --> 0:03:24.120 people spend a lot more than poor people. Do you 0:03:24.160 --> 0:03:27.640 think that this K shaped narrative does tell us something 0:03:28.400 --> 0:03:30.880 valuable and important about this recovery. 0:03:31.680 --> 0:03:35.520 I do you know, I think the income wealth distribution, 0:03:35.680 --> 0:03:39.120 the consumption distribution is very skewed and has become more skewed, 0:03:39.680 --> 0:03:42.480 particularly most recently with the run up in the equity market, 0:03:42.480 --> 0:03:45.120 the stock market because owner the ownership of stocks is 0:03:45.200 --> 0:03:48.960 very narrowly focused, and that is driving a lot of 0:03:49.760 --> 0:03:52.200 what's going on with regard to consumer spending and the 0:03:52.200 --> 0:03:55.840 broader economy. As a plus in that we're getting the 0:03:55.880 --> 0:03:58.840 spending and we need it to drive growth, but it 0:03:58.920 --> 0:04:02.120 also highlights vulnerability in the economy, and that is it's 0:04:02.200 --> 0:04:05.960 very dependent on the well to do and the wealth 0:04:05.960 --> 0:04:08.160 to do is very are very dependent on what's going 0:04:08.160 --> 0:04:10.560 on in the equity market. So if the equity market 0:04:10.640 --> 0:04:14.120 keeps going north, then all is okay, at least in 0:04:14.160 --> 0:04:17.440 the near term. But if it goes south, the stock 0:04:17.520 --> 0:04:19.320 market has a pension for going up and it has 0:04:19.320 --> 0:04:22.240 a pension for going down. That could be a problem, 0:04:22.400 --> 0:04:26.760 particularly in the current context with lower mill income households 0:04:26.839 --> 0:04:30.520 under significant financial pressure for lots of different reasons, most 0:04:30.560 --> 0:04:32.960 recently being the Iran War and the impact that's having 0:04:33.000 --> 0:04:36.160 on prices for everything that they need. You know, we're 0:04:36.400 --> 0:04:38.320 really focused on the here and now in the very 0:04:38.360 --> 0:04:41.719 near term, but longer run, I think the skewing of 0:04:41.760 --> 0:04:47.240 the income wealth consumption distribution has other broader implications we 0:04:47.279 --> 0:04:49.400 need to think about in terms of, you know, our 0:04:49.440 --> 0:04:53.679 societal ills or political fracturing. And that's all before AI 0:04:53.839 --> 0:04:55.840 kicks into any kind of gear here. So yeah, I 0:04:55.880 --> 0:04:59.280 think this is an important topic and has lots of implications. 0:04:59.480 --> 0:05:01.640 I want to get into several of those, I guess, 0:05:01.680 --> 0:05:03.640 just to establish some of the facts, and I don't 0:05:03.640 --> 0:05:05.159 want to get too caught up in sort of you 0:05:05.200 --> 0:05:11.280 know them terminological trumponomics, which facts, Okay, trumponomics is about 0:05:11.320 --> 0:05:14.400 a state of the world. We're not endorsing any particular 0:05:14.480 --> 0:05:16.960 kind of economics. I think there has been a lot 0:05:16.960 --> 0:05:19.400 of debate. I think you were associated with a sort of, 0:05:19.480 --> 0:05:22.479 you know, a quite dramatic statistic about what share of 0:05:22.680 --> 0:05:26.920 spending was now associated with the top ten percent, and 0:05:26.960 --> 0:05:28.200 there's been a sort of a lot of back and forth. 0:05:28.279 --> 0:05:30.200 We're talking about my estimates. The reason why we were 0:05:30.240 --> 0:05:32.520 having all this debate is that there is no definitive 0:05:32.560 --> 0:05:35.359 source of data here, right, There is no smoking gun 0:05:35.440 --> 0:05:37.880 data point we can all point to and coalesce around 0:05:38.240 --> 0:05:41.960 so we're all looking at different data constructing different estimates. 0:05:42.560 --> 0:05:45.560 And I've constructed an estimate with my colleagues that is 0:05:45.600 --> 0:05:48.719 based on a methodology that was first unveiled by the 0:05:48.720 --> 0:05:51.760 throwers or back and the Internet bubble, and used quite 0:05:52.440 --> 0:05:56.480 extensively during the housing bubble because that was another period 0:05:56.520 --> 0:05:59.840 when we're seeing tremendous wealth effect. So it's just an estimate, 0:06:00.040 --> 0:06:01.279 and I, you know, I'm not going to die on 0:06:01.320 --> 0:06:04.960 the hill on that hill. I just created the estimate 0:06:05.000 --> 0:06:08.360 because we need to get some sense of the numbers here. 0:06:08.640 --> 0:06:11.960 Whether the numbers are precisely right, I don't know, but 0:06:12.080 --> 0:06:16.960 I think directionally and spiritually they're telling us the reality. 0:06:17.000 --> 0:06:19.200 And just to give you the kind of the headline number, 0:06:19.640 --> 0:06:22.560 going back to the buzzy, the buzziness of all this, 0:06:23.279 --> 0:06:26.240 the folks in the top twenty percent of the income distribution, 0:06:27.320 --> 0:06:29.799 and to be in that top twenty percent nationwide, you 0:06:29.800 --> 0:06:31.400 need to make one hundred and seventy five K. I 0:06:31.440 --> 0:06:33.640 know that doesn't sound a whole lot, like a lot 0:06:33.680 --> 0:06:41.520 in London or in New York, but that's a big deal. Yeah, okay, 0:06:41.640 --> 0:06:44.360 very good. So you know, if your makeover one seventy 0:06:44.400 --> 0:06:47.240 five K you're in the top twenty percent. You account 0:06:47.279 --> 0:06:49.760 for sixty percent of personal outlays, and that's up from 0:06:49.800 --> 0:06:53.400 fifty percent back in the early nineties. So that's a 0:06:53.400 --> 0:06:57.640 pretty striking number. Is it exactly that number, Well, I'm 0:06:57.720 --> 0:07:01.200 not sure, but it's a big number, and I'm pretty 0:07:01.200 --> 0:07:05.599 confident that it's been increasing and most recently increasing because 0:07:06.000 --> 0:07:10.960 the obvious the stock market has gone skyward, sending wealth stratospheric, 0:07:11.520 --> 0:07:13.920 and we know that the bottom two thirds of the 0:07:13.920 --> 0:07:16.000 American population don't own a whole lot of stock of 0:07:16.080 --> 0:07:18.280 any stock. It's really the top third, and really the 0:07:18.320 --> 0:07:20.120 top twenty percent, in the top ten percent, and the 0:07:20.160 --> 0:07:22.480 top one percent, the top point one percent. So we 0:07:22.600 --> 0:07:25.480 know this for sure, and that's where the action is, 0:07:25.480 --> 0:07:27.760 and that wealth is driving spending and we can feel it. 0:07:27.840 --> 0:07:29.720 You can see it. You can see it, and you 0:07:29.760 --> 0:07:32.600 know how retailer is doing, which retailers doing good well, 0:07:32.640 --> 0:07:35.240 which retailers aren't doing well. So I think it's it's 0:07:35.240 --> 0:07:37.800 pretty and you can see in the consumer sentiment surveys 0:07:37.800 --> 0:07:40.520 and the polls and everything. I mean, it's we don't 0:07:40.520 --> 0:07:43.080 have a data point that says this is the precise number, 0:07:43.120 --> 0:07:45.760 but everything but that data point is screaming, we got 0:07:46.040 --> 0:07:47.040 this is what's going on. 0:07:47.600 --> 0:07:49.120 I want to get into that because I think it's 0:07:49.160 --> 0:07:52.880 as important as the exact facts. Is this sort of 0:07:52.920 --> 0:07:55.560 the fact that everyone believes it, because that also affects 0:07:55.600 --> 0:07:56.880 behavior because it's true. 0:07:57.000 --> 0:07:58.560 I mean, it's not there making this up. 0:07:58.680 --> 0:08:00.320 I mean, come on, okay, So I think get that 0:08:00.480 --> 0:08:03.280 upper end. We can have a debate about what the 0:08:03.320 --> 0:08:05.760 exact share is, but there's clearly a large share. I 0:08:05.800 --> 0:08:08.480 think the BLS suggested it's maybe closer to forty percent, 0:08:08.480 --> 0:08:09.880 but you know, there's clearly a large share of the 0:08:09.880 --> 0:08:14.280 economy is associated with a relatively small highest income part 0:08:14.920 --> 0:08:17.360 at the lower end. Though, you have had this debate 0:08:17.480 --> 0:08:23.600 since COVID about whether or not real wages, even adjusted 0:08:23.640 --> 0:08:28.440 for their consumption patterns of the lower twenty forty percent 0:08:28.480 --> 0:08:31.600 of the population have kept up with this inflation we've seen. 0:08:31.920 --> 0:08:33.760 I want to bring in Andrew here. I mean, when 0:08:33.760 --> 0:08:37.240 you just look at the sort of the wage picture, 0:08:37.440 --> 0:08:42.320 which defines this affordability debate, certainly, from twenty nineteen to 0:08:42.360 --> 0:08:46.000 twenty fourteen, seemed like real wages have been keeping up 0:08:46.080 --> 0:08:50.240 with this inflation and even have seen some growth, even 0:08:50.240 --> 0:08:52.200 though the cost of sort of day to day items 0:08:52.240 --> 0:08:53.960 has gone up a lot, Is that right? Andrew? 0:08:54.360 --> 0:08:55.920 Oh, can I just let me just weigh in on 0:08:55.960 --> 0:08:58.000 there before Andrew comes? Sorry, Andrew, I just got out, 0:08:58.960 --> 0:09:03.679 can't resist. That's true. You know, we're focused on the distribution, 0:09:03.880 --> 0:09:06.840 and that's what you just articulated. And that's very true. 0:09:07.120 --> 0:09:10.560 The wealth distribution bottom through the American population. They don't 0:09:10.600 --> 0:09:13.120 own anything. They owe stuff, but they are in the 0:09:13.160 --> 0:09:14.920 middle part of the distribution. They own homes, they do 0:09:14.920 --> 0:09:15.400 own stock. 0:09:15.480 --> 0:09:18.000 But that's completely true. But this is but it's an 0:09:18.000 --> 0:09:21.040 example of something that people feel equally strongly is true 0:09:21.120 --> 0:09:23.440 and actually it's just not in the data. People feel 0:09:23.480 --> 0:09:26.720 that their wages have not kept up, even though everything 0:09:26.720 --> 0:09:28.079 in the data suggests that they have. 0:09:28.320 --> 0:09:31.720 Actually in the last year, it hasn't, right, I mean, 0:09:31.800 --> 0:09:34.520 it has not right. The data now say the real 0:09:34.559 --> 0:09:36.319 wages aren't rising for the folks in the bottom part 0:09:36.320 --> 0:09:40.439 of the distribution. In fact, real after tax income, so 0:09:40.480 --> 0:09:44.920 that's after inflation, after tax income has gone nowhere in 0:09:45.000 --> 0:09:47.200 the past year. And that's for the typical America in 0:09:47.200 --> 0:09:50.360 the middle of the distribution. So we know that real 0:09:50.480 --> 0:09:52.520 after tax income for people in the bottom half of 0:09:52.520 --> 0:09:55.400 the institution is probably falling, you know, at this point, 0:09:55.520 --> 0:09:56.720 so we know that for sure. 0:09:57.000 --> 0:09:59.520 And then at the bottom of the distribution, also the 0:10:00.000 --> 0:10:03.480 spending is a higher share of their income, so any 0:10:03.760 --> 0:10:06.559 inflation or you know, particularly gas prices is going to 0:10:06.920 --> 0:10:10.120 hit them harder. Having said that, how do you think 0:10:10.160 --> 0:10:14.320 about the sort of the medium term impact of AI 0:10:14.559 --> 0:10:18.800 where it would seem that people at the higher end 0:10:18.800 --> 0:10:20.280 of the distribution have more to fear. 0:10:20.600 --> 0:10:25.079 I don't know. I'm not sure. Like everything related to AI, 0:10:25.679 --> 0:10:29.920 I'm unsure. I'm uncertain. This can play on a gazillion 0:10:29.960 --> 0:10:33.920 different ways. You know, it feels like the workers that 0:10:33.960 --> 0:10:37.320 are most likely to be substituted out aren't the folks 0:10:37.360 --> 0:10:41.040 at the top, the highly skilled and with lots of 0:10:41.080 --> 0:10:44.320 experience they're going to be empowered by AI. It's really 0:10:45.320 --> 0:10:47.480 kind of folks in the middle part of the distribution, 0:10:48.000 --> 0:10:52.200 entry level, college educated with lesser experience. I should say, 0:10:52.360 --> 0:10:55.880 that's where it feels like the substitute ability is going 0:10:55.920 --> 0:10:58.040 to be most significant for the folks in the top part. 0:10:58.360 --> 0:11:03.199 It feels like a complimentute. So my intuition, my sense 0:11:03.320 --> 0:11:06.280 is that it's not going to hurt folks in the 0:11:06.400 --> 0:11:09.520 very bottom part of the distribution. It's going to benefit 0:11:09.520 --> 0:11:11.240 that folks in the top part of the distribution. The 0:11:11.360 --> 0:11:12.839 real pressure is going to be in the middle part 0:11:12.840 --> 0:11:14.840 of the distribution. But I say that with no confidence 0:11:14.880 --> 0:11:16.719 because there's just so many moving parts here. 0:11:16.760 --> 0:11:18.280 I suspect we'll go down the black hole if we 0:11:18.320 --> 0:11:20.080 think about it. Yeah, we'll try not to think about 0:11:20.080 --> 0:11:22.840 a just one episode. Not thinking about it. 0:11:23.080 --> 0:11:26.880 I will say though, for the next six, twelve, eighteen months, 0:11:27.200 --> 0:11:31.280 that is less relevant I think. I mean, clearly that's 0:11:31.280 --> 0:11:33.800 a big deal dead ahead, but I don't know that 0:11:33.800 --> 0:11:35.480 that's a bigger deal you know, through the ind of 0:11:35.480 --> 0:11:37.520 the year and through twenty twenty seven. That's going to 0:11:37.520 --> 0:11:39.840 play out for a longer period of time. I would think. 0:11:51.520 --> 0:11:53.080 So, Andrew. One of the reasons I want to have 0:11:53.120 --> 0:11:54.640 you on is that we were sort of playing around 0:11:54.640 --> 0:11:56.240 with this idea how much we thought was true. We 0:11:56.600 --> 0:11:59.760 all agree that this element of capital income and the 0:11:59.800 --> 0:12:02.320 pciation of the higher end, the people who own shares 0:12:02.360 --> 0:12:04.959 doing extraordinary well, and how that's driving a lot spending. 0:12:05.480 --> 0:12:08.880 But it is interesting some of the things that feel 0:12:08.960 --> 0:12:11.000 true so far we haven't been able to get data on. 0:12:11.040 --> 0:12:15.280 And you've been looking at the earnings and sales of 0:12:16.240 --> 0:12:19.720 stores that sort of sell to different segments of the 0:12:19.760 --> 0:12:20.480 income scale. 0:12:20.880 --> 0:12:26.000 Yeah, so we use the asp Bloomberg function and sorted 0:12:26.559 --> 0:12:30.960 the retailers into sort of mid range, low end like 0:12:31.000 --> 0:12:34.480 the Dollar Generals, and high end like Lulu Lemon, And 0:12:34.600 --> 0:12:37.360 over the last few years the sort of revenue growth 0:12:37.559 --> 0:12:41.480 was roughly the same in all three buckets. Mister, do 0:12:41.520 --> 0:12:43.520 you see something very different. 0:12:43.440 --> 0:12:50.600 Please call me. Mark. Sounds so forrrible. I know I'm 0:12:50.640 --> 0:12:54.240 getting older though, maybe that's what it is when you 0:12:54.280 --> 0:12:58.520 have no hair called mister more often. You know, I 0:12:58.520 --> 0:13:00.800 haven't looked at it as carefully as you, Andrew. My 0:13:00.960 --> 0:13:05.880 sense is listening to retailers, and it's all it's more anecdotal. Obviously. 0:13:06.400 --> 0:13:10.720 The folks that are the retailers are catering to the wealthier. 0:13:10.760 --> 0:13:14.320 They're doing quite well. And it goes beyond retail. When 0:13:14.360 --> 0:13:16.600 I think about it, I think about homebuilders, I think 0:13:16.600 --> 0:13:20.720 about vehicle sales, you know, I think more broadly about 0:13:20.760 --> 0:13:23.440 what people are spending their money on travel. Folks in 0:13:23.480 --> 0:13:25.679 the middle part of retailers that kind of cater to 0:13:25.720 --> 0:13:28.040 the middle and lower part, it's more difficult. It's been 0:13:28.200 --> 0:13:30.800 more of a slog. The lower end It's a little 0:13:30.800 --> 0:13:33.520 bit complicated, right, because you can see trading down right, 0:13:33.600 --> 0:13:36.360 because people in the middle part might be under a 0:13:36.400 --> 0:13:39.240 lot of pressure, and so they start shopping at low 0:13:39.320 --> 0:13:41.880 end retailers like a Dollar General. So it's hard to know, 0:13:42.160 --> 0:13:45.120 you know, exactly what the dynamics are there. We get 0:13:45.160 --> 0:13:47.920 all the credit files in the country from Equifax every month. 0:13:48.000 --> 0:13:48.480 I've got a. 0:13:48.600 --> 0:13:52.720 Census of all the credit files and anonymized obviously through 0:13:52.760 --> 0:13:55.000 May of this year. So it's a high quality data. 0:13:55.080 --> 0:13:58.840 Can't get any better than that data, and it's showing stress. 0:13:58.920 --> 0:14:03.280 I mean, if you're subprime borrower origination, and I talked 0:14:03.400 --> 0:14:05.520 I define subprime. There's a lot of debata as to 0:14:05.559 --> 0:14:09.520 what's subprime, but I defined subprime is below six sixty score. 0:14:10.040 --> 0:14:12.240 The typical American has a score that's kind of just 0:14:12.280 --> 0:14:15.040 over seven hundred, like seven ten, seven twenty, just for context, 0:14:15.040 --> 0:14:18.480 So if you're really six sixty. The delinquency rate, that's 0:14:18.480 --> 0:14:21.560 the percent of all loans outstandings that's across the whole 0:14:21.560 --> 0:14:24.760 shooting match, you know, that's cards and auto, consumer finance 0:14:24.840 --> 0:14:27.640 by now pay later, mortgage, so forth, and so on, 0:14:28.320 --> 0:14:32.160 is now over ten percent, and it's the highest it's 0:14:32.200 --> 0:14:36.640 been since twenty fourteen in the direction of travel is 0:14:36.680 --> 0:14:40.480 not very comforting. It's moving straight up. This is through May, 0:14:40.520 --> 0:14:43.320 and of course through May, everyone's getting tax refunds, big 0:14:43.360 --> 0:14:46.960 tax refunds because of the OBBA legislation, and that you 0:14:47.040 --> 0:14:49.720 know generally historically that goes to paying credit card debt 0:14:49.760 --> 0:14:53.240 and keeping current on your debt. So despite that, we've 0:14:53.280 --> 0:14:56.560 had this delinquency rate rise, and those taxi funds are 0:14:56.600 --> 0:14:59.040 now behind us, they're in the review mirror, and so 0:14:59.120 --> 0:15:01.360 we're and we're still with four dollars and fifty cents 0:15:01.360 --> 0:15:03.640 for a gallon of regular unleaded. It feels like that 0:15:03.720 --> 0:15:07.720 might even go higher at given events. So that's real data, 0:15:08.040 --> 0:15:11.240 and that's saying to me that you know, these folks 0:15:11.240 --> 0:15:13.200 are under a lot of stress, and consistent with the 0:15:13.480 --> 0:15:17.040 with the observation that retailers that are carrying to the 0:15:17.120 --> 0:15:19.120 folks in the bottom middle parts of the distribution have 0:15:19.160 --> 0:15:20.720 got a tougher time than the folks that are carrying 0:15:20.720 --> 0:15:21.920 to the top part of the distribution. 0:15:22.040 --> 0:15:24.120 And actually, just to your point on the tax refunds, 0:15:24.120 --> 0:15:27.320 with a few weeks into the Iran crisis, the US 0:15:27.400 --> 0:15:31.120 Economics team had of telling the analysis which showed that 0:15:31.520 --> 0:15:34.960 even by that point, all the benefit of those refunds 0:15:35.040 --> 0:15:37.560 was going to be completely offset by the impact on 0:15:38.480 --> 0:15:41.680 incomes of those high higher gas prices, and we've obviously 0:15:41.720 --> 0:15:45.240 seen that continue even longer than we originally expected. Andrew, 0:15:45.400 --> 0:15:48.560 that's the piece of this that we think is most 0:15:49.200 --> 0:15:52.040 relevant on the K shaped aspect. If you're thinking about 0:15:52.080 --> 0:15:56.440 those assets that people have, the real difference between one side, 0:15:56.520 --> 0:15:58.480 you know, whether it's K or whether it's E. You know, 0:15:58.680 --> 0:16:01.760 the difference between the higher end in this kind of 0:16:01.840 --> 0:16:03.920 environment and the lower end is the higher end, you know, 0:16:04.000 --> 0:16:06.360 they're hit by higher gas prices, they don't necessarily have 0:16:06.400 --> 0:16:08.840 to reduce their consumption. They have things to fall back on, 0:16:09.040 --> 0:16:11.600 whereas it's going to have a much bigger impact on 0:16:12.200 --> 0:16:13.920 those in the lower part of the distribution. 0:16:14.440 --> 0:16:19.200 Absolutely, and then with the they have ten percent more EXTI, 0:16:19.360 --> 0:16:23.320 they have stocks in their portfolio than they did six 0:16:23.360 --> 0:16:23.800 months ago. 0:16:24.600 --> 0:16:27.400 In terms of the sort of macroeconomic impact, how does 0:16:27.440 --> 0:16:32.480 that feed into when we're thinking about the forecast for 0:16:33.040 --> 0:16:37.120 the next year or so, Given this hit, but different 0:16:37.120 --> 0:16:40.760 parts of the economy reacting differently, does that make it 0:16:40.840 --> 0:16:42.840 harder for us to forecast the economy or is it 0:16:42.840 --> 0:16:44.080 something we just have to look through. 0:16:44.480 --> 0:16:49.120 I think the volatility in stocks and acid prices obviously 0:16:49.560 --> 0:16:52.400 makes the forecast more difficult. But at the same time, 0:16:52.560 --> 0:16:58.320 people very much smooth and damp their responses to sudden moves. It's, 0:16:58.920 --> 0:17:00.400 you know, just part of the game what they we 0:17:00.400 --> 0:17:02.280 always have to deal with, Mark. 0:17:02.320 --> 0:17:04.359 I know you write quite a lot about Kevin Walsh 0:17:04.400 --> 0:17:06.720 and how he's you know, the kind of FED that 0:17:06.760 --> 0:17:09.360 he may lead and the policy that's appropriate for him. 0:17:09.960 --> 0:17:11.960 Does any of this change the way the FED should 0:17:11.960 --> 0:17:14.679 think about the economy and think about whether or not 0:17:14.760 --> 0:17:18.360 the macro data it's looking at is an appropriate thing 0:17:18.400 --> 0:17:20.560 to focus on when it comes to policy. 0:17:21.240 --> 0:17:24.040 Not first order, right, I mean first order, what's going 0:17:24.080 --> 0:17:26.280 on with the economy, But what is the mandate? The 0:17:26.359 --> 0:17:29.040 dual mandate? You know, am I full employment or how 0:17:29.040 --> 0:17:32.359 close am I? And what about inflation and inflation expectations 0:17:32.960 --> 0:17:35.080 all this other stuff we've been talking about. Obviously they're 0:17:35.119 --> 0:17:38.760 critical to both those mandates, but you know they're more 0:17:38.800 --> 0:17:42.560 second third order kind of things. First order, you know. 0:17:42.600 --> 0:17:47.000 There it's all very confusing with regard to what should 0:17:47.040 --> 0:17:50.199 be done here. I mean, the economy is soft in 0:17:50.280 --> 0:17:54.600 my humble opinion, job growth is very weak, even despite 0:17:54.680 --> 0:17:59.600 the slow labor force growth because of immigration policy. Demand 0:17:59.680 --> 0:18:03.480 for is even weaker because unemployment's drifting higher and participation 0:18:03.600 --> 0:18:07.480 is drifting lower. That would argue for obviously rate cuts 0:18:07.480 --> 0:18:09.680 all OUSEQL. But of course now we've got inflation and 0:18:09.720 --> 0:18:13.919 inflation expectations which are getting to a place where we 0:18:13.920 --> 0:18:17.359 should pay attention. They're high by any historical standard, and 0:18:17.359 --> 0:18:18.840 they feel like they're going to break out to the 0:18:18.920 --> 0:18:23.480 upside here pretty soon, and that argues for obviously rate increases. 0:18:23.520 --> 0:18:25.240 But so the net of all that is, you know, 0:18:25.320 --> 0:18:26.720 sit on your hand. You don't know what to do 0:18:26.800 --> 0:18:30.280 until things kind of clear. But all these other you know, 0:18:30.400 --> 0:18:33.120 things that we've been talking about obviously are very important 0:18:33.160 --> 0:18:36.480 to understanding you know what that means for the growth 0:18:36.640 --> 0:18:39.600 in inflation mandates, but they're more second third order, I 0:18:39.640 --> 0:18:40.439 think at this point. 0:18:41.160 --> 0:18:42.840 So Mark, I just wanted to sort of get a 0:18:42.880 --> 0:18:46.919 sort of final takeaway where we started, really whether we 0:18:46.920 --> 0:18:52.040 should consider this recovery and this economy to be unusually 0:18:52.520 --> 0:18:58.080 vulnerable or lopsided, not from an equity standpoint, inequality standpoint, 0:18:58.160 --> 0:19:03.600 but also in terms of its potential for suddenly reversing. 0:19:03.720 --> 0:19:06.120 If you're sitting at the FED, or even if you're 0:19:06.200 --> 0:19:10.040 just working in a big company, should you feel that 0:19:10.080 --> 0:19:14.400 this is a sort of unusually insecure recovery, should put 0:19:14.400 --> 0:19:16.159 it that way in terms of how many legs it 0:19:16.200 --> 0:19:18.159 has and what parts of the economy are growing. 0:19:19.000 --> 0:19:21.320 Yes, I mean, I'm searching for the right word, but 0:19:21.480 --> 0:19:22.080 you know, I'm. 0:19:21.920 --> 0:19:24.119 Sure it'll be buzzy when you come up with it. 0:19:24.200 --> 0:19:29.920 But yeah, tenure is precarious, vulnerable, fragile. I've used all 0:19:29.920 --> 0:19:32.639 those words. None of them feel exactly right, So we 0:19:32.720 --> 0:19:33.920 got to come up with another one. You're right, we 0:19:33.960 --> 0:19:37.320 got to come up with another buzzphrase. But yeah, it 0:19:37.359 --> 0:19:41.120 feels like we're growing two percent ish, maybe a little 0:19:41.119 --> 0:19:43.639 bit below at that point. This is below the economy's potential. 0:19:43.840 --> 0:19:47.760 That means unemployment is rising and labor force participation is falling. 0:19:47.880 --> 0:19:51.640 With some combination of the two. That's just a very 0:19:51.720 --> 0:19:55.000 uncomfortable place to be, particularly in the context of much 0:19:55.080 --> 0:19:58.000 of the growth is being driven by one sector of 0:19:58.000 --> 0:20:00.919 the economy and one group of America and the households, 0:20:00.960 --> 0:20:03.560 and that's just not, you know, a comfortable place. And 0:20:03.600 --> 0:20:07.520 it's a very very come back to the word, it 0:20:07.560 --> 0:20:09.479 feels very tenuous and precarious to make. 0:20:09.920 --> 0:20:12.840 Also that it's incredible. I mean, that's not a bad word, 0:20:12.920 --> 0:20:15.040 but it's just that people don't believe in it. I 0:20:15.040 --> 0:20:17.119 mean when you look at these numbers, and even the 0:20:17.160 --> 0:20:20.280 people that are doing well, except I feel I guess 0:20:20.320 --> 0:20:22.840 right at the top, will still feel that they're being 0:20:22.880 --> 0:20:26.200 strained by various things. You've been in this business for 0:20:26.240 --> 0:20:29.360 a long time. Do you feel that the consumer sentiment 0:20:29.480 --> 0:20:33.800 numbers are just no longer reliably connected to the data? 0:20:33.920 --> 0:20:36.919 Well, depends on what survey you look at. The University 0:20:36.960 --> 0:20:39.800 of Michigan is clearly over because that's at a record low, 0:20:39.880 --> 0:20:42.120 all time low, and that's been around since the fifties. 0:20:42.160 --> 0:20:44.480 It feels like it's overstating the case, but it's making 0:20:44.520 --> 0:20:47.919 a case, and the other sentiment surveys are making similar cases. 0:20:47.960 --> 0:20:50.239 There's a lot of discomfort out there, but people are 0:20:50.320 --> 0:20:53.280 very nervous about their financial situation, and certainly if you're 0:20:53.280 --> 0:20:55.320 in the bottom two thirds of the distribution of income 0:20:55.400 --> 0:20:59.359 or wealth, you've got reason to be nervous and upset 0:20:59.400 --> 0:21:01.280 about the way things are going. And I think that's 0:21:01.320 --> 0:21:04.320