INSIDE ECONOMICS

Mark Zandi:                      Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics. And I'm joined by my two trustee co-hosts, Ryan, Ryan Sweet, director of real-time economics. Ryan, good to be... Probably should've said good to see you, I should say. Yeah?

Ryan Sweet:                      Busy, Mark?

Mark Zandi:                      Busy? Yeah, it's been busy. I was in DC yesterday at a housing conference. We could talk about that a little bit. That was pretty interesting. You busy?

Ryan Sweet:                      Did you drive or take the train?

Mark Zandi:                      I'm back on the Acela.

Ryan Sweet:                      There you go.

Mark Zandi:                      Yeah, the train. Yeah, very convenient. Not like these... I heard you had a nightmare with your trip out to Phoenix.

Ryan Sweet:                      Yeah. So I went to Philly International Airport for the first time in two years, and all the flights to Phoenix got canceled, all of them. I was right back on the car coming home so...

Mark Zandi:                      And that's a hub for American, right?

Ryan Sweet:                      Yeah, it is.

Mark Zandi:                      That's-

Ryan Sweet:                      So they sent us all to the American Airlines concierge to try to rebook our flights, and they had a sign that, "We're understaffed," so they weren't there.

Mark Zandi:                      Oh, goodness.

Ryan Sweet:                      It was a good experience.

Julia Coronado:                The concierge desk wasn't there.

Ryan Sweet:                      No, we had to go to a different terminal and then... Yeah, it was just a nightmare.

Mark Zandi:                      And you heard the interloper's voice. That's Julia Coronado, which I'm going to officially introduce in a second. Before I do that though, let me just bring Cris in, Cris deRitis.

Julia Coronado:                I like to think of myself as an interloper.

Mark Zandi:                      Well, I say that in a nice way-

Cris deRitis:                       It's a good title. It's a good title.

Mark Zandi:                      Yeah, interlopers are good. We need those.

Julia Coronado:                Yeah.

Cris deRitis:                       Yeah, definitely.

Mark Zandi:                      Yeah. And Dr. deRitis is speaking to us from a spa in Northern Italy.

Cris deRitis:                       Or my cabin in Northern Italy.

Julia Coronado:                Really?

Cris deRitis:                       Yes, near the Austrian border so...

Mark Zandi:                      Let me ask you a question, Julia.

Julia Coronado:                Yes.

Mark Zandi:                      We're all on Zoom here, you see Cris. He's on vacation, but he's in this white shirt.

Julia Coronado:                Yeah.

Mark Zandi:                      I mean who's in a white shirt on their vacation, right?

Julia Coronado:                Yeah. Yeah. Who does that? Who even brings one?

Cris deRitis:                       Well, I knew there would be the podcast. I knew there'd be a podcast. I wanted to look the part.

Mark Zandi:                      Oh, is that what... Really? Is that-

Ryan Sweet:                      I didn't know what the dress code.

Julia Coronado:                So are you wearing Bermuda shorts on the bottom? Is that what you're saying?

Cris deRitis:                       No, no.

Mark Zandi:                      You can see I'm in a tie and a shirt because I've got something I have to do right after this, but I am in my sweatpants, just so you know.

Ryan Sweet:                      There you go.

Mark Zandi:                      You can see my grandma in the back there so... Anyway, it's good to have everybody. I was a little concerned we wouldn't have Cris on this podcast, but you're here. You made it. Thank you.

Cris deRitis:                       I made it.

Julia Coronado:                Dedication.

Cris deRitis:                       Wouldn't miss it. Wouldn't miss it.

Mark Zandi:                      I appreciate that. And Julia, Julia Coronado, it's good to have you.

Julia Coronado:                It's so good to be here.

Mark Zandi:                      Yeah, we've kind of crossed paths over the years. And it's just you do such great work and I'm very happy to have you on talk about the macroeconomic environment here in the US. But before we kind of dive into business cycle stuff, can you give us a sense of your history? How'd you get to where you are today? And you have a new company or I don't know how new it is, but it's-

Julia Coronado:                It's not that new anymore.

Mark Zandi:                      Yeah, it's not that new?

Julia Coronado:                Yeah, so MacroPolicy Perspectives is a macroforecasting firm that I launched with my business partner, Laura Rosner, more than five years ago, going about five and a half years ago.

Mark Zandi:                      Oh, I did not know that. Okay, great.

Julia Coronado:                Yeah, yeah. We've been doing this a little while. We're growing. We just hired a new economist so, yeah, things are good. People want to have macro people to turn to and ask questions. And it's an incredibly uncertain environment. It's not easy forecasting, but it's also... As you know, for clients, it's just about thinking through risks and possible scenarios in addition to actual point forecast. Yeah, so that's what we do, and it's been going really great.

Mark Zandi:                      Oh, that's great to hear. Yeah, we're all about scenarios at Moody's Analytics.

Julia Coronado:                Yes, yes.

Mark Zandi:                      All about scenarios. So I noticed you have a really cool group of senior advisors. Ellen Hughes-Cromwick, good friend. She was the chief economist at Ford, wasn't she?

Julia Coronado:                Yeah, she was chief economist at Ford.

Mark Zandi:                      But now-

Julia Coronado:                She was also chief economist at the commerce department for a while.

Mark Zandi:                      That I didn't know. Yeah.

Julia Coronado:                Yeah. Yeah.

Mark Zandi:                      And she's now deep into climate change issues.

Julia Coronado:                She is deep into climate change issues and, specifically, electric vehicles as well, very, very leaning into that transition.

Mark Zandi:                      And Dick Berner, I was just saying, I haven't said his name in quite some time. He was head of the Office of Financial Research for-

Julia Coronado:                Yep. OFR, yeah.

Mark Zandi:                      Yep.

Julia Coronado:                The treasury and he was chief economist at Morgan Stanley for many years.

Mark Zandi:                      Right. And PNC, I believe, way back when I think.

Julia Coronado:                Yes. Yes, I think that's right.

Mark Zandi:                      I think because PNCs were from Philly and PNC-

Julia Coronado:                Gotcha.

Mark Zandi:                      ... my bank and I think that's how I got to know Dick.

Julia Coronado:                Okay.

Mark Zandi:                      But he's writing for you as well.

Julia Coronado:                Yeah. Yeah, yeah. He writes for us, he's really focused on some of the monetary policy implementation and plumbing issues, so that's a useful perspective. We believe plumbing matters and getting details right is important, so Dick helps with all of his experience in markets, he brings a really valuable perspective.

Mark Zandi:                      So you had a pretty cool path getting to macro policy perspectives. You just want to describe that for a little bit, just to give the listeners a sense of you?

Julia Coronado:                Yeah, yeah. So I got my PhD at UT Austin and where I now sort of teach part-time because I love it and moved back to Austin. But in between, I got hired by the Federal Reserve Board. So I went from grad school to the Federal Reserve Board. I was a staff economist there for about eight years. I worked both in the consumption forecasting, so in the GDP forecasting group for a while, but most of my time, I spent in the financial side of the research division in the flow of funds group looking at household balance sheets and pension finances, and home equity extraction and all kinds of financial issues, and sort of that interaction between the financial side of the economy and the real side of the economy, which was a really interesting place to be before and through the great recession and the housing boom and bust. So it really was a good perspective to have.

Mark Zandi:                      Yeah. And so we I think crossed paths not long ago. You were trying to get a debate together.

Julia Coronado:                Yeah.

Mark Zandi:                      With Arthur Laffer, folks remember Arthur Laffer.

Julia Coronado:                Yeah.

Mark Zandi:                      And that was pretty funny.

Julia Coronado:                Yeah.

Mark Zandi:                      Well, sort of funny, I guess.

Julia Coronado:                It was sort of funny, yes, the debate-

Mark Zandi:                      Yeah. Yeah. He had a very...

Julia Coronado:                Yeah.

Mark Zandi:                      You were thinking of me to debate him, I believe.

Julia Coronado:                Yeah. Yeah.

Mark Zandi:                      He was very particular about who he wanted to debate.

Julia Coronado:                Oh, yeah. Yeah, yeah. Eventually, I wasn't even part of the event, so...

Mark Zandi:                      Oh, is that right? Oh, yeah.

Julia Coronado:                Yeah. The event happened.

Mark Zandi:                      It did happen?

Julia Coronado:                Art Laffer debated somebody.

Mark Zandi:                      Oh, it happened.

Julia Coronado:                Yes, it did.

Mark Zandi:                      Oh, okay.

Julia Coronado:                It happened he ended up debating... This was a UT initiative. It was not something I was organizing.

Mark Zandi:                      I see.

Julia Coronado:                I was just involved with through the UT engagement and they wanted a debate on taxes. And as you remember, he wanted it to be very, very narrow and, eventually, he debated Jamie Galbraith, who's also-

Mark Zandi:                      Well, actually, I recommended that. I thought that because he's at UT, isn't he? Is he? Yeah.

Julia Coronado:                Yeah, he is at UT, yes. So that it did eventually happen, but I was not an acceptable moderator. So eventually, the event went on.

Mark Zandi:                      Oh, you got kicked off, too.

Julia Coronado:                Yes.

Mark Zandi:                      Oh, I didn't realize. Oh, okay. Well, yeah.

Ryan Sweet:                      [Crosstalk 00:08:08].

Mark Zandi:                      Yeah. Well, I had been in a debate with Arthur. I can't even remember if there were other people and in this debate, it's Intelligence Squared, somebody wins.

Julia Coronado:                Oh.

Mark Zandi:                      And we won, I won.

Julia Coronado:                Oh, no. Oh, no.

Mark Zandi:                      And beat Arthur and that really made him upset... Yeah, so I'm sure he's very cautious about having me-

Julia Coronado:                Yeah. So hence his reluctance to have you as the sparring partner.

Mark Zandi:                      Well, maybe. Yeah, I think so. Anyway, that was pretty funny. So anyway, let's dive into the macro situation here because there's a lot to talk about.

Julia Coronado:                Yes.

Mark Zandi:                      And one thing I'm hearing more and more often from folks or at least I'm getting the question, are we already in a recession? And it's just everyone is so pessimistic.

Julia Coronado:                Yeah. Yeah.

Mark Zandi:                      Every CEO I talk to, CFO. You saw today's University of Michigan survey, we can talk about that. And GDP did fall in the first quarter and it's tracking now based on the data barely positive. It could come in negative again so we could conceivably get two quarters of negative growth. So question to the group and you first, Julia, is there any scenario where we actually are already in recession?

Julia Coronado:                I would say almost no scenario in which we are already in a recession and mainly because the job market is so ripsnorting strong. The three-month average gain in payrolls is still above 400,000, which is pre-COVID, that would be unimaginable and now that's a moderation from where we've been. So the GDP numbers, as you know, always subject to revision and have a very particular composition with that drag, that decline being driven by inventories and imports, and that just highlights the disruptive force of supply chains and lack of inventory and inventory restocking and these sort of very wild nonlinear dynamics that are flowing into the GDP numbers. Looking at consumption, looking at investment, looking at hiring, the economy is still very strong. It's moderating, but it's still just got an extremely solid base of that all important hiring, spending dynamic. So I would say there's almost no way that we are already in a recession. We would have to see very rapid deterioration in the labor market, in my view, in the next few months for us to even enter one by year end.

Mark Zandi:                      So you're sitting on the business cycle dating committee, the National Bureau of Economic Research, the group of academics that, and you're an academic, group of academics that arbitrate whether we're in recession or not. You see two quarters of, say we get a negative quarter of GDP, so we have two consecutive quarters. You still say no, that's not a recession.

Julia Coronado:                No, no. I mean that rule of thumb is actually pretty reliable. If you look historically, when you have two quarters of negative GDP growth, it has pretty much always lined up with an NBER-defined recession. So it's not a bad rule of thumb, but again, these GDP numbers, especially the areas that are causing these big swings are measured very imperfectly in real time. So again, they don't line up with the demand picture that we're seeing. Or another important input traditionally for the NBER has been industrial production. That's motoring along just fine, too. There's no metric on the real demand side that looks particularly weak, let alone contracting. So yeah, I don't even think it would be much of a debate for the committee.

Mark Zandi:                      They may not even convene to discuss it.

Julia Coronado:                Yeah, probably not even convening yet.

Mark Zandi:                      Right.

Julia Coronado:                These are wild numbers that could be massively revised and don't align with the all-important real economy.

Mark Zandi:                      Yeah. I think we're all with you on that.

Cris deRitis:                       Yeah.

Mark Zandi:                      This is just... Right, Cris? I mean...

Cris deRitis:                       Yeah, yeah. For sure.

Mark Zandi:                      I mean when you're creating 400,000 jobs, which is what we did in the month of May, we'll have to see what June looks like.

Julia Coronado:                Yeah. I mean and June should moderate and, again, those numbers could also be revised over time, but they're not revised as much as GDP. And there's a lot of independent labor market indicators that are saying the same thing, which is that the job market, even though it's moderating, is still just really strong.

Mark Zandi:                      Right. Ryan, any-

Ryan Sweet:                      We can't have a recession with initial jobless claims?

Cris deRitis:                       Yeah.

Ryan Sweet:                      South of 250.

Julia Coronado:                Right.

Ryan Sweet:                      I mean it's really low to the point the job market's up.

Julia Coronado:                Yeah, they're low, up, but they're low.

Ryan Sweet:                      Yep.

Mark Zandi:                      So that statistic for the listener is initial claims for unemployment insurance, weekly data, so very close to real time and that is a measure of layoffs. So if you're in recession, you got to see layoffs rising and actually, it fell last week, didn't it? The UI claims, initial claims, I think they fell a little bit.

Ryan Sweet:                      Yeah, it did that.

Julia Coronado:                Yeah. They were sort of... Again, they've come up off the lows, but they're still really low.

Mark Zandi:                      Still really low.

Cris deRitis:                       Right, right. [Crosstalk 00:13:31]

Ryan Sweet:                      They're coming off historic lows.

Mark Zandi:                      Right now, I mean what's our rule of thumb here, 250,000 per week would be consistent with a well-functioning economy. And we're at like 230, right?

Julia Coronado:                230, yeah.

Mark Zandi:                      Yeah, something like that. So, okay, so we're all in agreement, no recession here. Even if we get a Q2 number, that GDP number that has a negative sign attached to it.

Julia Coronado:                Squirrelly, yeah.

Mark Zandi:                      Yeah. Okay.

Julia Coronado:                Yeah, because consumer spending is tracking really well still. I mean there's been some moderation, but consumers have been holding up despite this shock to their purchasing power from the war.

Mark Zandi:                      Yeah. And I think the way I've talked about this is that I view the American consumer as the firewall between continued economic growth, albeit much slower economic growth because that's what we need here so inflation comes in, but that in recession.

Julia Coronado:                Right, yeah, absolutely.

Mark Zandi:                      And that firewall feels, I don't want to put words in your mouth, but it feels pretty strong, right?

Julia Coronado:                It is strong. I mean we're in a weird moment where consumers, different measures of sentiment. So the Michigan measure came out today and it's pretty depressed, extremely depressed. The Conference Board measure of sentiment, it's come down off the highs, but it looks just fine. So we've got these wildly different signals on how consumers feel, and that can or cannot be a leading indicator of what they actually do so far. The depressed Michigan measure has not correlated with actual spending at all. We've seen very resilient consumption so... But it's not like everything's coming up roses. Consumers are facing... They don't like inflation and it's challenging their purchasing power and it's eaten into some of the gains that they enjoyed last year in terms of cash on hand and strong wage gains. So it doesn't feel great, but yet they're getting up every morning-

Ryan Sweet:                      Keep spending.

Julia Coronado:                ...going to work, changing jobs, spending their money. So, so far, so good. That engine is motoring along.

Mark Zandi:                      Yeah. You mentioned University of Michigan survey. So Ryan, let me turn to you quickly because that came out, this is Friday morning, June 24th. The University of Michigan consumer sentiment survey came out today. You want to just give us a thumbnail sketch of what that said? because it was pretty dark if you take it by itself.

Ryan Sweet:                      Yeah. It dropped a lot between May and June and it's at a record low. So the previous record low was in-

Mark Zandi:                      Record low.

Ryan Sweet:                      Record low.

Mark Zandi:                      Record meaning in all... This thing's been done since the '60s I believe, right, the survey?

Ryan Sweet:                      Yeah, I believe so, yeah.

Mark Zandi:                      Yeah. So the lowest ever is what you're saying.

Ryan Sweet:                      The lowest ever. But the University of Michigan survey based on the questions, it's very sensitive to personal finances, so it's getting hit double by higher gasoline prices and the drop in the stock market. So it's really not too surprising that the University of Michigan survey has just tanked where The Conference Board survey, based on those questions, are very sensitive to labor market conditions and the job market is doing really well. So that's why we have this divergence in sentiment. But to Julia's point, the relationship between consumer spending and sentiment in the short run is very, very loose. So consumers can say that they're depressed, but they're still going out and spending.

Mark Zandi:                      Right. Right.

Ryan Sweet:                      The one thing that I'd keep a close eye on is Google searches. So I look at Google trends data and if you look at search intensity for recession or what is a recession, it's spiking so recession's on people's minds. And I think it's just people see the stock market and they assume the stock market is the economy.

Julia Coronado:                And then relentless stories about recessions as well.

Ryan Sweet:                      Yeah. So you get that group think, yeah.

Julia Coronado:                So we're going to test the proposition. Can we actually talk ourselves into a recession?

Mark Zandi:                      Yeah. And I wanted to talk about that, maybe this is a good time to do it. Here's the odd thing to me. I mean if folks are watching on YouTube, you could see my hairline. I've seen a lot of recessions. In every recession I've been in, no one has actually predicted the recession. Some people, I go back before the great recession, I was warning things are going off the rails or it feels really bad, but my actual forecast did not have a recession in it until I think we were actually in recession. We had been in it for a while. And that's the case for every recession and certainly, CEOs and CFOs and the average public, they're not thinking recession. They're not thinking that way. This is going to be the first recession I think ever where everyone's predicted it before it's actually happened.

Julia Coronado:                Yeah, way before, yeah.

Mark Zandi:                      So I'm of two minds with that kind of frame. One is, well, that means we're going into recession because it's just going to become self-fulfilling. And then the other frame is, well, if we're all thinking that way, probably isn't going to happen. So how do you think about it? I mean can we actually drive ourselves into a recession?

Julia Coronado:                I mean, for me, it's going to... Yeah, it would have to be followed through either on the business side with reluctance to hire or engage in investment or a reluctance by consumers to spend, and so that's a possible channel. You could imagine that every recession is usually not just one shock, but a series of shocks. So we've got this high gas prices. We've got tightening monetary policy, delivering a correction in market valuations. And then that makes consumers feel less optimistic and businesses worry more about the future. And then if that then follows through into a spending strike or a hiring strike or an investment strike, then you could see that positive... There's always expansions are positive feedback loops and recessions are negative feedback loops, right?

                                             So we're in a positive feedback loop. We've got hiring. Consumers have income as long as those paychecks are arriving and they've got options and they feel good about that. So as long as they've got that underpinning of jobs and income, they could slow their spending, they could shift their spending, but to actually see declines in spending and hiring requires a much different dynamic than what we've seen. So I mean it's possible, but I can't... And if we go into a recession, it's not like it will be caused by sentiment per se, but those initial shocks that caused the declining sentiment, I would say, and sentiment would be sort of a chaser, an add-on to that dynamic.

Mark Zandi:                      Yeah. Maybe the way I would rephrase what you said and just roll it back to you, see if I got it right. It feels right. You're saying, look, sentiment is so weak, so low, people are so anxious that it won't take much of anything else going wrong here to send them over the edge and for them to pull back and we go into recession. So it's not that we talk ourselves into recession. It's that we're just so depressed, so nervous that we're skittish.

Julia Coronado:                Yeah.

Mark Zandi:                      And so if anyone says, boo, we're going to run for the bunker and we go in.

Julia Coronado:                Well, and there's real things that are making people-

Mark Zandi:                      Yeah, sure. Absolutely.

Julia Coronado:                High gas prices, high food prices, high rents, these are all things that make people feel stretched and anxious. Even, I would add, the shortages, that's an unusual dynamic that we aren't used to. There's a question how much that's depressing sentiment that we went from a world of efficient, cheap supply chains where I can order anything I want and have it within 48 hours. Increasingly, you can get same-day delivery on Amazon of some things now. So we've moved towards this world of almost instant gratification. And now, we're experiencing you have to wait months sometimes to get something or you can't get the thing you want or you have something like a formula shortage. I mean that's terrifying for parents. So these are... We're used to being an efficient economy and we're now not as efficient because of some of the supply chain disruptions. And that also makes people anxious and feel bad. And so these are real catalysts that could cause a pullback in spending. The anxiety isn't just coming out of thin air.

Mark Zandi:                      Yeah, good point. I mean the fact that Ryan couldn't get to Phoenix. I mean that...

Julia Coronado:                Right, exactly.

Mark Zandi:                      That's bizarre, right?

Julia Coronado:                Yeah.

Ryan Sweet:                      Right.

Julia Coronado:                So everybody's like, "Oh, yay. Let's go out and travel and take some summer vacations and go to weddings." Oops.

Mark Zandi:                      Yeah.

Julia Coronado:                Turns into a travel nightmare.

Mark Zandi:                      Yeah.

Julia Coronado:                And travel nightmares aren't anything new. For those of us who travel around, they've always been part of life, but more prominent, more common, certainly doesn't make you feel great about getting on a plane and going on a trip.

Mark Zandi:                      Yeah. Hey, Cris, let me quickly turn to you. I mean do you think we could talk ourselves into a recession?

Cris deRitis:                       Yeah. I agree with Julia. I think, well, two things, one is just the disconnect between words and actions, right? Right now, people are saying they're not feeling great, but they are continuing to spend, right, so I don't... Psychologic, yeah, absolutely. They don't feel great seeing these prices, but their actions so far haven't reflected that. And then I do think it's more of an accelerant, right? You need to have something else that pushes you towards a recession. And then, the negative mood certainly just starts to feed on itself and starts up that negative feedback loop so-

Mark Zandi:                      Yeah. I've never seen anything like that.

Cris deRitis:                       Yeah, I think that's the case, yeah.

Mark Zandi:                      In our work, we talk to a lot of senior managers of all kinds of companies and, obviously, the question I ask is how is business? And the answer is good. I'm scared to death.

Cris deRitis:                       Right, right.

Mark Zandi:                      And I'm going to pull back. I go really? Okay. Anyway... Hey, I think this is a good place for the statistics game before we dive into any more statistics and just a quick summary for Julia's edification, the statistics game, we each tell a statistic. The rest of us try to guess it through questioning and clues and deductive reasoning. The best statistic is one that is not too easy that we all get it so fast. Although, Ryan is really good at this and he gets it fast.

Ryan Sweet:                      Yeah.

Julia Coronado:                I have heard him be good at this game-

Mark Zandi:                      Yeah, he's good. And if you're really good, by the way, Julia, you get a cowbell. So a cowbell-

Julia Coronado:                Oh, man.

Mark Zandi:                      Yeah, really?

Julia Coronado:                Well, you should have told me that in advance.

Ryan Sweet:                      Yeah.

Cris deRitis:                       Going to get these things.

Mark Zandi:                      Yeah.

Julia Coronado:                I'm a big cowbell fan.

Mark Zandi:                      Cowbell and a bottle of wine so be on your game here. Okay.

Julia Coronado:                Oof.

Mark Zandi:                      Yeah. We don't want one too hard that no one can get it, and one that's kind of relevant to what's been going on, but that's kind of open ended, but let me begin with, because Ryan's so good at this, begin with you, Ryan. Why don't you give us your statistic?

Julia Coronado:                Oh, I see, he's been practicing, too. No fair.

Mark Zandi:                      By the way, this is a hard week because there isn't a whole lot of statistics that came out this week. It's kind of-

Ryan Sweet:                      Kind of makes it easier though.

Mark Zandi:                      Oh, does it? Okay.

Julia Coronado:                It does, yeah.

Mark Zandi:                      Fire away. You're up, Ryan?

Ryan Sweet:                      Oh, I didn't know, I was getting the cowbell.

Mark Zandi:                      Oh, you were getting the cowbell. Oh, no, no. I called on you first, yeah.

Ryan Sweet:                      Oh, okay.

Mark Zandi:                      'Cause I want Julia to see how this is done.

Ryan Sweet:                      All right.

Mark Zandi:                      'Cause you're so good at this.

Ryan Sweet:                      All right, I'll give you guys an easy one.

Mark Zandi:                      All right.

Ryan Sweet:                      All right. Let me just double check to make sure I got it.

Mark Zandi:                      Oh, I caught you off guard.

Ryan Sweet:                      5.3%. You didn't.

Julia Coronado:                Oh, I know what that is. I know what that is.

Mark Zandi:                      5.3% and 3.1%.

Julia Coronado:                I know what that is.

Ryan Sweet:                      All right, go for it.

Mark Zandi:                      Fire away.

Julia Coronado:                That's inflation expectations. That's UMich inflation expectations.

Ryan Sweet:                      Exactly.

Julia Coronado:                So one is the one year, one year forward. The other is the 5 to 10 year, 5 to 10 year.

Ryan Sweet:                      Five to 10, yep. Very good.

Julia Coronado:                And the beauty of that one is that whole 3.3 that drove the Fed to panic and do a 75-basis point rate hike has been revised away in the final-

Mark Zandi:                      I know, I know.

Ryan Sweet:                      I was going to point that out, yeah.

Mark Zandi:                      Oh, by the way, hold up, before we go into that anymore. This definitely a cowbell and I got my own cowbell from VJ.

Julia Coronado:                Oh. Wow.

Mark Zandi:                      Is that pretty good?

Ryan Sweet:                      That's a good one.

Mark Zandi:                      That's a good one, right?

Ryan Sweet:                      Nice ringing cowbell.

Mark Zandi:                      That's a good cowbell.

Cris deRitis:                       Professional, professional.

Mark Zandi:                      Yeah, professional cowbell so-

Ryan Sweet:                      Well, I guess Cris, did you bring your cowbell to Italy?

Mark Zandi:                      That would show-

Cris deRitis:                       I did not, but I've been doing a deep research into cowbells.

Ryan Sweet:                      Okay.

Cris deRitis:                       They've got a whole different style cowbell.

Julia Coronado:                Cowbell.

Cris deRitis:                       Yeah. Very sweet sounding here.

Mark Zandi:                      Is it really?

Cris deRitis:                       Oh, yeah. Oh, yeah. Oh, there are sheep and cows all over the place here, yeah.

Mark Zandi:                      Oh, you got a Swiss cowbell and a Northern Italian cowbell, Southern-

Cris deRitis:                       Yeah. I think it's every other hill. Every village has its own style.

Mark Zandi:                      That's pretty cool. You got your own olives, you got your own wine, you got your own cheese. Now you got your own cowbell.

Cris deRitis:                       Cowbell, you got to differentiate it.

Mark Zandi:                      Well, okay, well, let's go back to that UMich inflation expectations, and I'm so perplexed by what seemingly the Fed is doing by putting more weight on consumer expectations and, obviously, de-weighting other expectations from, not so much economists' because I don't know that's great, but certainly bond market expectations. I mean I feel like that's where the weight should be placed because that's people putting their money where their mouth is so... And the consumer expectations are very tied to the cost of a gallon of gasoline. If it goes up, sentiment's down. If the cost of a gallon of gasoline goes down, sentiment goes up. So what's the deal? What do you think's going on there, Julia?

Julia Coronado:                Well, you could look at it as sort of an opportunistic framing of the data that kind of allows them to do what they wanted to do anyway, which was move very quickly, expeditiously to a neutral rate. They've kind of already made that conclusion. It was when I was interviewing Tom Barkin this week for a NABE webinar, he said we want to get there as fast as we can without breaking things so that's kind of the FOMC sentiment. And so an upside surprise on both the CPI, wasn't just Michigan, but it was the combination of an upside surprise on core and headline inflation in the May CPI, plus this measure of inflation expectations was a catalyst. Because the bond market moved and that's the other thing Barkin sort of was very usefully clear in outlining that not everybody states it as clearly, which is the bond market moved. It gave them the opportunity to take that, right. So the bond market started pricing in a bigger move and they just went with the market and took that opportunity to get rates closer to neutral. So I think Michigan-

Mark Zandi:                      That makes sense. That makes sense.

Julia Coronado:                Putting too much weight on Michigan seems like over a longer horizon doesn't seem like a great idea, but it may have just been sort of a good framing.

Mark Zandi:                      We need something to hang our hat on here.

Cris deRitis:                       Was the excuse, yeah.

Mark Zandi:                      Yeah. That makes total sense to me. Hey, Cris, you want to give us your statistic?

Cris deRitis:                       Sure. It's a twofer, 51.2 and 51.9.

Julia Coronado:                Yes.

Mark Zandi:                      You know that, too, Julia?

Julia Coronado:                Oh, I think so. Yeah, the 51-

Mark Zandi:                      Oh, my gosh. She's a maven at this-

Cris deRitis:                       [Crosstalk 00:29:37], yeah, yeah.

Julia Coronado:                Well, so 51.2, I believe, is the US preliminary global PMI composite.

Cris deRitis:                       Yes.

Julia Coronado:                Right?

Cris deRitis:                       Yes.

Mark Zandi:                      Oh, my-

Cris deRitis:                       You got that one, yes.

Mark Zandi:                      Oh, my gosh.

Julia Coronado:                And 51.9-

Ryan Sweet:                      This is unbelievable.

Mark Zandi:                      This is unbelievable.

Julia Coronado:                51.9 is the Eurozone. Am I right?

Cris deRitis:                       Yes.

Mark Zandi:                      Oh, my gosh. Hold it. Hold it. Wait, wait, wait. Wow.

Cris deRitis:                       It's like a triple cowbell.

Mark Zandi:                      Well, Julia, if I had come up with that, Ryan would be accusing me of collusion.

Ryan Sweet:                      She's actually good.

Cris deRitis:                       That's impressive.

Ryan Sweet:                      No, she's actually really good.

Mark Zandi:                      Double cowbell.

Ryan Sweet:                      Yeah, it is.

Cris deRitis:                       Double cowbell, for sure.

Mark Zandi:                      That is incredible.

Cris deRitis:                       That's nicely done.

Ryan Sweet:                      That's awesome.

Cris deRitis:                       Nicely done.

Mark Zandi:                      You're going to displace Ryan as the king of this game.

Ryan Sweet:                      Oh, I [crosstalk 00:30:21].

Mark Zandi:                      That is like-

Ryan Sweet:                      I'm done.

Julia Coronado:                No, but see, now you guys are taking the ones I was going to take so I need to find-

Mark Zandi:                      Oh.

Ryan Sweet:                      There you go.

Mark Zandi:                      That is funny. That is so funny.

Julia Coronado:                I think I have a good one. I think I have a good one.

Mark Zandi:                      All right. You want to go next?

Julia Coronado:                Are you ready for me?

Mark Zandi:                      Well, let me ask on the PMIs, Cris, why'd you bring those up? I mean there's a reason for why you picked those.

Julia Coronado:                Yes.

Cris deRitis:                       Pick those? Why did I pick Europe and US? It's because I was just in US, down in Europe, okay. That's the easy part. But so PMI over 50 still indicates expansion, right? If the PMIs fall below 50, typically, that's a sign of contraction. So it's still in a positive zone, kind of ties in with our previous discussion here, but they have been falling both in Europe and in the US so it's getting closer and closer to that 50 threshold. So certainly, something to keep an eye on, but we're not quite there yet.

Julia Coronado:                And both came in below expectations, right?

Cris deRitis:                       Correct, correct. Yeah.

Julia Coronado:                Both of those numbers were pretty noticeably weaker than what were the consensus expectations so...

Ryan Sweet:                      We're just moving-

Cris deRitis:                       Yeah, not saying what they were last-

Mark Zandi:                      Cris is actually in a spa in Northern Italy so that's why he's coming in and out a little bit, just so you know, so...

Cris deRitis:                       Yep. But even if we break below 50, that's not the recession threshold. So I mean I would pay very close attention to the ISM survey and that's got to get down to 45, 46 or 47 consistently to be-

Mark Zandi:                      ISM meaning manufacturing survey?

Cris deRitis:                       Manufacturing, mm-hmm.

Julia Coronado:                Manufacturing, or services? Manufacturing?

Cris deRitis:                       Manufacturing.

Mark Zandi:                      Yeah.

Julia Coronado:                Okay. Yeah.

Mark Zandi:                      And ISM is kind of like a purchasing manager's report, right?

Cris deRitis:                       Correct. Yeah.

Mark Zandi:                      For here in the US, the ISM survey. Okay.

Cris deRitis:                       Yeah. So if it dips below 50, doesn't... It's over.

Mark Zandi:                      Well, and actually goes back to an earlier point. These numbers have to come down, right, because-

Julia Coronado:                Yes.

Mark Zandi:                      We need the economy's growth rate to slow so that we don't blow past full employment, inflation becomes more of an issue. So the fact that these numbers are coming in is not a... It's a good thing, right? It's not a bad thing.

Cris deRitis:                       Right. They're not collapsing either.

Mark Zandi:                      Yeah, they're not collapsing either. Yeah. Okay. All right, Julia, you're up? Okay. This is-

Cris deRitis:                       Pressure's on, baby, pressure's on.

Mark Zandi:                      The pressure's on.

Julia Coronado:                The pressure is on. Okay, I'm going to say 126,000 is my number.

Mark Zandi:                      126,000, hmm. Is it an economic statistic that came out recently, this week?

Julia Coronado:                This morning.

Ryan Sweet:                      This morning, so new home sales, something in new home sales.

Mark Zandi:                      Oh, it must be in the new home sales number, but unseasonally adjusted.

Julia Coronado:                It's not new home sales.

Mark Zandi:                      Oh, it's not. Okay.

Julia Coronado:                It's not a US number.

Ryan Sweet:                      Oh, it's not a US number.

Mark Zandi:                      Oh.

Cris deRitis:                       Oh.

Julia Coronado:                I mean, hey, look, Cris went-

Mark Zandi:                      No, no, no. It's fair.

Cris deRitis:                       Yeah, yeah. Fair game. Fair game.

Mark Zandi:                      Can you give us what continent we're looking at?

Julia Coronado:                It's close to home.

Mark Zandi:                      Canada. Okay, it's in Canada.

Julia Coronado:                Yes, it's a Canadian number.

Mark Zandi:                      Canadian, Canada's always like 10% of the US so... No, no. Yeah, something like 10, 15% of the US.

Ryan Sweet:                      Yeah, yes. That's [crosstalk 00:33:13].

Mark Zandi:                      It can't be Canadian home sales, can it?

Ryan Sweet:                      No, it's Canadian employment. It's got to be.

Julia Coronado:                Canadian employment.

Ryan Sweet:                      I think that's the only thing that came out-

Cris deRitis:                       Employment.

Mark Zandi:                      Oh, I thought the Canadians release their jobs data when we release ours here in the US.

Ryan Sweet:                      Not always.

Mark Zandi:                      Oh, not always. Oh, I didn't know that. Okay. So Canadian employment rose 126K in the month of May?

Julia Coronado:                Yes, it is a... Let's see, I'm looking at the screen. It's for April. This is April.

Mark Zandi:                      Oh, okay.

Ryan Sweet:                      Oh.

Julia Coronado:                So I'm not sure-

Mark Zandi:                      So it must be a different Canadian employment survey.

Julia Coronado:                Yeah.

Mark Zandi:                      Must be kind of like their household survey.

Julia Coronado:                Yeah. [Crosstalk 00:33:45]. Yeah, yeah.

Ryan Sweet:                      The one that came out this morning has average dollar earnings in it, so that was up.

Julia Coronado:                Yeah. So it's a very strong number. As you say, if given the scale of Canada, 126,000 certainly is very strong.

Mark Zandi:                      Is that a pretty good rule of thumb? I take every US statistic and I divide by 10 and that's Canada. Is that kind of roughly right? I think so. Yeah. Ryan's laughing. Why are you laughing at that, Ryan?

Ryan Sweet:                      You just lost every Canadian listening.

Cris deRitis:                       Yeah, we're going to get email.

Mark Zandi:                      Seriously? I mean [crosstalk 00:34:15] this. I mean it's just we're 350 million, they're 35 million. I'm making that up. I think it's 35 million, something like that. I know we're 350 million. Anyway...

Julia Coronado:                I was debating between that one and Canadian's TPI, which was also-

Mark Zandi:                      Oh, I thought you were debating that one or the number of anchovies in the Atlantic ocean or something.

Julia Coronado:                No, I could try that. I don't know that number though.

Mark Zandi:                      That's right, right. All right, I got one. It might be a little on the hard side. So I'm going to preface it by saying existing home sales, they came out... because the housing market is obviously on the leading edge of the slowdown. It's getting crushed by these higher rates.

Julia Coronado:                Yes.

Mark Zandi:                      And existing home sales, which came out earlier in the week, they were down year to date through May, down 6% from a year ago. So take the five months through May in 2022 compared to 2021, we're down 6%. So with that as a preface and that's a pretty big preface, the two numbers are down 16% and up 5%, down 16 and up 5-

Ryan Sweet:                      Down six-

Mark Zandi:                      Yeah, go ahead.

Ryan Sweet:                      Are we staying with existing home sales or is that just housing...

Cris deRitis:                       That's a new home sale.

Mark Zandi:                      That's a pretty obvious, pretty obvious.

Ryan Sweet:                      Are you going new home sales?

Mark Zandi:                      No, no, existing. We're sticking-

Ryan Sweet:                      Oh, you're staying with-

Cris deRitis:                       Oh.

Mark Zandi:                      Yeah.

Julia Coronado:                So it's got to be down 16 and up 5 are the numbers?

Mark Zandi:                      Yeah. Right. Remember-

Cris deRitis:                       Is that a single family, multifamily?

Mark Zandi:                      No.

Cris deRitis:                       Split?

Ryan Sweet:                      Is it price related?

Julia Coronado:                Something about prices.

Ryan Sweet:                      Yeah, I was thinking prices. No?

Mark Zandi:                      Nope, nope, nope, nope.

Julia Coronado:                Oh, must be month supply?

Mark Zandi:                      No, that's rising, yes, but no, these two statistics are in a sense add up to the down six. I'm down six in total sales and some part of sales is up 16, another part is down 5. I mean, excuse me, down 16 and up 5. I'm sorry.

Julia Coronado:                Is it regional breakdowns?

Mark Zandi:                      No. It's down everywhere. Sales were getting crushed everywhere. Tell me when you give-

Julia Coronado:                So it's not-

Mark Zandi:                      Tell me when you give up.

Julia Coronado:                Condo versus single family?

Ryan Sweet:                      Percent, yeah.

Mark Zandi:                      That's a good one. That's a good one, but wrong. Yeah, yeah. That's a good guess, yeah. Cris should know this because he's the housing guy. This is a really important one, too.

Ryan Sweet:                      He's also on vacation.

Cris deRitis:                       Not the top line I think on the report.

Mark Zandi:                      I'm going to put you out of your misery. The down 16 is the sales to first time home buyers, first time home buyers, down 16-

Julia Coronado:                Oh, it's breakdown of sales.

Mark Zandi:                      And the up 5, those are investors in second home-

Julia Coronado:                No. No, no, no. That's the wrong direction.

Mark Zandi:                      What do you mean? Oh, you mean not good for home ownership is what you're saying.

Julia Coronado:                Yeah.

Mark Zandi:                      Yeah, absolutely. Yeah. But I mean it just shows you-

Julia Coronado:                It's interesting that that showed up in the report because I'm in Austin, which is one of the hottest housing markets, and I'm hearing the opposite.

Cris deRitis:                       That's right.

Julia Coronado:                That the investors are gone, that-

Mark Zandi:                      Oh, really?

Julia Coronado:                Yeah. That they were really the ones driving the bidding wars and the outsized appreciation and that with higher rates and now just concerns about valuations correcting, they're gone. And so the only ones left are the home buyers that are hell bent on getting into their homes so...

Mark Zandi:                      Well, no, last year, I mean 2021, it was all about the investor. I mean the primary buyer-

Julia Coronado:                Right, right.

Cris deRitis:                       Right.

Mark Zandi:                      They were down last year and now they're big time down this year, but both first time buyers and trade up buyers, right, trade up primary buyers because the coupon on their mortgage is well below the current mortgage rate so they're locked in [inaudible 00:38:10], but that's interesting you say about investors in Austin and there's different kinds of investors. So maybe those folks are on the institutional investor.

Julia Coronado:                Yeah, there are different kinds of investors.

Mark Zandi:                      Yeah. Maybe.

Julia Coronado:                Yeah. There's the institutionals definitely in the tech cities, there's also the speculative element to it.

Mark Zandi:                      Here's the other cool way of looking at it. They're not mutually exclusive. The cash buyer is up 9%, so home sales to cash buyers year to date through May is up 9.

Julia Coronado:                And that makes some sense.

Mark Zandi:                      And to mortgage buyers, obviously, the first time buyer and the trade up buyer down 10, down 10, okay.

Julia Coronado:                Right, yeah.

Mark Zandi:                      So that gives you really cool sense of what's going on.

Julia Coronado:                That makes perfect sense, yeah.

Ryan Sweet:                      Yeah.

Mark Zandi:                      Yeah, very good. Hey, this is going to be a shorter podcast because just everyone's got stuff going on, but I did want to end this way and this is the way we've been ending, Julia, now for the last few podcasts is recession odds. This is kind of a cottage industry now, predicting the odds of recession.

Julia Coronado:                Yeah. Yeah.

Mark Zandi:                      And so I'd like to know what your recession odds are over the next year and over the next two years. And I'll let Ryan and Cris go first. Guys, what are your odds? And has that changed since the last time we did this a week ago? Ryan, you go first because you're the darkest one out here.

Ryan Sweet:                      Yeah. Let the pessimist go first.

Mark Zandi:                      I think you are. We haven't heard Julia yet. She could be [crosstalk 00:39:34].

Ryan Sweet:                      Yeah, [crosstalk 00:39:35] surprises. So next year, I haven't changed it, I think it's 45 in the next year.

Julia Coronado:                Within the next 12 months, 45-

Ryan Sweet:                      Within the next 12 months.

Mark Zandi:                      Yeah, next 12 months, yeah.

Ryan Sweet:                      And then within the next two years, 65.

Mark Zandi:                      He's changing on us, isn't he, Cris?

Ryan Sweet:                      No, that's exactly-

Mark Zandi:                      That's like Sarah's.

Cris deRitis:                       I think he is. I think.

Mark Zandi:                      I think [Sarah 00:39:55], Sarah, Sarah's the producer. Sarah, can you start writing these numbers down? Yeah. I think he's moving on us.

Ryan Sweet:                      No, 65.

Cris deRitis:                       He's coming in. I think he's coming in.

Mark Zandi:                      Oh, he did say 65. You know why he said 65, Julia?

Julia Coronado:                Why?

Mark Zandi:                      Because we have this forecast philosophy, if we make a major change in our baseline, kind of the middle, the scenario in the middle of the distribution, we have to be very confident in that change. So we have to have subjective probability of over two-thirds to make the change.

Julia Coronado:                Got you.

Mark Zandi:                      So he's going right up to 65.

Ryan Sweet:                      Right on the line.

Mark Zandi:                      Is he? Yeah, right on the line.

Julia Coronado:                Not 66, yeah, yeah.

Mark Zandi:                      Not 66, yeah. Okay, so 45 and 65, 45 next year, 65 next year. Cris, what are your odds?

Cris deRitis:                       40-60 unchanged.

Mark Zandi:                      40-60?

Julia Coronado:                Unchanged from last week?

Cris deRitis:                       Last week.

Mark Zandi:                      Yeah, we're doing this-

Cris deRitis:                       From my previous... Oh, I think last month even.

Mark Zandi:                      The last month. He's been consistent. He'll be consistently wrong, but he'll be consistent. 40-60?

Cris deRitis:                       Go down with the ship.

Mark Zandi:                      Yeah. All right. Should I go next before Julia? We'll let you go last?

Julia Coronado:                Yeah, you go next.

Mark Zandi:                      Okay. I'm at 40% over the next 12 months and even odds more or less over the next 24 months, next two years. So a little bit more pessimistic than these two other guys. And that's the same as last week. I did become more pessimistic after the Fed meeting. I thought that was...

Julia Coronado:                Yeah. Yeah.

Mark Zandi:                      I had been at one third over the next year and I raised that to 40% just 'cause that raised alarm bells for me the way they handled that. But anyway, so we'll turn to you, Julia. So you settle this-

Julia Coronado:                Yeah. No, I'm similar in your territory. I think 40 to 45% over the next 12 months. That's up since the Fed meeting because having a central bank telling us they're calibrating off of headline inflation, which kind of did, right, when he said headline inflation drives expectations, expectations are in a dangerous zone. So that in the middle of a gas price spike, that feels like adding fuel to the fire, pun intended I guess.

Mark Zandi:                      Yeah, right.

Julia Coronado:                And so we were more in the 30 to 35% camp over the next year, just again, because of the starting point in the labor market is so gosh, darn strong. And then yeah, it seems more likely than not over the next two years. Although in some senses, if we make it through this gas price spike-

Mark Zandi:                      Totally agree. Yeah.

Julia Coronado:                ... we probably have a longer runway on the expansion.

Mark Zandi:                      Yeah. I agree with that. The only reason why it's a little higher in two years is because you're two years out.

Julia Coronado:                Statistically.

Mark Zandi:                      Statistically.

Julia Coronado:                Yeah, exactly, exactly. So it feels like it's either going to happen... We're either in the early stages and it'll happen or we're actually, some stars are going to align here to take some pressure off, let the Fed cool off and then, the expansion can unfold. I mean that's certainly the analogy people like Jim Bullard have been making, which is, and even Chair Powell, the 1994, we go through a scare.

Mark Zandi:                      Right.

Julia Coronado:                We got to tighten up markets. We go through a year of volatilities, but then you kind of unlock a new phase of the expansion.

Mark Zandi:                      I like you, Julia. I think you're dead on. You guys are listening to this?

Cris deRitis:                       Yes, she can join the team.

Mark Zandi:                      Yeah. Maybe we can have you back. Would love to have you back so that we can gloat. We can gloat. And although I'm a little nervous, if you come back, I'm never going to win this statistics game ever again.

Julia Coronado:                Do I get a cowbell? Can I get a-

Mark Zandi:                      Yeah, we're going to give you a cowbell, an honorary cowbell, maybe get your name on it. Yeah.

Julia Coronado:                What?

Mark Zandi:                      Yeah, exactly, exactly.

Julia Coronado:                Best swag ever.

Mark Zandi:                      Yeah, exactly. Well, it was wonderful to have you and thanks, guys, really appreciate it. And just a reminder to the folks out there, if you have suggestions for future podcasts, fire away. You can get to us in many different ways and many of you are, so thank you for that. And we'll talk to you next week. Take care now.