INSIDE ECONOMICS

Mark Zandi:                       Welcome to Inside Economics. I'm Mark Zandi, the Chief Economist of Moody's Analytics, and I'm joined by a few of my colleagues. We've got Marisa DiNatale, Cris deRitis, my two trusted co-hosts. Hi guys.

Cris deRitis:                        Hi Mark.

Marisa DiNatale:              Hello.

Mark Zandi:                       Good to see you both. And we've got Steve Cochrane and Mike Brisson. Steve, how are you?

Steve Cochrane:               Hey, Mark. Doing great. Thanks.

Mark Zandi:                       And podcast listeners know the two of you because you've been on before, haven't you? You've been on before.

Cris deRitis:                        Yeah.

Mark Zandi:                       Yeah. And Mike, you've been on a number of times before.

Michael Brisson:              Yes, I have. I want to talk about cars.

Mark Zandi:                       Yeah. You and your buddy Jonathan Smoke over at Cox Automotive.

Michael Brisson:              Cox Automotive.

Mark Zandi:                       Yeah, right. Yeah, it's good to have you guys both on, and we're going to talk about the tragic events in Baltimore, the collapse of the Key Bridge and the implications that might have for the economy. And Steve, we asked, obviously, Mike, you're key to that because the vehicle industry is seemingly most threatened by what's happened there. And then because Baltimore port's such a large port for entry for imported vehicles, and Steve, we were hoping you could give us some broader context in terms of what's going on globally in terms of supply chains and anything else we should be worried about.

                                                But before we go there, I thought maybe we should just spend some time on the economic data that was released this week, and we did get a lot of data here at the end of the week, GDP on Thursday, and then personal income, consumer spending, some information on inflation here on Friday. So Cris, do you want to just give us a sense of the data? It's not earth-shattering in any sense, but just to be complete, what did the data say?

Cris deRitis:                        Yeah, I'd say the data is, well going according to script, right? The Q4 GDP number was still quite strong.

Mark Zandi:                       You guys notice, he's turned into me. I'm just saying. Now he's taking my turn of phrase, and I'm not sure how I feel about that.

Marisa DiNatale:              He's taking the Deputy Chief Economist job.

Cris deRitis:                        I take it very seriously.

Michael Brisson:              Very seriously.

Mark Zandi:                       He's taking it seriously. Okay, so the economy, sticking to script. Go ahead.

Cris deRitis:                        Sticking to script. Fourth quarter GDP, 3.4%. That's slower than the amazing third quarter, but still, a very solid number. Very quick pace of growth. Consumption, so consumers really driving the bus still when it comes to the overall economy. So 2.2% growth in that fourth quarter on an annualized basis, still very solid, perhaps even a bit stronger than consensus had originally anticipated. So consumers are hanging in there and continuing to support the economy in a major way. So yeah, at least as of the fourth quarter, things we're continuing to grow at a healthy clip.

Mark Zandi:                       Yeah we've got the monthly, the consumer spending data right through the month of February of this year, and that was good, right? I mean, year over year, real consumer spending growth, I think, speaking from memory, but 2.3%-ish. So here's another Zandism right down the strike zone, right, Cris? Are you going to take that from me too?

Cris deRitis:                        No, no, no. I'll let you have that one.

Mark Zandi:                       Right, right? That's strong enough to power the economy, move it forward, but not so strong that if things inflationary inflation and concerns about Fed policy, right? So it feels like couldn't ask for better than that. I mean, I guess we got there with the decline in the saving rate, but we got down to 3.6% on the saving rate. Any concerns about that?

Cris deRitis:                        Always concerns. I guess now there's this theory of permanent revenge spending that we're not really seeing.

Michael Brisson:              What's that? I haven't heard that.

Mark Zandi:                       We're not seeing the dip. Consumers are plowing ahead to supporting the economy, which is great, but they are dipping into savings. They are using more credit. Are we setting ourselves up to run out of gas at some point and that the consumption is just going to drop off? I guess that's what the bears would say here, that this can't continue. It's just too strong. You're not a bear anymore though. Are you still a bear?

Cris deRitis:                        A relative Bear. I've always been a centrist bear. Centrist bear. No, I'm not in the full bear camp. I don't see recession on the horizon here, but I do worry about the dip in savings and the use of credit.

Mark Zandi:                       I don't worry at all. I don't worry one iota. Is iota a word? I don't know.

Cris deRitis:                        It is a word.

Mark Zandi:                       It is a word, iota. Does anyone know what it means?

Cris deRitis:                        Very small word.

Mark Zandi:                       Small. It's a small word, iota. That's another Zandism by the way. I'm not worried about-

Cris deRitis:                        Oh, now you're just pulling words out of the dictionary.

Marisa DiNatale:              You can't take credit for making up a word.

Mark Zandi:                       I'm going to trademark that. Yeah, not an iota. You know why? Because I think the saving rate's down because wealth is up. I mean stock market is rip-roaring. I mean the household net worth is just going skyward. And also house prices, right? House prices mean stock prices are up. I think they're up 60% from the pandemic over the past four years, up 60%, and house prices are up 50%, 50, 5-0. So household net worth has gone skyward. Now I know only two thirds of households own their own home and a little over half and probably less than that own stock of any consequence. Exactly. But that's the consumer that drives the train, right? By the way, that's another Zandism ism right there. Drives the train. Okay, I'll stick with the bus.

Cris deRitis:                        Someone writing this down? Someone ought write this down.

Mark Zandi:                       Down. I'm sticking with the bus. They drive the bus. Right? Am I wrong about that? The wealth effect says, look, if the population is wealthier, then people feel more confident and they don't need to save as much because they typically save for retirement and a rainy day or their child's education. And if they've been able to do that because of the run-up in asset prices, then they're going to save less, all else being equal. And that's what we're observing dead-on.

                                                In fact, I would go so far to say this is a key difference between the US economy and almost maybe every other economy on the planet. And that is wealth here has risen so much, that it has supported the drawdown of excess saving. So everywhere in the world, correct me if I'm wrong, Steve, but everywhere in the world, during the pandemic, excess saving built up in part because of government support, but mostly because people couldn't spend and everywhere else in the world, no one's spending down that excess saving. Saving rates are still high. Only place that's happening, I think maybe Australia might be the other place, here and Australia, correct me if I'm wrong. I'm going to stop in a second-

Steve Cochrane:               Second. No, Australia looks a lot like the US does. They behave in a very similar way.

Mark Zandi:                       It's the wealth effect, right?

Steve Cochrane:               Yeah.

Mark Zandi:                       So should we be concerned about that? I guess you could be concerned about the valuations in the stock market and the housing market, Cris, right? No?

Cris deRitis:                        You can be concerned about the valuations. You can also be concerned about that bottom half of households, right? They're not driving the bus when it comes to consumption. You're right.

Mark Zandi:                       They're in the bus though.

Cris deRitis:                        They're in the bus. They're in the bus. But they're kind of at the back of the bus right there.

Mark Zandi:                       Okay.

Cris deRitis:                        They're piling on the debt, right?

Mark Zandi:                       No. See, I don't even buy that, Marissa. Do you want to take umbrage with that? Another Zandism, umbrage.

Marisa DiNatale:              No, I mean, I was going to say something similar that I think a lot of the rise in credit usage has probably been among lower income households and middle lower income households that have drawn down excess saving, and they don't have the same wealth effect. They're less likely to be homeowners, they're less likely to be invested in the stock market, and they're the ones that are tapping credit. And we've seen credit delinquency rates for a number of lines of credit rise above where they were prior to the pandemic. And I think it's those households.

                                                Now, that said, as I've said before, I don't think that's an existential threat to the economy. So I'm not worried about it in terms of the overall economy, but I do think that there's some concern at that lower end where it's less likely to be the wealth effect. It's more likely to be spending and borrowing out of necessity.

Mark Zandi:                       Okay. Agreed. In a sense. Okay. Top third of the income distribution, I would argue their finances has never been as good as they are today. Ever, ever, ever as good. One third.

Marisa DiNatale:              No argument there.

Mark Zandi:                       Top third of the distribution account for, according to our data, two thirds of the spending, just kind of a heuristic, a rule of thumb, middle third of the distribution, I'd say they're in pretty good financial shape. Maybe it'd be hyperbole to say best ever, but it's pretty darn good. Everyone's employed, wage growth is stronger than inflation. There is some excess saving. They own a home. So they've benefited from the run-up in housing values. They probably own some stock, so they've benefited from that. They haven't been borrowing. Their debt service is low. It hasn't budged. So I say they're kind of sort of perfectly fine. Bottom third, a lot of stress. They blew through the excess saving they got through government support early on when inflation took off beginning in late 2021. And the high inflation did a number on those groups. They did turn to debt to help supplement their income credit cards and consumer finance loans, that kind of thing. But that's history. That's history.

                                                If you look at the current point in time, debt growth has fallen off quite considerably. I mean, consumer finance outstandings are flat to down I think, right? Now cards are still rising, but at a much slower rate. And part of that's got to be high-income households spending more on their cards. It's just that card debt reflects not only people who are evolving, borrowing against a card, but it also reflects people that are transacting. And if they're transacting at a greater level, which they definitely are, spending is up, then that's going to show up as well. And delinquency rates, if you look at delinquency rates on a seasonally-adjusted basis, they feel like they've peaked, they've leveled off. And now with the tightening in underwriting standards since last year's banking crisis, I would expect to see some improvement there. So bottom third of the distribution, yeah, a lot of stress, but it's not like they're not spending, they are in the game. They're in the game. And most fundamentally, their wage growth is still meaningfully stronger than the rate of inflation.

Michael Brisson:              But Mark, can I jump into this Mark?

Mark Zandi:                       Absolutely.

Michael Brisson:              On that lower income-

Mark Zandi:                       Only if you disagree with me, if you agree with me, I don't want to hear from you.

Steve Cochrane:               I do disagree with you.

Mark Zandi:                       I'm loaded for bear.

Steve Cochrane:               On the lower income side, don't you think that they're so busy now trying to pay back that credit card debt that they're neither putting money into savings or spending an inordinate amount?

Mark Zandi:                       No, they're saving rate's negative. We calculate that. Their saving rates, they've borrowed more than their income to supplement their income.

Steve Cochrane:               Absolutely, yeah.

Mark Zandi:                       And they are paying more, but they are spending, I think, here's the other factoid heuristic. The bottom third of the distribution accounts for 10% of the spending. 10%, right? Look, I'm not arguing that they're not under stress and that the economy can flourish if the bottom third is struggling. I think this is a problem, don't get me wrong, but I do think the US economy can power forward with the top third and the middle third just doing their thing, which they appear to be doing.

Michael Brisson:              No, good enough. From the macro point of view, you're absolutely right.

Mark Zandi:                       Here's the other thing I'll throw into the mix. Once the Fed starts easing interest rates, which we anticipate, obviously things can go in lots of different directions, but we anticipate, and it's widely anticipated, they start cutting rates, that immediately lowers the debt service burden for those low income households. You immediately see that in lower credit card rates. You see that in consumer finance loans coming in, even to some degree auto loans, they're kind of mid, they're like three, five, seven year maturity. So you might see some relief there as well. But no, Cris, you're not buying this at all.

Cris deRitis:                        Come on, a quarter point if you're paying....

Mark Zandi:                       No, a quarter point each quarter.

Cris deRitis:                        If you're paying 25, 30% on your credit card bill, that's not going to really move the needle, right?

Mark Zandi:                       Yeah, but it moves it in the right direction.

Cris deRitis:                        It moves it in the right direction. But we're also in a perfect labor market economy here. So if they're cutting, they're worried about the labor market as well. We're seeing some cracks in that labor market. I think there's, again, I'm with you on the no recession. I think, yes, for all the reasons you gave, things are moving in the right direction, but there are cracks in the pavement and certainly, there's weakness out there.

Mark Zandi:                       Oh yeah, okay. All right. Cracks in the pavement, now that's a deRitis comment. I never said cracks in the pavement. Yeah, that's definitely new. That's new to the nomenclature.

Cris deRitis:                        Add it to that.

Mark Zandi:                       Now I'm going to steal it, cracks in the pavement. Hey Mike, you've been listening to this. Any comments?

Michael Brisson:              Well, from the auto side of things, we know that the new vehicle sales happen with the top third of the distribution, so not concerned there, in terms of new vehicle sales. And we know that the top third is going to be spending the money towards on the auto side of things. So I'm thinking that it's not anything to worry about on our side. We're seeing people drive, we're seeing people out there, so demands there. And then the decrease in the interest rates is going to help the auto sales as well. So from my side of the book, it's smooth sailing right now.

Mark Zandi:                       Got it. Cris, did you hear that? Marissa? He's on my side. He's not on your side.

Cris deRitis:                        Subprime auto, you're not worried?

Michael Brisson:              Subprime auto, the risk score band that's decreased in delinquency levels over the past six months. So subprime is moving in the right direction. If you're going to look at any of the risk score bands.

Cris deRitis:                        But still elevated, right?

Michael Brisson:              Oh, very elevated. 60% above where it was in 2019, but so is almost every other risk square band right now, but it's moving in the right direction. We've had two and a half years now of tightening credit standards and subprime gets hit first there. So they're the first ones to start to see that decrease in delinquency rates.

Mark Zandi:                       Here's the other thing, and we will move on after this and we'll go to what's happened in Baltimore and supply chains. But here's the other thing I saw in the data that made me feel better, feel good. And that is corporate profits. Did you notice that? So we got the GDP release for the fourth quarter for the third time. This is the last monthly revision. And in that they provide the estimate of corporate profits during the quarter, and they rose again. This is now before tax profitability, and they've surged since the pandemic, and continue to, they kind of stalled out a little bit back last year, but now they're kicking back into gear and it's hard.

                                                And that obviously is really critical to the stock market, obviously to ensure that the stock market doesn't correct. Going back to my point about the wealth effects, but it's also very important to business investment and hiring. I mean, if businesses are making money, much more likely they're going to be out there investing in new equipment and software and structures and everything else, and much less likely that they'll start laying off workers. So that was the other thing I took a great deal of solace in. Any comments there guys, on the corporate profitability? Cris, Marissa? No? Okay.

Cris deRitis:                        No.

Mark Zandi:                       All right. Okay. Very good.

Marisa DiNatale:              Still no signs of layoffs in the jobless claims either.

Mark Zandi:                       No, right? Nothing. Nothing.

Marisa DiNatale:              Yeah.

Mark Zandi:                       Someone keeps telling me to look at the WARN notices. I have not had a chance to do that. WARN notices are by law if they're, I can't remember what the size of the layoffs are. If they're over a certain size, the company has to provide warning to the public via the Bureau of labor statistics. You guys, Marissa, have you been looking at that at all?

Marisa DiNatale:              I don't regularly look at it. Sometimes I look at it to look up a specific company when I see a headline in the news, I look at the WARN notice to see what the size of the layoff is and where it's going to be. Because it is by company. If Google says we're laying off 10,000 people, you can look at the WARN notice and see...

Cris deRitis:                        It shows up, yeah.

Mark Zandi:                       Could you take a look at that for next week? I'm just curious.

Marisa DiNatale:              yeah.

Mark Zandi:                       Okay. Very curious, because a couple people have mentioned that to me that they're up a lot relative to UI claims. And you've talked about some of the measurement issues with UI claims that might be playing a role, but let's take a look at that. Okay, let's turn to events in those tragic events in Baltimore and consider the macro, or let's just say the economic implications. Obviously it could have regional implications on the economy in Baltimore, but also on the macro. And Steve, let me turn to you. What do you think? How big a deal is this?

Steve Cochrane:               Yeah, mark. I don't think it's that big of a deal. And we've talked about Baltimore being such an important port for auto imports. And when you look at who ships through Baltimore and through all of the East Coast ports, Germany and Japan are the biggest users of those ports. Japan the biggest, Germany the second biggest, but they use all of four of the ports that have the so-called roll-on roll-off facilities to get cars in and out of the ships very, very quickly.

                                                So I think the key thing is that they're these big shippers, they have distribution and management facilities in all four of the ports. These are in, aside from Baltimore, it's Brunswick, Georgia, Newark, New Jersey, and Jacksonville, Florida. So as long as there's capacity, there's going to be no problem really in shifting the direction of shipment through these other ports. And indeed, I read this morning that BMW, some of the other German automakers are already making those moves. So I don't think it is a big deal. There might be some very initial disruptions of supply, but not long. And Mike can chime in on this, but I think inventories of autos in the US are pretty good right now. So they can withstand a short amount of distribution disruption. So from that point of view, I don't really see anything to worry about from a macro point of view for the economy in terms of this big piece of the shipping that goes into the US from these four ports.

Mark Zandi:                       So the key channel through which this tragic disaster would impact the broader economy is through the impact on the port. I mean, obviously the bridge is down and that's going to affect commuting patterns and add to costs and commute times and affect the, I'm sure the Baltimore economy. But in terms of what it means for the broader national economies, everything runs through the port. And what you're saying is, that there's workarounds here.

Michael Brisson:              There are workarounds in the near term to use other ports. And then I don't don't know how long it's going to take to clear the port of the debris from the bridge. I can only guess that the federal government is going to do everything they absolutely can to assist the state and get that debris cleared out quickly. I don't know what the technical difficulties are, but-

Mark Zandi:                       It sounds like weeks. I mean, based on what I'm reading and the money's pouring in.

Michael Brisson:              Yeah, exactly.

Mark Zandi:                       I mean the federal government has the money, the army Corps of engineers and other emergency funds are already being used to clear the ports and they may just open up a channel, a small channel to get-

Michael Brisson:              That might be all it takes, right. Add to that, it's an election year. The federal government's going to do everything they can to say, look, we're with you. And so I think I would agree with you, it's weeks, not months.

Mark Zandi:                       Hey Mike, the auto-industry, vehicle industry, that's, I mean, ostensibly the industry that would get hit hardest because Baltimore is the largest port of entry, I believe for imported vehicles. What do you think? How big a deal is this?

Michael Brisson:              Quick, just to put a book on what you were saying before, nearest comparison is that Suez Canal where the shipping container got stuck there, and that took five weeks, and it didn't have the full resources of the US government coming in, the US government's working 24/7 to get this removed. So I'm saying that would be the highest possible duration that it would take would be five weeks. So then going specifically off of that, so let's just assume a month.

Mark Zandi:                       You're referring to that event where that tanker got turned sideways in the-

Michael Brisson:              Evergrande or ever...

Mark Zandi:                       Yeah, and they had to unlodge it.

Michael Brisson:              Yes, went sideways. And it was a lot smaller area that they're working with there too, compared with the river. So from the vehicle perspective, I think Steve said it best where there's workarounds. I know Nissan and Ford have already come out and said we've already redirected all of the traffic to other ports and we're not expecting any sort of issue. Steve also alluded to the increased inventories. Inventories as reported by Cox Automotive, they're up to 2.7 million vehicles and lots across the country, that's over 50% higher than last year at the same time. They estimate 76 days supply, which is much higher than it was last year. And that's even given the elevated sales rate that we have over the last four to five months where sales are 15.8 million in February.

                                                So everything points to the vehicle industry not being impacted because of the lost vehicles coming in and out. They'll go to different ports. The port of Baltimore brought in 850,000 vehicles last year, so that's about 70,000 per month. So even if we took 70,000 off inventories for one month, and that's the upper end of how long it takes to get the port open, that still wouldn't have a material impact on the new vehicle sales numbers. On the new vehicle prices. It's not going to raise prices or the subsequent movement of used vehicle prices, which are the substitute good. So I'm not seeing anything in our traditional macro indicators that would be impacted by the current closure of the port.

Mark Zandi:                       Okay. So just to reiterate, bottom line, you don't see any meaningful impact on the vehicle industry?

Michael Brisson:              Not to the macro vehicle indicators. I mean if you're looking in a dealership in Baltimore, there's going to be some really local marginal issues. So if you're looking for a Mazda or something that's someone that has high exposure in Baltimore, and then they have extra traffic coming in and out and you have shut down arteries within the local area, there might be some very, very localized issues, but nothing that's going to be distributed across the wider economy. If you just even go back to the UAW strike, we lost 138,000 vehicles from production from those 40 days. And we didn't see anything in terms of all the macro indicators just from that. That was lost production, not even lost imports.

Mark Zandi:                       Okay, good point. Good point. So Steve, the other product I've heard might be an issue is coal. I guess a lot of US coal, I don't know if it's a lot, but Baltimore port is where a lot of coal exports leave from to the rest of the world. Big deal, not a big deal.

Steve Cochrane:               Not a big deal.

Mark Zandi:                       Not a big deal.

Steve Cochrane:               The way to think about it, in terms of rising costs, if there's a loss of supply, well, I mean over the last six months, shipping costs have already doubled between the US and Asia. This puts a marginal change on that. It's not going to be really as significant, and the economies are adjusting to that rise in shipping costs. This is due a lot to the troubles in the Red Sea. Second, kind of like cars, coal inventories are ample around the world, so there's no real issue in terms of having to get coal right now. Third, coal is kind of an, I don't know if this is the right word, kind of a nimble resource in that there are many, many sources for it. And there's a very good example about this and that is where China sources its coal from. So both China and India, which are the countries that are, I think of most concern, they both have a high demand for coal. They're still big coal users and they have to import it. Most years they get about half of their coal from Australia.

                                                India gets a very small share from the US, as does China. But in 2021, China stopped trading with Australia because of a trade dispute. Wine, agricultural commodities, coal. They didn't buy anything from Australia for really about two years. They're just coming back to buy wine. That's the first thing they're coming back to get from Australia right now. Then the rest of it will follow. But in that one year, instead of getting about 1% of their coal from the US, they got 10% of their coal from the US, and they also upped their purchases from Canada, from Indonesia, and from Mongolia. And there are other sources of coal as well. That was in one year. So it just shows how nimble at least China could be in terms of shifting its sourcing of coal very, very quickly. So ample inventories right now, if inventories begin to come down, and this is, we're getting into the summer months, so coal demand, were kind a low part of the annual cycle for coal demand. I just don't see enough of an issue here to be too worried about.

Mark Zandi:                       Yeah, I have to tell you, I was surprised we exported coal at all. I mean that just feels like a, I just was surprised. Kind of feels like low-value added, high shipping costs. Why would you get it from the, I know the US has lots of coal, but I guess it's cheap enough to make some sense.

Steve Cochrane:               It is cheap enough. We still get a lot of coal coming out of the Kentucky coal mines and Baltimore is the port that's probably closest to that source. So much of it goes out of Baltimore. And then we do have to remember, a lot of countries still use a lot of coal in terms of electric generation and heating. And China and India are two great examples. They're both working towards diversifying energy sources, but there's going to be no, there'll be demand for coal for quite some time to come from those two big economies.

Mark Zandi:                       So vehicle imports, coal exports, any other major product coming in and out of Baltimore that might be an issue, that you know of?

Steve Cochrane:               Everything else seems to be rather diversified. There is container traffic coming out of there and indeed the Dali ship was a container ship, but a variety of goods that go into those containers.

Mark Zandi:                       Okay. Two other quick things, one, since I have you, thinking about global supply chains, what's going on over in the Red Sea? I mean it feels like that's kind of fallen off the front pages here with good reason. Is traffic moving through or not? Do you know? And have shipping rates come in or not?

Steve Cochrane:               So shipping rates have not come in, and I think there's still a risk premium on those shipping rates, given that there is still some fighting, if you will, some attacks going on in the Red Sea. But they do seem to have diminished, and the Houthis have promised that they will not attack Chinese ships or Russian ships. The Chinese ships, of course, that's important for the shipping between Europe and China. So there is a little bit of relief on that score, but I don't think we're over it yet. There's no broad overall agreement in place at all regarding the Red Sea.

Mark Zandi:                       Okay. And the final question, any other flash points in the global supply chains? Anything out there that's worrying you? I mean they've been obviously kind of front and center here since the pandemic. Anything else that we should be worried about on the radar screen?

Steve Cochrane:               I still worry about the South China Sea. I have to say, they've had some, I want to say very serious. I don't know, maybe that's too much, conflicts between China and the Philippines around the shoals that are in Philippine waters. But the China claims, and if you look at the videos, I mean the Chinese Coast Guard is attacking, if you will, the Philippine ships with water cannon and creating a ton of damage on these ships that are not really high quality ships. They're just supply boats going to supply the Philippine sailors that are stationed on these shoals. And so I worry about that. It's still small, but it's active. And it also illustrates how extensive the Chinese claims are to that entire South China Sea. They got that dotted line they draw on the map that basically includes the entire South China Sea. A little bit of conflict with Vietnam, but nothing to the extent that we see with the Philippines right now. So I've always got that on the backup.

Mark Zandi:                       Yeah, that's good to keep on the radar screen. That's an important one. Okay, we're going to keep this podcast short. So let's turn to the game. The stats game, we just put forward a stat. The rest of the group tries to figure that out with questions, deductive reasoning, clues. And the best stat is one that's not so easy. We get it immediately. One that's not so hard, we never get it. And if it's apropos to the topic at hand, all the better. And we always start with Marissa. Marissa, what's your stat?

Marisa DiNatale:              My stat is 3.4% in February.

Mark Zandi:                       So it was in the personal income spending report.

Marisa DiNatale:              Yeah, it's adjacent. It's adjacent.

Mark Zandi:                       It's adjacent. Well it was in the government statistics that came out this morning.

Marisa DiNatale:              It was, yeah.

Mark Zandi:                       Personal income spending report. No.

Marisa DiNatale:              Did it come out this morning?

Mark Zandi:                       Yeah, I know everything gets blurry out there on the West Coast. You're like in a time warp.

Marisa DiNatale:              Yeah, sorry. Yeah. Yes it did come out this morning.

Mark Zandi:                       Okay, well it's not the saving rate because that's 3.6%. Is it inflation's number?

Marisa DiNatale:              Yes.

Mark Zandi:                       So is it the, I don't know, the monthly core PCE annualized?

Marisa DiNatale:              No, but you're on the right track.

Mark Zandi:                       Okay. The three-month moving average annualized core PCE?

Marisa DiNatale:              No, no.

Mark Zandi:                       It's the consumer expenditure deflator though.

Marisa DiNatale:              Yes. And I'll give you another hint.

Michael Brisson:              Is it rising gas prices?

Marisa DiNatale:              What was that Mike?

Michael Brisson:              Rising gas prices?

Marisa DiNatale:              No, I'll give you another hint.

Michael Brisson:              Okay. That was 3.4 though.

Mark Zandi:                       Oh, it was?

Marisa DiNatale:              It's similar to, if you remember the statistic I gave last week.

Mark Zandi:                       Oh geez.

Marisa DiNatale:              It's basically the same statistic.

Mark Zandi:                       I don't have any idea. Talk about time warp a week ago? Are you kidding me? Oh geez. That's like asking me what I had for dinner last Friday night. I mean really? I don't have no idea. Cris, what do you think?

Cris deRitis:                        No idea.

Mark Zandi:                       Is it like a market-based core PCE deflator, annualized, something like that. It's some component of the consumer expenditure deflator.

Marisa DiNatale:              It is.

Mark Zandi:                       Oh, it is. Oh it is. Okay.

Marisa DiNatale:              Yep, yep, yep.

Mark Zandi:                       And is it annualized?

Marisa DiNatale:              No.

Mark Zandi:                       Year-over-year?

Marisa DiNatale:              This is year-over-year growth.

Mark Zandi:                       Year-over-year growth. So some component of PCE, year-over-year growth.

Marisa DiNatale:              Some calculation within the PCE report that we can also do in the CPI report that we look at.

Mark Zandi:                       Oh, is it super core?

Marisa DiNatale:              Yes, it is.

Mark Zandi:                       Super core. Okay.

Marisa DiNatale:              So it's super core inflation from the PCE report. Last week my statistic was super core inflation from the CPI report. And I picked this because they're very different. So super core from the CPI report in February was four and a half percent year-over-year. And it's been on the rise for the past several months. It's been inching higher. From the PCE report it's 3.4%. It's actually been falling. So these two things have diverged quite a bit in the last few months. We've talked a lot about the differences in the two because of the shelter component, right? Shelters almost double the weight in the CPI as it is in the PCE. But this is even taking out shelter, just looking at core services including shelter and energy. These two things are moving in opposite directions. The Fed looks at PCE, they prefer the PCE over the CPI. So I think this again bodes better for a rate cut in the first half of the year than in the second half of the year.

Mark Zandi:                       I hate the super core, particularly for the PCE because it's based on all these imputed prices. I think a big part of that is financial services. The way they measure that is they tie it back to stock prices. So when stock prices are up, the cost of financial services is up, therefore super core is up and that's driving it now. So I don't know, if you look at market-based core consumer expenditure deflator, the Fed looks at core consumer expenditure deflator, I would say let's look at market-based. That was up 0.2% in the month. It's still a bit elevated year over year. I think it's 2.7, 2.6, something like that. So it has to be two, but I don't know. It feels like another Zandism.

Marisa DiNatale:              Yeah just core PCE is up 2.8% year over year.

Mark Zandi:                       Yeah, 2.8.

Marisa DiNatale:              It was up 0.3% month over month.

Mark Zandi:                       Right. Okay. Cris, I saw you shaking your head. Do you agree with me?

Cris deRitis:                        Yeah, yeah.

Mark Zandi:                       Darn. I thought you would disagree with me.

Cris deRitis:                        No, not this time. I have other things to disagree about.

Mark Zandi:                       Yeah. Okay, fair enough. Hey Mike, you're up. What's your stat?

Michael Brisson:              10.5 million.

Mark Zandi:                       That's got something do with via autos.

Michael Brisson:              Does have to do with autos, yes.

Cris deRitis:                        All right.

Mark Zandi:                       Units? Sales.

Michael Brisson:              Yes sir.

Mark Zandi:                       Sales of something? Oh, production. It's production. US production. 10.5 million.

Michael Brisson:              There it is

Mark Zandi:                       Guys. Steve, now come on. This is how it's done. This is how it's done. I have a mind melt with Mike now, I have a mind melt. Yeah. All right, go ahead and explain.

Michael Brisson:              All right, so 10.5 million. Last month's rating came out March 15th. It's the average for the last six months of 2023 as well. In 2019 the number was 10.6 million. So we are on a consistent path. Production is as high as it's going. Production's all the way back. Production's been back in the US for vehicles. That's why we see inventories where they are. That's why we're not really concerned about the loss of the imports right now, because production's back in the US. Production around the world is pretty much back to Germany, is about 7% below where they were in 2019. Japan's about in the same place, and China's up 35% from where they were in 2019 as they continue to gobble up market share around the globe.

Mark Zandi:                       In Japan, German production could be down because the market share is down vis-a-vis China, right?

Michael Brisson:              Yes.

Mark Zandi:                       Yeah. Okay. Okay. Well that was a good one. So we're back to normal on the global vehicle production. We're back to normal.

Michael Brisson:              Yes. Okay, well global demand is, this is right where it should be.

Mark Zandi:                       So we need new vehicle prices to start declining so we can get my insurance bill down. I got a whole thing about my insurance bill, I got to tell you about it.

Michael Brisson:              Average transaction price is down 6% from the peak in 2022 as of February's list reading.

Mark Zandi:                       So is that going to show up in the CPI here pretty soon?

Michael Brisson:              That's what we're forecasting.

Mark Zandi:                       Yeah. Okay. I'm waiting.

Cris deRitis:                        Mark, your bill's not going to go down.

Mark Zandi:                       Actually, I highly recommend everyone call their insurance company and really-

Cris deRitis:                        Oh, to negotiate.

Mark Zandi:                       Yes.

Cris deRitis:                        Okay.

Mark Zandi:                       And the way you do it is you say, I'm going to cancel. As soon as you say I'm going to cancel, you get someone on the line. And once you get someone on the line, they're helpful, they're good, they want to help you. And I actually, I won't tell you the numbers, but they were, meaning, I felt good about that conversation after I got off the phone. Even though I'm still paying a lot more, I felt good.

Steve Cochrane:               We went through the same thing, Mark.

Mark Zandi:                       Right?

Steve Cochrane:               Yeah. Exact same thing.

Mark Zandi:                       My gosh. Anyway, Steve, you're up.

Steve Cochrane:               All right, first of all, I don't quite know-

Mark Zandi:                       No, first of all, you're up.

Steve Cochrane:               No, no, no. I don't quite know the rules. I need a rule check.

Mark Zandi:                       What the heck are you talking about, you don't know the rules?

Steve Cochrane:               Can I have two numbers?

Mark Zandi:                       Yes, you can have-

Steve Cochrane:               Okay. Wonderful. Okay.

Mark Zandi:                       Hopefully they're related though.

Steve Cochrane:               They are related. They are the same indicator, but they come from two different countries.

Mark Zandi:                       You gave us more than you should have, but go ahead.

Steve Cochrane:               Maybe so. So the numbers are 4.8 and minus 0.1%.

Mark Zandi:                       Percent?

Steve Cochrane:               Percent, yes.

Marisa DiNatale:              4.8% and 9 is-

Cris deRitis:                        Is it inflation?

Mark Zandi:                       Inflation, yeah.

Steve Cochrane:               Yeah. It's not inflation.

Mark Zandi:                       Is it related to the topic at hand? Supply chains, shipping?

Steve Cochrane:               It is in a sense, yes.

Mark Zandi:                       Oh, I know what it is. I know what it is. You guys are going to be very impressed when I tell you what this is.

Marisa DiNatale:              I'm sure we will be.

Mark Zandi:                       Yes. Very impressed. And I want you to...

Michael Brisson:              We already are, we already are.

Marisa DiNatale:              Preemptively impressed.

Mark Zandi:                       In anticipation of this. Is it global trade and global industrial production year-over-year?

Steve Cochrane:               It is not, no.

Cris deRitis:                        You know what? Those numbers are really similar, right?

Mark Zandi:                       Oh, darn.

Marisa DiNatale:              Are they trade numbers, Steve?

Steve Cochrane:               Not directly.

Mark Zandi:                       There are two different countries you said. Oh yeah, you gave us that hint and I didn't even listen to the hint.

Steve Cochrane:               So they're comparative figures.

Marisa DiNatale:              Is one of the countries China?

Steve Cochrane:               No.

Marisa DiNatale:              Oh.

Steve Cochrane:               Sorry.

Marisa DiNatale:              Is it an Asian country?

Mark Zandi:                       Is it one in the US?

Steve Cochrane:               No, I'm an Asia guy, right? They're both in Asia. I'll give you that.

Marisa DiNatale:              Yeah. They're both Asian.

Mark Zandi:                       Oui, you're not going say Myanmar and Sri. Lanka, are you?

Steve Cochrane:               Could be, but I don't even know those numbers that well.

Mark Zandi:                       Okay, what's the capital of Sri Lanka, quick. Tell me.

Michael Brisson:              Colombo.

Mark Zandi:                       Okay, very good.

Marisa DiNatale:              Your five years in Asia was well-spent.

Mark Zandi:                       We're hired. You're hired. Steve.

Cris deRitis:                        Wait, wait, you're getting off track here. Focus. Focus.

Steve Cochrane:               I'm getting a little punchy.

Cris deRitis:                        Yeah.

Michael Brisson:              China. Is China one of them?

Marisa DiNatale:              No, I just asked that.

Mark Zandi:                       You just asked that. Okay. I got to pay attention. All right. See, Marissa got annoyed. I've never seen her annoyed before. She was actually annoyed. For the first time ever. That's how you-

Marisa DiNatale:              I'm trying to move this along.

Michael Brisson:              So China is geographically close. I'll give you that.

Marisa DiNatale:              Taiwan?

Cris deRitis:                        South Korea?

Michael Brisson:              No. Korea is one.

Cris deRitis:                        All right.

Mark Zandi:                       Chip exports. Semiconductor exports. Exports from Korea is up 4.8 because chips are up.

Marisa DiNatale:              He said it's not exports though.

Mark Zandi:                       Oh, he said it was not exports.

Michael Brisson:              It's not exports.

Mark Zandi:                       He said it wasn't directly a trade number.

Michael Brisson:              These numbers came out Friday Asia time.

Mark Zandi:                       I say we give up. What do you-

Marisa DiNatale:              Unless he can give us another, no, give us another hint.

Mark Zandi:                       You like the game? Okay. All right. Is it North Korea?

Cris deRitis:                        North Korea and South Korea.

Michael Brisson:              North Korea, oh, Mark.

Mark Zandi:                       North Korea is minus one, South Korea-

Steve Cochrane:               If I had any data from North Korea, I'd be a happy guy. So, the two countries are Korea and Japan. The indicator is industrial production. Percent change month on month in February. Now, can you guess which one is 4.8 and which one is minus 0.1?

Mark Zandi:                       It's got to be Korea at 4.8.

Marisa DiNatale:              Japan is minus 0.1.

Mark Zandi:                       Japan is minus one.

Steve Cochrane:               Japan is minus 0.1. That's right. And Korea is at 4.8. Korea has had positive good numbers for the past seven months and Japan has just been flat, negative one month, positive, negative, positive. And so the way I relate this to the supply chain or the disruption in shipping-

Mark Zandi:                       Yeah, try to do that Steve. I am waiting to hear how you do that.

Steve Cochrane:               If indeed there was a greater disruption in terms of shipping of industrial commodities or cars from Korea and Japan to the US, it would hurt the Japanese economy more, because it's just on that edge of what you might call recession. Whereas Korea has a much more robust industrial sector.

Mark Zandi:                       That was good. That was good. That was good. Marissa should have known that.

Steve Cochrane:               She's closer. She's out of California.

Michael Brisson:              I thought for sure it was going to be Sri Lanka.

Mark Zandi:                       Okay, let's do one more. Cris, what's your stat?

Cris deRitis:                        All right, I'm going to give you a fun one to liven this up a little bit.

Mark Zandi:                       I thought we were having fun. No?

Cris deRitis:                        Well, you know.

Mark Zandi:                       Okay, this is really off-topic. More fun.

Cris deRitis:                        It's on topic. It's definitely related to the Baltimore, I just gave it away I think. Six million pounds per day.

Mark Zandi:                       And it's related to the Baltimore port.

Cris deRitis:                        Yes.

Marisa DiNatale:              Fertilizer that comes into the Baltimore port.

Cris deRitis:                        No, but interestingly enough, Baltimore is the largest...

Marisa DiNatale:              I know.

Cris deRitis:                        Exporter on the East Coast.

Mark Zandi:                       Of fertilizer?

Cris deRitis:                        Of urea nitrate fertilizer.

Mark Zandi:                       Oh, I didn't know that. Okay. Okay. That's interesting. But that's not what you had in mind.

Cris deRitis:                        No, no.

Mark Zandi:                       But it is some commodity or product that moves through the port.

Cris deRitis:                        It is, yes.

Mark Zandi:                       Six million pounds.

Marisa DiNatale:              It comes in or goes out?

Steve Cochrane:               It's sugar.

Marisa DiNatale:              Or moves?

Mark Zandi:                       Oh.

Steve Cochrane:               Sugar.

Cris deRitis:                        You got it Steve. Six million pounds per day are processed by the Domino sugar.

Mark Zandi:                       Oh yeah, right. I read about that. Coal is the largest export and sugar is the largest import into Baltimore.

Cris deRitis:                        That was a sweet statistic.

Mark Zandi:                       Thank you.

Steve Cochrane:               Very good.

Cris deRitis:                        And we're having fun. There you go.

Steve Cochrane:               And we're having fun. That's how economists have fun. Yeah, we enjoyed that one. Okay. I think we should call this a podcast. What do you guys think? No? You want to keep going?

Marisa DiNatale:              We could keep doing this all day.

Steve Cochrane:               It's been a lot of fun. So let's hold onto that.

Mark Zandi:                       It's been a lot of fun. Very good. Anything else anybody wants to say before we actually call it a podcast? Okay. All right, very good.

Steve Cochrane:               What's on next week?

Mark Zandi:                       Employment, right? Employment in a report. And we got Dante, I assume Dante, I haven't even asked Dante. I'm just assuming Dante's coming to that. So should be good. Another big economic stat. And by the way, I had a really good stat, but I didn't tell you.

Steve Cochrane:               Oh, Let's have it come on.

Mark Zandi:                       You sure? You really want it?

Steve Cochrane:               Why not?

Mark Zandi:                       Okay. Mike was ready to go to lunch. Okay, here you go. You got it. Point five and 2.5.

Marisa DiNatale:              Inflation-related?

Cris deRitis:                        BCE.

Mark Zandi:                       Not inflation-related.

Marisa DiNatale:              Spending?

Mark Zandi:                       Not spending.

Cris deRitis:                        GDP report.

Mark Zandi:                       GDP report.

Marisa DiNatale:              Income.

Mark Zandi:                       Not income, but it's the GDP report. 2.5-

Marisa DiNatale:              Is one a month-

Mark Zandi:                       Focus on the 2.5 first. What's 2.5

Marisa DiNatale:              Is that year-over-year? That's year-over-year GDP.

Mark Zandi:                       Yeah. Real GDP growth in calendar year 2023 was 2.5. So what's the 0.5 related? I go here often. It came out with this release, right?

Steve Cochrane:               Well you go to GDI often.

Mark Zandi:                       GDI, gross domestic income. Yeah, real GDI. Gross domestic income is up 0.5 in the year. So that's a big gap. So they're both measures of the economy's output. GDP is on the, so-called expenditure side of the account. GDI is on the income side of the account. So what we produce, we buy and then we generate income based on that. So they should all add up, but they're based on different source data and different ways of measuring things and they can diverge. And last year they diverged a lot, 2.5 and 0.5. And kind of the rule of thumb is to get a sense of reality, you average the two. So 2.5 plus 0.5 is three. Divide by two, that's 1.5. It feels like it was a better year than 1.5, doesn't it? But that's the rule of thumb. But it does indicate that the economy is maybe not as strong as the GDP number would suggest. Maybe it's a little bit softer than that. But anyway.

Cris deRitis:                        Those consumers are really struggling at the bottom, right?

Mark Zandi:                       There you go. Yeah. Yeah. Where we started. Okay. I think we're going to call this a podcast. Dear listener, thanks for tuning in, and we will talk to you next week. Take care now.