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Moody's Talks - Inside Economics
Confidence, Consumers, and Cowbells
Diane Swonk, Chief Economist of Grant Thornton, joins Mark, Cris, and Ryan to discuss the current state of the American consumer. They focus on what factors are driving the holiday sales, excess savings, and an outlook on inflation and it's effects on consumers.
Full episode transcript can be found here.
Recommended Read
The Passionate Economist: Finding the Power and Humanity Behind the Numbers, by Diane Swonk, purchase a copy here.
Mark Zandi: Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics. And I'm joined by my two colleagues, trusted colleagues, Ryan Sweet. Ryan's director of real-time economics. Hey, Ryan.
Ryan Sweet: Hey, Mark.
Mark Zandi: You're wearing sweatshirt there, Ryan.
Ryan Sweet: Yeah, I know. We dress alike. I'm going casual Friday. You know I've been waiting for Biden to pick his Fed chair, so I might as well get comfortable.
Diane Swonk: You're going to have to wait a lot longer.
Ryan Sweet: Yeah. Hopefully [crosstalk 00:00:40] next week.
Diane Swonk: They're saying next week.
Ryan Sweet: Yeah.
Mark Zandi: And the listener, that's an interloper. She's diving right in. That's Diane Swonk. But we're going to introduce her formally in just a minute. But I have to introduce Cris. Diane, Cris is very quiet. He looks like James Bond over here, doesn't he?
Cris deRitis: Oh, my goodness.
Mark Zandi: One week he's like a Ferrari driver. The next week, he's James... Right, Ryan?
Ryan Sweet: International man of mystery.
Mark Zandi: It's true. Yeah. And Cris is obviously-
Diane Swonk: I can vouch. I can see him close.
Mark Zandi: Yeah, right? I'm telling you.
Cris deRitis: There you go.
Mark Zandi: Yeah. Deputy chief economist. Good to have him. And of course, Diane. Diane, it's so good to have you. Thank you for joining.
Diane Swonk: It's fun.
Mark Zandi: You are now the chief economist of Grant Thornton, right?
Diane Swonk: Yes. I'm the chief economist at Grant Thornton.
Mark Zandi: And you've had a long illustrious career. Diane, you won't believe this, but-
Diane Swonk: You're dating us both, Mark.
Mark Zandi: Well, that's true. But I remember-
Diane Swonk: Because we've known each other a long time.
Mark Zandi: Yes we have. I knew you ... Well, the first time I met you, I remember you were working for the chief economist of First Chicago, I believe.
Diane Swonk: Yes, correct.
Mark Zandi: [crosstalk 00:01:55] I can't remember his name. What's his name?
Diane Swonk: Jim Annable.
Mark Zandi: Oh, Jim Annable.
Diane Swonk: Yes. He was my mentor. Yes. And we reported to Will McDonough, who was-
Mark Zandi: Oh, is that right?
Diane Swonk: ... was vice chairman of the bank who became president of the New York Fed.
Mark Zandi: Yeah. Oh, I didn't know that. That's interesting.
Diane Swonk: Yeah. I got my first bonus ever. And my first, a note from Will. My first year on the job, I did a big study and he wrote me a special note telling me how good it was. It was great.
Mark Zandi: Oh, that's wonderful.
Diane Swonk: And he doubled my bonus the next year. So that was really great.
Mark Zandi: That's even better. And you and I were, well, I'm not going to say when that was, but-
Diane Swonk: Long time ago.
Mark Zandi: We were focused on regional economics and [crosstalk 00:02:39]-
Diane Swonk: Yes. We were both regional economists.
Mark Zandi: Yeah. Because at that time it was the breakdown of, it was a advent of interstate banking. And all the banks were trying to figure out how to increase the [crosstalk 00:02:49]-
Diane Swonk: And I was in the middle of all the strategy on that. Yes. And I was looking at... I was specialist on the Midwest economy... I started out, Mark. I moved from Ann Arbor to Chicago and they said, "Well, you're from Detroit, the auto industry." And I'm like, "I don't know the auto industry." And actually I do, because I've been working production plants since I was two years old. Because my dad worked at GM and my stepfather worked at Ford. So-
Mark Zandi: Oh, [crosstalk 00:03:15]-
Diane Swonk: I knew a lot more about it than I realized, but that was the first thing they said, "You're an auto analyst. That's your thing." Just because of where I was from, the Detroit area.
Mark Zandi: Well, I mean the auto industry is big now, but back then it drove the economic train, right? I mean-
Diane Swonk: It was huge. This will really date me, Mark. I remember when the 1986 tax reform went in and we used to watch the ticker. It was printed out on paper, the 10 day auto sales reports.
Mark Zandi: I remember that.
Diane Swonk: And auto sales skyrocketed. Because the tax reform didn't allow consumers after December to deduct the interest on their-
Mark Zandi: Oh, that's right.
Diane Swonk: ... Auto loans, on their taxes anymore.
Mark Zandi: So everyone jumped in-
Diane Swonk: And then you got the switch to home equity lines of credit became really big. But that was, I started in September 1985. So-
Mark Zandi: Wow. Well, you just dated yourself. So-
Diane Swonk: I did just date myself. But I did my undergraduate and graduate degree really quickly. And so I started at 23. So, I'm 59.
Mark Zandi: Is that right? I did, wow. My goodness.
Diane Swonk: Yes. Then I did another graduate degree at Chicago, but...
Mark Zandi: Right. Well, that switch over to home equity that worked out really well, didn't it?
Diane Swonk: I remember-
Mark Zandi: Great move.
Diane Swonk: ... raising flags about it in the eighties, in the early nineties saying, "Hey, there's a lot... This stuff's going on like crazy here." I remember back in the day, and I shouldn't digress this much, but I was working on our credit card portfolio, which was a wonderful thing, I was real time data. And I said, "Well, wait a minute here don't you have any linkage? You guys are giving people home equity lines of credit and credit cards, when you give them a mortgage, in the early nineties." And I said, "Don't you have any linkage here in terms of defaults?" Because they're linked. They're like, "Oh, people will never default on their house. They'll always pay the house." And I'm like, "That's ridiculous." And I said, "No, they'll keep their credit lines going longer, because they want access to credit." And it takes longer to foreclose a house and... Oh, wow.
Mark Zandi: Here's a story for you, Diane, that you may not know. The company I started with my brother and, you may remember Paul [Getnan 00:05:38], who's now retired. Paul came to me and said, "Let's start a company." And I said to him, "Okay, Paul, I'll do it, if we get a consulting project." And so I, we started looking around for projects. I wrote a proposal one week later to First Chicago.
Diane Swonk: Oh, wow.
Mark Zandi: If credit card company, it was a project around determining the effectiveness of their marketing for cash advances on credit cards.
Diane Swonk: Yeah.
Mark Zandi: And we literally got the project two days later. I could not believe it. I said, I thought there's no way, this is going to happen. I'm going to [crosstalk 00:06:18]-
Diane Swonk: Oh, I mean... Back in the day, I mean, I know some of the inside of, I mean, I loved our credit card people. I used to go out... We had a separate facility. Did you ever visit it?
Mark Zandi: Oh, yeah. In Elgin. It was in Elgin, Illinois.
Diane Swonk: Yeah. With the waterfalls and the ducks and childcare... And I mean the margins in credit card were really huge.
Mark Zandi: Oh, it was unbelievable.
Diane Swonk: Those guys were making tons of money. It was just something else. And I knew them all really well. And I mean, I just, it would always stun me, how I was never allowed to talk at the time about the margins that we were making or predatory lending or anything like that. Because it wasn't predatory lending, it was just, we got really good margins. I mean-
Mark Zandi: Fine line Diane. Fine line. Yeah.
Diane Swonk: It was incredible though. When you work with the credit card people you're like, I mean... And they had casual days before anyone did. I mean, this was in the nineties. I mean, early nineties and stuff. It was-
Mark Zandi: Yeah. Well here's the thing, First Chicago at the time, I remember this, had 7 million cardholders. We got tapes for all 7 million cardholders delivered through the mail, I think, I can't remember. We put them up in the computers at Penn, University of Pennsylvania, their mainframe and that's what we processed. And we had-
Diane Swonk: [crosstalk 00:07:38] Yeah.
Mark Zandi: Can you believe we had access to the information for 7 million people?
Diane Swonk: Oh, yeah. I mean, it's one of the things that gave me a huge edge for a long time. Because I would get comps all across the country of what was going on. And we didn't have big data in the way we do now that you can get this credit card data. But I had a lot of information that gave me credible insights and it wasn't as real time as it is now, but they're pretty lax about it. Yeah.
Mark Zandi: Well that was, the more implications you got data. The other implication is, really you've got-
Diane Swonk: Yeah. It's pretty lax.
Mark Zandi: Yeah. Pretty lax.
Diane Swonk: [crosstalk 00:08:12] the company doesn't exist anymore.
Mark Zandi: Can you imagine that?
Diane Swonk: [crosstalk 00:08:16].
Mark Zandi: Yeah. We were the biggest processor of data, I think in the east coast that year. So anyway, we definitely digress.
Diane Swonk: We definitely digress.
Mark Zandi: Yeah. But that all good stuff, because it's relevant to the big topic of the day and it's the consumer, which we're going to talk about in a few minutes, but so okay. You were First Chicago and then what happened after that?
Diane Swonk: I went to Metro Financial. So 30 years-
Mark Zandi: Metro, right.
Diane Swonk: ... [crosstalk 00:08:43] Finance and actually I have one in my house. I have a house in Michigan, because I'm from Michigan. It's only an hour and 10 from where I am right now. And I'm going there later after this.
Mark Zandi: Now?
Diane Swonk: But it has a cup that's moodys.com.
Mark Zandi: Do you really?
Diane Swonk: Yeah. [crosstalk 00:09:00] 20 year old cups, marked at the house. And-
Mark Zandi: We thought we were going to make a fortune on those by the way, Diane.
Diane Swonk: Oh, yeah. [crosstalk 00:09:08].
Mark Zandi: Selling those trinkets. Yeah.
Diane Swonk: Well and actually, I mean, I don't know if you remember this, but one of my son's best friends ended up working for you. He went to Berkeley, working with your brother and-
Mark Zandi: Who's that?
Diane Swonk: Colby.
Mark Zandi: Remember his name? Oh yeah, sure.
Diane Swonk: Colby [crosstalk 00:09:22].
Mark Zandi: He's really good.
Diane Swonk: Colby-
Mark Zandi: Very good.
Diane Swonk: I mean, since kindergarten. We still know Colby, right? And I mean, he's like another son to me. But Colby's now working on, he's going to graduate school in New York at Columbia. And he is working on climate change, went from Berkeley to Columbia to work on climate change engineering, to cool the planet.
Mark Zandi: Oh, very cool.
Diane Swonk: Offside. Yeah. Really cool stuff. So anyways, we have a lot of linkages.
Mark Zandi: Yeah. And then Mesirow you went, you were-
Diane Swonk: Oh, now, I have my own company.
Mark Zandi: Yeah. You had your own company. Yeah, I remember that.
Diane Swonk: And then I had a bunch of suitors that wanted to work with me, and-
Mark Zandi: That's great.
Diane Swonk: This was the best mix because I love middle market. And you get so much rich information from your clients and you can add a lot of value. So that's where I'm at.
Mark Zandi: Fantastic.
Diane Swonk: And it's nice to be out of finance. I often say, I spent a lot of my whole over 30 years in finance and I worked with a lot of great people, but I spent a lot of time swimming with sharks as well. And then I'm swimming with Dolphins.
Mark Zandi: That's Ryan. Ryan is like, he'll... As soon as I turn my back.
Ryan Sweet: Got you.
Mark Zandi: Right?
Ryan Sweet: You're the only reason you have me on this podcast to [crosstalk 00:10:38]-
Mark Zandi: Watch out.
Diane Swonk: So now everybody knows all about us, but they don't know anything about the economy.
Mark Zandi: Well, okay. We better talk about that then. Good point. Thank you for that little nudge. We got to [inaudible 00:10:51] back the business here.
Ryan Sweet: Okay, Mark.
Diane Swonk: It's just fun talking with you, mark.
Mark Zandi: I know. Absolutely. Okay. Diane, we play this bit of a game. First thing we're going to do, is talk a little bit about the statistics and do it with a little bit of a game. Because for some... Not you and I and Chris and Ryan, we live on this stuff. But for most people pretty hard to digest the economic statistics. We play a little bit of a game. We state the statistic and then we, the rest of us, try to figure out what that statistic is. The best statistic is one where it's not a slam dunk. We're all going to get it fast. Although, sometimes that's hard. And one that's not so hard, we'll never get it. And then, and this is bonus, if you can come up with a statistic, that's relevant to what's going on in the broader economy and to the topic of the day. So that's the criteria we use. And we always lead with Ryan, because actually, Ryan is absolutely fabulous at this. He knows the data better than anybody.
Diane Swonk: And I will put this out there first, Mark. I don't know if you know this about me. I'm severely dyslexic.
Mark Zandi: I did not know that.
Diane Swonk: And so I can do calculus in my head. It's like a idiot [sevan 00:12:05] thing. But I flip numbers.
Mark Zandi: Oh. So are you warning us that, if you say 18-
Diane Swonk: I may screw it up.
Mark Zandi: ... it's actually 31.
Diane Swonk: I may flip a number.
Mark Zandi: Okay. That's good to know. That's a big hint. That's a really [crosstalk 00:12:20] Guys did you get that?
Diane Swonk: [crosstalk 00:12:22] I don't do PowerPoints. I hate PowerPoint, right? Have you seen me in the one time that I do PowerPoints in a group that we're in together, but I hate-
Mark Zandi: Well, that's really [crosstalk 00:12:31]-
Diane Swonk: I never do PowerPoints. Never, ever. I'm become a very good storyteller without... Because numbers, the economy is about making a story out of the numbers and linking the dots.
Mark Zandi: Absolutely.
Diane Swonk: But if you flip the dots-
Mark Zandi: That could be a problem. I got, actually, have a good story about that [crosstalk 00:12:50], Diane. I got another good story about that. Well, we'll come back to this is the podcast for a second. So I'm sitting in front of a screen with my brother, Carl, who is still with us and still manages the business. And I'm looking at the data and I'm starting to explain, "Oh, that's because of X, Y, Z, this and that. And everything goes, oh, I forgot to multiply by negative one." And then of course I dove into a why? Well, here's the reasons why that's the case.
Ryan Sweet: That's even better.
Mark Zandi: That's even better, absolutely.
Diane Swonk: The data gets turned around and you can still tell a story. There's always a story in the data.
Mark Zandi: Listen here, I think we should-
Diane Swonk: [inaudible 00:13:32] There's people behind the numbers-
Mark Zandi: We should cut that out, I think Ben. No, I'm only kidding to our listener. We're going to keep that in, anyway.
Diane Swonk: I mean, people also forget there's people behind the numbers. I know this seems kind of-
Mark Zandi: True.
Diane Swonk: ... But people always think we're thinking... When they talk to us, what's the first question you always get, Mark? What is the stock market going to do? And that's the last question you want to answer. But the real question, I mean, you guys, right. And isn't that, I mean, the real issue is like-
Mark Zandi: Diane, what's the stock market going to do, Diane? No, I'm kidding.
Diane Swonk: Isn't it the real question we all [crosstalk 00:14:03]-
Mark Zandi: Here goes the script.
Ryan Sweet: Here goes the script.
Mark Zandi: Oh, but we actually, we're going to come back to that though. Can't talk about the consumer without talking about asset values, right?
Diane Swonk: Well, you have to talk about that, but that's different. But the issue is that we're all talking about collective human behavior. Whereas on average behavior going to go, and it matters on average versus not on average as well.
Mark Zandi: Yeah. Absolutely. Okay. Ryan, down the business, give us a good statistic.
Ryan Sweet: All right. I got two numbers for you.
Mark Zandi: Two? Okay.
Diane Swonk: Oh, no. I'm going to write them down. And I'll probably write them down backwards.
Mark Zandi: Yeah. Fire away, Ryan.
Ryan Sweet: Down 28,000 and down-
Mark Zandi: 28,000.
Ryan Sweet: ... 47,250.
Mark Zandi: Okay. Initial unemployment claims down over the last four weeks.
Diane Swonk: Yeah.
Ryan Sweet: Ah [crosstalk 00:14:56].
Mark Zandi: Oh, okay. Wait. Is that right, Ryan?
Ryan Sweet: Yes, that is correct.
Mark Zandi: Where's the cowbell, Ryan?
Ryan Sweet: Okay. God.
Mark Zandi: Hit the cowbell, Ryan. Diane, you got to admit. That's an amazing feat, I just did.
Diane Swonk: Yeah, that was really good, Mark. I was like, did you get it? I know you got it. Did it good. You need more than a cowbell.
Ryan Sweet: I wasn't [crosstalk 00:15:16]. That was quick. I did.
Mark Zandi: Where's the cowbell?
Ryan Sweet: It's right here.
Diane Swonk: Okay. Ring it [crosstalk 00:15:20].
Cris deRitis: Good Lord.
Diane Swonk: One of my favorite Saturday Night Lives ever.
Mark Zandi: Oh, yeah. That's a great Saturday Night Live.
Ryan Sweet: I miss that one.
Mark Zandi: What?
Ryan Sweet: Yeah. What are you talking?
Diane Swonk: Oh, no.
Ryan Sweet: We worked on this.
Mark Zandi: Really?
Ryan Sweet: Google more cowbell on SNL.
Diane Swonk: On SNL.
Ryan Sweet: You have to.
Mark Zandi: Really, okay.
Diane Swonk: Oh, my God.
Mark Zandi: Okay. [crosstalk 00:15:38].
Diane Swonk: From 2001 or something, or 2002?
Ryan Sweet: It's Will Ferrell. It's great. Classic.
Mark Zandi: Oh, Will Ferrell.
Diane Swonk: Oh, my gosh. It is phenomenal.
Ryan Sweet: He makes me laugh out loud.
Mark Zandi: Okay. So what's the deal on the UI claims? Why'd you pick that one, Ryan? Initial claims from employment insurance.
Ryan Sweet: Well, the labor market its picking back up. I mean, we remember we talked about October was a good job number, but November should be even better. So if you plug that into our employment, our real time, our high frequency employment models 650,000 to 700,000 job growth [crosstalk 00:16:12]-
Mark Zandi: Really?
Diane Swonk: It's like, yep.
Ryan Sweet: And remember, we're going to get some seasonal issues because of pull forward hiring, because of the early holiday shopping. It could be a really good number.
Diane Swonk: Yep. You said it's 10,000 Deere workers in manufacturing, but that's pretty small.
Mark Zandi: Yep. It's funny two weeks ago, I would've said, "Oh, that's so great. Fantastic." And now I say, "Oh, that's great. And fantastic." Then I go, "Oh, now people are going to worry about inflation." What's the inflationary implications of all that growth, which we'll come back to. We should come back to that. That's a good one. And what you had, the other one was, does that continuing claims the one that was down.
Ryan Sweet: Oh, So you only got one. You get 50% credit. The other one was the four week moving average in initial claims. So both are important. So cause weekly, you can get a lot of volatility-
Mark Zandi: Yeah. Right.
Ryan Sweet: ... Smooth it out. And it still was a really good number.
Mark Zandi: And the number was 268, I think, right? 268,000 for the week.
Cris deRitis: On the week.
Mark Zandi: And Chris, you always point to this, what's the stake in the ground for the economy back in full swing, what would be UI claims?
Cris deRitis: For below 250.
Mark Zandi: Below...
Cris deRitis: That's all [crosstalk 00:17:28]-
Diane Swonk: It's interesting. Because some of the labor economists that I meet up with, we do this, which we're both members of. With the labor economists meet up, actually, we are thinking that we won't get back down to the same levels. Even as the economy is better, because more people now know how to actually file and get through the process of getting into claims.
Ryan Sweet: Oh, interesting.
Mark Zandi: Interesting.
Diane Swonk: The systems still aren't completely fixed and there isn't money to completely fix them but a lot of states have more money and have fixed some of the problems. So the processing of claims there won't be as many turned out. So it won't mean that we have necessarily higher claims. It's just that the equilibrium level could have been a lot of people didn't get claims should have gotten claims before.
Mark Zandi: Right. Well-
Cris deRitis: [crosstalk 00:18:12] insurance.
Mark Zandi: In pre-pandemic in the height of the strength of the labor market. We were what? 210, 220.
Diane Swonk: That was below 200.
Mark Zandi: Was it below 200? Did we get [crosstalk 00:18:25]-
Cris deRitis: [crosstalk 00:18:25] 200.
Mark Zandi: We did. Okay. So we're not there yet, but we're definitely moving in the right direction. So the economy feels like it's strong, solid, producing jobs. You're saying 65,700 so far, obviously that can change given another [crosstalk 00:18:38]-
Ryan Sweet: That can change. But, it's going to be a good number.
Mark Zandi: That's the employment number for the month of November.
Ryan Sweet: Yeah.
Mark Zandi: It comes out two weeks from-
Ryan Sweet: Couple weeks. Yep.
Diane Swonk: December 3rd.
Mark Zandi: December 3rd. Okay, good.
Diane Swonk: Employment days I know.
Mark Zandi: Chris. You're up man. Got a good one.
Cris deRitis: My mate,` I got a good one. I doubt you'll get it.
Ryan Sweet: There we go, housing-
Cris deRitis: You guys are always complaining that I make it too simple. So-
Ryan Sweet: No. Well, last week you went with a coffee CPI. I mean, come on. Yeah.
Mark Zandi: Oh, that's true. That was a good one though. That was a good one.
Ryan Sweet: He wanted us to guess the cost of his [Wawa 00:19:09] cup of coffee. That's what he's doing there.
Cris deRitis: Okay. That's a bit of a hint. All right. So my numbers are 14% and 4.4%.
Ryan Sweet: 14% in 4.4%.
Diane Swonk: Either retail sales are close to 14% from a year ago.
Cris deRitis: Kind of on the right track, but that would be too obvious. So it's not retail [crosstalk 00:19:32]-
Mark Zandi: Retail-
Ryan Sweet: Component of retail.
Mark Zandi: Retail sales are [crosstalk 00:19:34]-
Ryan Sweet: Really?
Diane Swonk: Which component was up for [crosstalk 00:19:40]-
Ryan Sweet: What do you mean kind of sort? It's restaurants or not restaurants. Are you looking at-
Mark Zandi: It's a very topical [crosstalk 00:19:46] statistic.
Diane Swonk: Bars.
Mark Zandi: No. He's like taco bell is up 14 [crosstalk 00:19:53].
Cris deRitis: You want, I'll give you one more hint, $53.31.
Ryan Sweet: Oh, that sounds like that should really be helpful. But for some reason that doesn't-
Cris deRitis: It's not.
Diane Swonk: I'm completely lost on that one.
Mark Zandi: Say that again? $53 and-
Cris deRitis: $53.31. 14%-
Mark Zandi: What's going for $53.51. Something's got to be going for that. What would that be?
Ryan Sweet: Per ounce? Per pound? Per barrel?
Mark Zandi: [crosstalk 00:20:23] of the holidays. Holidays.
Ryan Sweet: Oh, Christmas tree.
Mark Zandi: Christmas tree.
Ryan Sweet: Turkey.
Mark Zandi: Thanksgiving meal is-
Ryan Sweet: Oh, I got it.
Cris deRitis: $53.31. According American farm bureau. Up 14% year over year.
Diane Swonk: Oh, now you're going to mess up what I wanted to do.
Cris deRitis: Oh, sorry.
Mark Zandi: [crosstalk 00:20:40] I thought turkey price haven't... No, but I thought the [crosstalk 00:20:46]-
Diane Swonk: So that's what I was going to do is Turkey prices have fall, 0.1% in October, from the month before. And they're up 1.7% from a year ago. So, turkeys are very cheap.
Mark Zandi: How come, Diane? There is no problem with supply. I mean, I don't get it.
Diane Swonk: People hate Turkey.
Ryan Sweet: Yeah.
Mark Zandi: Oh.
Cris deRitis: Turkey is so overrated.
Diane Swonk: And my husband's is the only indicator. He's like, "Stop buying Turkey. I don't want any more Turkey sandwiches." I'm like, "It's thanksgiving, everyone's got turkey."
Cris deRitis: No. Turkey is way overrated.
Mark Zandi: Oh, well hold on. So here's why I'm a little confused. Lots of food prices are up-
Diane Swonk: And all the protein prices are up.
Mark Zandi: Yeah.
Diane Swonk: A lot, but not Turkey.
Mark Zandi: And so the narrative in my mind was, a lot of that's transportation costs, right?
Diane Swonk: Right.
Mark Zandi: If that were the case, why wouldn't Turkey prices be up?
Diane Swonk: I have no idea.
Mark Zandi: Demand's down?
Diane Swonk: Fell in October and it's up only 1.7% from a year ago in October, which is really low.
Mark Zandi: Maybe that's the skimpflation. These are smaller turkeys.
Diane Swonk: I remember when I worked with Jamie Diamond, I had him introduced to the head of Walmart and it was at a NAEB meeting and he was talking about how they used to count... They would have everyone come in from their places to report every week how business was doing. And their lead indicator was whether or not because in Arkansas, there was a lot of chickens that they would transport in trucks. And sometimes the chickens would fall off the trucks. And if there was a lot of chickens on the side of the road, that meant it was a really good economy. And if there wasn't a lot of chickens side of the road, it meant it was a really bad economy. Because people picked up-
Mark Zandi: Oh, interesting.
Diane Swonk: ... the chickens because they wanted to eat them.
Mark Zandi: That makes, well, there you go.
Diane Swonk: Now that's an interesting economic indicator.
Mark Zandi: Yeah. [crosstalk 00:22:38].
Diane Swonk: That one did not.
Mark Zandi: Have you investigated that one? Is that something you've done a study here or-
Diane Swonk: I haven't done a study. I heard it from former CEO of Walmart.
Ryan Sweet: The last thing you want to do is be driving behind those chicken truck.
Mark Zandi: Really?
Diane Swonk: [crosstalk 00:22:52] There's other trucks that are worse.
Ryan Sweet: That's true. But in my experience-
Diane Swonk: With live game. Yeah.
Ryan Sweet: Yeah.
Mark Zandi: Well, how do you know all this, Ryan? You was like-
Ryan Sweet: Delaware. It's got a lot of chickens. I was at the University of Delaware.
Mark Zandi: Oh, you were [crosstalk 00:23:06]-
Ryan Sweet: I would drive home, and I used [crosstalk 00:23:07] behind these chicken trucks.
Mark Zandi: Yeah. You don't want to pass a chicken processing plant for sure.
Ryan Sweet: No.
Mark Zandi: Really? No, I'm sheltered. I don't know this stuff. I need to get out. All right.
Diane Swonk: Yeah.
Mark Zandi: Yeah. Well that's a good one though. So, Diane, we got yours then.
Diane Swonk: Yeah. Because I was-
Mark Zandi: No. That's good.
Diane Swonk: I have another one though.
Mark Zandi: Okay. Fire away.
Diane Swonk: It's down 1 million since February 2020.
Mark Zandi: Down 1 million. Would that be, since February of 2020? Well, the labor force is down 3 million. Would that be the number of-
Ryan Sweet: Sector-
Mark Zandi: ... women that are out of the workforce compared to pre... No. The-
Ryan Sweet: Is it labor market related?
Mark Zandi: It's labor market oriented? Oh, it is. Are we on track?
Diane Swonk: Because I would do a labor market one. Yeah.
Mark Zandi: Are we in the right, in the same, are we thinking this is the right way? Sort of.
Diane Swonk: It's, sort of. It could be...
Mark Zandi: Yeah. It's okay. You don't just tell anymore.
Diane Swonk: Okay.
Mark Zandi: What about is it, a million people in leisure and hospitality?
Diane Swonk: It's not a million people. It's down a million.
Mark Zandi: Oh.
Ryan Sweet: Is this daycare workers?
Diane Swonk: That's a clue.
Mark Zandi: That's a 100K. Daycare-
Cris deRitis: No. [crosstalk 00:24:03].
Mark Zandi: But it's not people.
Cris deRitis: Retail, maybe.
Diane Swonk: It's not people.
Cris deRitis: Retail workers.
Diane Swonk: Well, it's people doing something, yes, in the labor market.
Mark Zandi: Or Telework? No.
Ryan Sweet: I don't know.
Cris deRitis: This is a good one.
Ryan Sweet: A good one, yes.
Diane Swonk: So, multiple job holders.
Mark Zandi: Ah, that's a great one.
Ryan Sweet: That is a great one.
Diane Swonk: [crosstalk 00:24:47] a million.
Cris deRitis: That's a cowbell.
Ryan Sweet: There you go.
Diane Swonk: I think that's what was good about that. That statistic is, to me, that's an encouraging statistic. Because it means, well, one is the testimony to how low wages were at the peak of the last economic cycle that people had so many multiple jobs. And there were so many multiple job holders. I hope, and I don't know, but I hope it's in part because wages at the lowest end have gone up enough that people don't have to have multiple jobs. I don't know that yet. We'll have to test that and see how that holds going forward. But that people had to have multiple jobs. And that also means there's fewer people working, all these staggered shifts and stuff like that. It's really nuts to have to have all these jobs. But that's a reduction in labor force too.
Mark Zandi: That is.
Diane Swonk: Right?
Mark Zandi: Yeah. That may be one reason why non-firm employment, which counts on jobs, not people-
Diane Swonk: Right.
Mark Zandi: ... may not actually return to full strength or-
Diane Swonk: Right. Exactly.
Mark Zandi: Right.
Diane Swonk: It's kind of interesting, isn't it?
Mark Zandi: That's a great statistic. I had not-
Diane Swonk: I thought it was.
Mark Zandi: ... been looked at. Yeah. It's a fantastic one. Very good. Okay. You're ready for mine? This should be-
Diane Swonk: Okay.
Mark Zandi: I'm worried this might be a little too easy.
Ryan Sweet: Back to normal index.
Mark Zandi: Yeah.
Cris deRitis: That's Mark's go-to.
Mark Zandi: That's my go-to index. This index we put together called the back to normal index. Which is actually pretty cool, but I'm not going to go into it. It's not going to do it.
Diane Swonk: Chris and Ryan would know it, and I wouldn't.
Mark Zandi: I'm not going to go into it. By the way, 94.5% of normal actually Illinois for your, Diane, you know I can't help myself, is the lowest state in the country. I think it's like 88% of normal or something, 87% of normal.
Diane Swonk: Oh, gosh.
Cris deRitis: Over than New York? I thought New York was low.
Mark Zandi: I think I was looking, I think New York just rose above Illinois for the first time, I think. But I may have that wrong. So don't hold me to that. All right. Ready?
Diane Swonk: I mean, we have a lot of convention business that isn't happening, so...
Mark Zandi: Yeah, I know. And a lot of, yeah. 66.8.
Ryan Sweet: NAHP, market index-
Mark Zandi: No, that's next social home builders. That's 83%, I guess.
Ryan Sweet: No, I'm thinking the details [crosstalk 00:27:13]-
Diane Swonk: I'm think [crosstalk 00:27:13 an ISM number.
Mark Zandi: ISM, no. It's not NAHP. It's not ISM. You guys, it's relevant to the topic of [foreign language 00:27:20]. The consumer, it's actually a bit perplexing that this doesn't feel consistent with-
Cris deRitis: Did they come out this week?
Diane Swonk: So it's something in the confidence numbers?
Mark Zandi: Yes, it is.
Ryan Sweet: Are you doing [Yumish 00:27:33] confidence?
Mark Zandi: Yeah. Yumish confidence.
Cris deRitis: That was last week.
Ryan Sweet: All right. You're about a week late, but that's all right.
Mark Zandi: No, wait, hold on was it last week?
Ryan Sweet: Yes. It came out last week.
Mark Zandi: Oh, okay. Well-
Ryan Sweet: It's right.
Mark Zandi: You said... In my rules, did I state it had to be the last week. I didn't. Diane did I say that?
Diane Swonk: No, I used October employment.
Mark Zandi: There you go. See?
Diane Swonk: They're already-
Mark Zandi: Come on guys?
Diane Swonk: The CPI, my Turkey CPI though. That was-
Cris deRitis: That's for the guest. That's the guest.
Ryan Sweet: Right. Mark-
Mark Zandi: Okay. Fair enough.
Ryan Sweet: ... sets his own rules.
Mark Zandi: No, wait. 66.8. This is actually a question to the group. Okay. 66.8 for Yumish, that's a University of Michigan survey. This is in honor of, Diane. Because I know Diane is from Ann Arbor and Ann Arbor's home to the Wolverines. Not that I like the Wolverines very much, but they're, I get it. If you are a Penn state man-
Diane Swonk: I used to sell [crosstalk 00:28:27]-
Mark Zandi: ... you can't-
Diane Swonk: I arbitrage when I was in college.
Ryan Sweet: Oh, is that right? Okay.
Diane Swonk: Yeah. My father never forgave me, but I made a lot of money on [crosstalk 00:28:34]-
Ryan Sweet: I can imagine. Yeah.
Mark Zandi: But that's the lowest reading in the entire pandemic. You have to go all the way back to just coming out of the great recession, the financial crisis to find that low.
Diane Swonk: The sentiment survey is more sensitive to inflation too.
Ryan Sweet: Yeah. So it's gas prices?
Mark Zandi: Is that it? Is this total gas prices.
Ryan Sweet: A good chunk of it is. And then you can throw on top of it, COVID. Because I mean, sentiment's been tracking COVID cases, but we got a big jump in gas prices after hurricane Ida and sentiment usually crater after hurricanes in the Gulf coast because of the energy effect.
Diane Swonk: Yep.
Mark Zandi: Okay.
Diane Swonk: And the sentiment survey is more sensitive to inflation and this confidence survey is more sensitive to employment.
Mark Zandi: Okay. And you're going to say the conference board consumer [crosstalk 00:29:23]-
Diane Swonk: Conference board. Yeah.
Mark Zandi: And that was 113.8. They're kind of diverging. And if you look, I just looked the gap between the two-
Diane Swonk: Because employment versus... Yeah.
Mark Zandi: It's about as wide as it's ever been.
Diane Swonk: Yeah. [crosstalk 00:29:36] worried about inflation and one is unemployment.
Mark Zandi: So I guess that makes sense, I guess. You're saying... That goes back the job market's good. We're creating jobs. Unemployment's coming in. Wages are up-
Diane Swonk: But inflation's up and nobody likes inflation. And people are particularly sensitive to gas prices.
Mark Zandi: Got it.
Cris deRitis: Very sensitive.
Diane Swonk: [crosstalk 00:30:00] every day.
Mark Zandi: That actually I should write about that. That's a good thing to write about that. Because it-
Diane Swonk: You didn't know that they were, it's a good, it's interesting-
Mark Zandi: I didn't know they were as wide as that, I knew they were had gone in different directions. But there, I think this is, I don't know if it's as wide as it's ever been, but it's pretty darn close.
Diane Swonk: It's got to be close.
Mark Zandi: Here's the other thing interesting. I looked in the conference board survey because they break it. I think they all do, but they break it down into a different demographics. And by age, always the people that are younger are more optimistic than the people who are older. So they less than 35 is more optimistic than 35 to 54, which is more optimistic than 55 plus. But in the current, in the last month, the people who are in the middle, the 35 to 54 are actually most depressed. It's because the older people are actually almost, in recent months have been more optimistic than they are. It's very interesting.
Diane Swonk: Well, they can retire. They got net worth.
Mark Zandi: That's what it is. Yeah.
Diane Swonk: They can retire, and the ones in the middle are working like crazy. And not too happy even though they're getting wages, they're not too happy. And they're also, I mean, millennials are... I saw my kids debate, whether they're millennials or they're gen Z. And one is a millennial and one's a gen Z, but they don't like that break off. But-
Mark Zandi: Because, why don't-
Diane Swonk: Because, well my son, he doesn't want to be a gen Z. He wants to be a millennial-
Mark Zandi: I see. He wants to be a millennial.
Diane Swonk: ... But he's actually a gen Z.
Mark Zandi: But, the anxiety levels, I looked at the household pulse survey and the anxiety levels of the youngest in our population. And it diminishes by age, are the highest among [inaudible 00:31:38]. It's like 40% have anxiety or depression right now. Which is-
Right.
Diane Swonk: It's not great.
Mark Zandi: Not great. So [crosstalk 00:31:46].
Cris deRitis: You're hanging in there-
Mark Zandi: They have never seen inflation. The millennials or even some of the-
Diane Swonk: Oh, no.
Ryan Sweet: This is like a shock to them. It's like [crosstalk 00:31:54]-
Diane Swonk: I have tell them stories about what it was like.
Mark Zandi: Yeah. Right. So the boomers, the guys that over 55, women over 55 they're they're good because they're stocks and housing and asset values, and everything's good. The young people they're benefiting from the surge in wages and the tight labor market. But the guys in the middle they're feeling, oh, because they have the kids too. And they're taking care of the kids.
Diane Swonk: And they also-
Mark Zandi: [crosstalk 00:32:23] daycare.
Diane Swonk: ... they have more inflation. They feel [crosstalk 00:32:24]-
Mark Zandi: And they have more inflation, right.
Diane Swonk: Their wages aren't going up as rapidly. And they got the kids and they can't afford... There's no childcare employment. Education employment's down.
Ryan Sweet: Yeah. Chris and I, maybe both of us are probably pulling down the university of Michigan and conference board. Because we're taking care of our little kids.
Mark Zandi: Don't give me that, Ryan. You love it.
Ryan Sweet: It's a joke. Yes. I love it. Yes. I love my children.
Diane Swonk: It's like-
Mark Zandi: Everybody has those days though.
Diane Swonk: But my kids always go back to, because I was in the World Trade Center. I was responsible for NAEB being in the World Trade Center. And actually, my cancer this year were because of the World Trade Center. But my kids always go back to that age. They were three and six, in 9/11. And my son said to me as he came back from school and went online, he said, "You know mom, if we had been three and six, we wouldn't have made it to four and seven." Luck.
Mark Zandi: Yeah. You wrote a great book after.
Diane Swonk: [crosstalk 00:33:31] that would've killed them.
Mark Zandi: I think everyone should... You wrote a really very good book. Great book. People should read after your experience of 9/11. Because people don't know this, but NAEB, the National Associates and Business Economics, at the time it was Business Economist, I think, they had their [crosstalk 00:33:45]-
Diane Swonk: No, we had just changed the name. I was-
Mark Zandi: Oh, you just changed the name?
Diane Swonk: Yeah.
Mark Zandi: Right. Were you president then? Or-
Diane Swonk: I was on my way to presidency. I was asked to be president of NAEB when I was... To do the annual meeting, which was on my route to presidency when was eight and a half months pregnant with my son.
Mark Zandi: Is that right? Wow.
Diane Swonk: Yeah.
Mark Zandi: And you accepted? Wow.
Diane Swonk: Yeah.
Mark Zandi: Okay. Well anyway, so this is the Marriott hotel in the bottom of the World Trade and I actually had four people there, I think four or five had a booth there. We were a young company and we were just, and boy, that was harrowing. And, of course, you described your experiences, which were very harrowing at the time. So, very good book for people to read. To get a sense of the, just how scary that time was. Very scary. Anyway, big topic, consumer. So let's begin this way. How you feeling, how do you think the American consumer is doing? How would you characterize things?
Diane Swonk: Well, it's interesting because I mean you laid it out well and primed it up, Mark, with the dissonance between the consumer confidence survey, employment doing well, and they're angry about inflation. They're angry, but they're spending anyways. I mean they're spending like banches, right now. I mean, they may be angry, but it's not stopping them from spending. And they've got, I mean I do worry about, disaggregating the data and as we get into the end of the year, how much savings there is left among those households who are still unemployed. But they've got a tailwind in terms of their balance sheets. They got a lot of net worth and they're giving their net worth... What's so different now? As opposed to 2008, 2009, is they're house rich as well.
Mark Zandi: Yeah, absolutely.
Diane Swonk: And that is something that, spreads across a lot more households than just-
Mark Zandi: Makes a good point.
Diane Swonk: ... equities. And of course, we don't want them cashing in their houses, but they also paid on their credit card bills. And so they've got some wiggle room in cushion to spend pretty aggressively. Even though they're not too happy about the inflation situation.
Mark Zandi: Do you do like a forecast? A lot of other economists for holiday sales, what are Christmas... So if the wall street journal calls up and say, "Hey Diane, what are Christmas sales going to be this year? What do you say?" Do you have [crosstalk 00:36:00]-
Diane Swonk: Yeah. I did one every single year for many years and I did look at the data this year since we were going to talk about it. Because I did it annually for 20 some odd years. It's something I have done a lot of. But the comps, even after adjusting for inflation are the strongest I've ever seen. Even if we were to deteriorate from here on out from where we were in October.
Mark Zandi: Could be double digit, right?
Diane Swonk: Oh, he's a double digit. And after adjusting from inflation, depending on which category could be high single digits with a lot of inflation. So that's just stunning to see the kinds of gains in, and even the online spending the comps get harder because we spent so much online last year. But even that you would have to really crater it like crazy to not have still really good year.
Mark Zandi: Yeah. Now-
Diane Swonk: It's the numbers are really good.
Mark Zandi: And it's not just base effects. Meaning last Christmas wasn't great, but it wasn't bad. It was like [crosstalk 00:37:00]-
Diane Swonk: No. I mean it, we did slow down as we went into the end of the year. Remember we almost and I think you and I were sort of on the same page on that, because we had a negative imprint on employment. We really needed that.
Mark Zandi: Oh, that's right. December was negative.
Diane Swonk: [crosstalk 00:37:13] in December. Yeah. December was a contraction in employment and people were running out of their money and the food bank lines were getting longer and it was crazy. It was a hard time and we were going into the, we didn't have... We had just gotten vaccines in November, and they started giving him out, I think in late November. But that it was hard, but it wasn't contracting. But we could have gone into another recession if we had not gotten that in December 27th, the 600 billion.
Mark Zandi: Yeah. That was at the quiet package that got through, because I think, because of the Senate-
Diane Swonk: It actually lapsed today.
Mark Zandi: Oh, is that right? Is that it?
Diane Swonk: Yeah. The previous president didn't sign it on time, waited a day to sign it.
Mark Zandi: Right.
Diane Swonk: But then they decided not to let all the benefits lapse anyways. They grandfathered everyone in.
Mark Zandi: So is that what you say, the previous president? So that's how you handle that then?
Diane Swonk: I have not said a president's name in a very long time.
Mark Zandi: That's interesting. That's great. That's good to hear.
Diane Swonk: That's I house the administration president.
Mark Zandi: Yeah. Got it. Now if you look at, correct me if I'm wrong, but if you look at overall consumer's bank, so holiday sales, that's basically stuff. That's clothing and-
Diane Swonk: Except for restaurants and bars.
Mark Zandi: Except for restaurants and bars. So it's good stuff, that's all been juiced up by the pandemic. We've been at home. Obviously, travel and other healthcare and other kinds of services we've been not spending on. So if you take the total consumer spending and you look at it, it still doesn't feel like it's quite back to where it would be if there had not been a pandemic. Is that a fair characterization?
Diane Swonk: Yeah, absolutely. Because we haven't pivoted... I wonder too, I mean, this is interesting because as you know, a firm that's professional services, consulting firm, tax audit advisory, we used to have people on the road all the time traveling, but we have to reduce our carbon footprint. And one of the biggest ways to do that, is to reduce your office footprint and to reduce air travel. And of course we discover things that you don't need to do because of this world you can do virtually.
Mark Zandi: Right.
Diane Swonk: And so, and every other major professional services firm is in the same place we are. And so some of these things, you wonder what they're going to become instead, it does, it's accelerated digitization. But it's also because of climate change and concerns about the climate. And how do we, until we can figure out, until my son's best friend can figure out how to cool the planet back down again. So we have so many extreme weather events.
Mark Zandi: Tell me how he invest in that. I'd love to send him a chat.
Diane Swonk: Yeah. It's cool stuff. But that's what we, I mean, because you know, even if you... I mean the extreme weather events have accelerated so much. So those are things that I'm looking at that saying, even though we'll eventually get to another level, but we've made some structural changes here.
Mark Zandi: Yeah. I think Moody's now charges a fee for our travel. Because we have a net zero goal, I think by 2030, correct me if I'm wrong guys.
Diane Swonk: Yeah, we do too. Everybody does. Yeah.
Mark Zandi: So when you travel, you have to pay a fee for the carbon that you create. So it's added to your travel expense and you, of course, have a travel budget. So that makes it-
Diane Swonk: So It's like a carbon tax on you.
Mark Zandi: It's like a carbon, it's effectively a carbon tax, right?
Diane Swonk: Yeah.
Mark Zandi: Which makes a lot of sense.
Diane Swonk: Yeah.
Mark Zandi: Yeah. And I suspect they're going to be raising that every year. Like they should, right?
Diane Swonk: Yeah.
Mark Zandi: It's a slow temperature. I'm going to raise this temperature on you slow over time. So when you think about the things that drive consumer spending broadly... Okay. Jobs check. Still not quite back to where we were pre pandemic, but definitely head in that direction. We talked about 600, 700 jobs per month now, great. Unemployment's falling pretty quickly, not quite back, but it's getting there pretty fast. Wage growth is picking up particularly for low wage workers.
Diane Swonk: The bottom 70%.
Mark Zandi: Bottom 70%?
Diane Swonk: Yeah. I saw some great. Now, I know all these labor economists that do much better work than I do. Bottom 70% of workers have seen their wages improve.
Mark Zandi: You mean the rate of growth in the wages-
Diane Swonk: Real wages.
Mark Zandi: ... accelerated. In real wages, really?
Diane Swonk: They have improved.
Mark Zandi: Okay. That's surprising.
Diane Swonk: Well, if you're better on Twitter, I'll send it to you. I'll tweet it to you.
Mark Zandi: I know. I got to get... By the way, oh wait, I'm going to advertise @Markzandi. Because I-
Diane Swonk: I'm @Dianeswonk.
Mark Zandi: There you go. I just reengage. I mean, Diane, I got this Twitter handle 10 years ago. Never used it like three weeks ago. I said, okay, I better start using it. So I'm having a lot of fun with it.
Diane Swonk: Then I retweeted some of the stuff when you put it out too.
Mark Zandi: Yeah. Thank you so much for doing that. I noticed, I appreciate that. It's really [crosstalk 00:42:18]-
Diane Swonk: Do you think it gets amplified?
Mark Zandi: Yeah.
Diane Swonk: I'm an amplifier.
Ryan Sweet: [crosstalk 00:42:20] Cris wins.
Diane Swonk: What did you say Cris?
Ryan Sweet: No, Cris and I had a side bed. I took the under on 28 minutes until Mark, tauts his Twitter handle. I took the [crosstalk 00:42:32]-
Cris deRitis: Oh, is that right?
Ryan Sweet: So Chris went, [crosstalk 00:42:34] the over.
Mark Zandi: Good job, Cris.
Ryan Sweet: What did we bet? I don't think we bet anything.
Cris deRitis: Oh, oh well. Oh okay. You-
Mark Zandi: We forgot. You'll get a mug. We'll get you a mug. I got plenty of mugs, moodys.com. [crosstalk 00:42:46]. There's a little scientist, whatever you want. I got it for you. All right. Yeah. Anyway. Okay. But there's one new, oh there's stock prices. There's housing values. Everything kind of feels like, wow. There's one negative. And we're going to come to that in a minute. That's inflation. I really want to talk about that. Yeah. Before we get there, there's this one other big kind of tailwind, the so-called excess saving, right? And did you want to talk about that? How do you feel about that? I mean, in my mind, that's a big wildcard in terms of spending going forward. Yeah.
Diane Swonk: I mean, so the saving rate dropped to what 7.5%, which is almost pre-crisis levels in September. Of course, the fact that we lost a lot of income support from unemployment insurance lapsing that brought it down. We actually the question is there going to be some discretionary savings or is there going to be dis savings going forward? And we think there's a period of more dis savings because of the wealth effects. And because of the ability to tap into home equity lines of credit and credit cards and all that, and go back into debt, for better or worse. That gives us even a more of a tailwind. But then the question is we don't have saving rate going as low as like we saw during the peak of the home equity lines of credit becoming almost ATMs in 2005, 2006.
Mark Zandi: So just to level set for the listeners. So what happened is the pandemic hit and our saving rates got jacked up. For lower middle income households because of government support, stimulus cheques, unemployment insurance, rental assistance. For high middle high income households it was, I'm sheltering in place, I can't spend my money. Even though I'm buying a lot more stuff, that's not going to spend all my money. I save a lot more. So the saving-
Diane Swonk: All those vacations, you didn't go on and omitting costs.
Mark Zandi: ... above which would've happened, if there was no pandemic is called excess saving. And by most calculations, including ours through September, it was about you've added all up two and a half trillion bucks. That's [crosstalk 00:44:51]-
Diane Swonk: That's a lot of money.
Mark Zandi: A lot of money. And so what you're saying is you think going forward, because people are now traveling and spending, their saving rate has now come back in, it's closer to where it was pre-pandemic, they're not going to build any more excess saving. And in fact they're actually going to spend down some of that excess saving going forward.
Diane Swonk: Yeah.
Mark Zandi: Yeah. Okay. And do you have a sense of, now if two and a half trillion was spent in 2022? Boom, right? 10% of GDP. And that would be okay. Inflation's it's going to be a big problem, Because unemployment is going to be 0-
Diane Swonk: Yeah, it's not going to be that much. Yeah. No.
Mark Zandi: It's not going to be that much?
Diane Swonk: No.
Mark Zandi: So you're saying-
Diane Swonk: I mean, there's also, that's where the distributional issues get in, right? Because a lot of that savings is in places like high income households, where they might spend their income. And it turns out they do spend a lot of their income, but they don't spend much of their savings.
Mark Zandi: Yeah. So the way I would characterize what you just said was for higher income households, they view this as it's wealth. I mean it's [crosstalk 00:45:54]-
Diane Swonk: It's wealth. Yeah. It's their nest egg.
Mark Zandi: It's the boomer me, who sat on my back deck, didn't spend the money saved, sitting in my checking account. Now maybe it's moving into the stocks or crypto for... By the way, Diane, James Bond over here is a crypto-
Cris deRitis: Oh, God.
Diane Swonk: Even my daughter.
Mark Zandi: Yeah. Look like how wealthy he looks. I'm surprised. He's even-
Cris deRitis: Oh, my goodness.
Mark Zandi: ... still working. Well, look at him.
Diane Swonk: I mean, my daughter is like, yeah. And then my daughter is telling me about being a long term investor in crypto.
Cris deRitis: That's a day and a half, I guess.
Mark Zandi: I love that. What does that mean? Next week or something? Yeah. Gosh.
Ryan Sweet: So that's why Cris is dressed like Zoolander.
Mark Zandi: Is that what-
Ryan Sweet: He's getting into the crypto world and-
Diane Swonk: Oh, Zoolander.
Mark Zandi: I do that as a diss, Cris. That's a dis. I called you James Bond. He called you Zoolander. Which would you prefer?
Cris deRitis: So I didn't know anything about the cowbell. I didn't know Zoolander either. So-
Diane Swonk: You didn't know cowbell?
Cris deRitis: I'll have to look up.
Ryan Sweet: I didn't know that.
Mark Zandi: Oh, Chris.
Diane Swonk: Oh, [crosstalk 00:46:59] Ryan. You and I are... So on my screen. I can see everyone and Ryan and I are one side cause we know the cowbell.
Mark Zandi: Right.
Diane Swonk: And I know Zoolander.
Mark Zandi: Right.
Diane Swonk: So I think you guys are just legging over there.
Ryan Sweet: They don't find me funny because [crosstalk 00:47:19].
Cris deRitis: I got to hang out with you more, Diane. Jeez.
Diane Swonk: I'm sorry, Ryan. I find you quite funny.
Ryan Sweet: Oh, thank you.
Mark Zandi: Where was I? I don't know. So-
Diane Swonk: Excess saving.
Mark Zandi: Let's talk about, I was just digesting that conversation. But let's just, it's all is a happy talk now. But okay, let's get to the brass tax here and the surge in inflation. Two things, well, one, how big a deal is that to the consumer outlook. And that gets to the second question. How long is this high inflation going to be around? What is your thinking around that? We obviously [crosstalk 00:47:58]-
Diane Swonk: I read your upbeat piece. So I have an advantage on you.
Mark Zandi: Okay. Fire away. I'm really curious.
Diane Swonk: So, okay. You appreciate this since we are... I just wrote a piece called One Way or Another based Blondie's 1979 hit. I'm going to get you, get you, get you one way or another.
Mark Zandi: That I do know.
Cris deRitis: That's good. I know that song.
Diane Swonk: You know that one, Cris? Okay.
Cris deRitis: That's a great song.
Diane Swonk: And it's because Jay Paul, we don't know who the next chairman's going to be. If it's going to be Jay or if it's going to be Leo Brainer, but the Fed is said, we're going to get inflation one way or another. It'll be transitory one way another. And either it will be it of its own accord as demand normalizes and supply chain disruptions are worked out and labor comes back. Or the Fed will forcefully stock it, Deborah Harry actually wrote that about a stalker that was stalking her, going after her. You guys didn't know that, did you?
Mark Zandi: I did not know.
Diane Swonk: And so this makes the-
Cris deRitis: How do you know this stuff. She knows everything.
Diane Swonk: ... Fed the stalker. And the Fed chasing inflation down. Because we know the math on inflation gets easier. That means that inflation looks lower as we get into 2022. I actually do think that there's, I'm a little more worried than you are about the residual shelter cost inflation and medical cost inflation that we're going to get underlying inflation in 2022 in the second half. And I'm afraid, I'm worried that the Fed in reaction, inflation is going to get worse before it gets better, first of all, we know that. And then I do think it will start to abate, but will it abate enough to not burn or to not panic the Fed? And one, I think the Fed was too slow on tapering. Because they bought a bunch of assets to stabilize financial markets in March of 2020, which needed to be done because we didn't want to have a financial crisis in a pandemic together, which would've made it doubly worse and hard to get out of.
But that was a long time ago and financial conditions have eased a lot since then. And so they'll accelerate their tapering and I think they're going to be raising rates three times next year. My worry is that instead of being, the chair Powell Jay said he will be patient, but not hesitate to raise rates. And that the Fed will be patient, but not hesitant. I worry that the Fed will not be prudent and will panic. And central bankers are hardwired to fight inflation. They've been raising rates on, and preempting a non-existent inflation for 30 years. And they haven't chased inflation down since the 1980s. And my concern is be careful what you wish for on low inflation because the Fed may overshoot and get as into a boom bust situation.
Mark Zandi: So you're saying, okay, my sense is that inflation may not have peaked yet, but we're next month two or three, we're going to peak.
Diane Swonk: It will peak. And then it will-
Mark Zandi: It's going to moderate.
Diane Swonk: Moderate. Yes.
Mark Zandi: But it may-
Diane Swonk: And supply chain bottle... I mean one of the big uncertainties and you're right with me. I mean, the course of virus terms, the course of the economy. And Delta wave exacerbated inflation pressures, even as it slowed down consumer spending, because of the supply chain disruptions. And we've got another wave out there and Europe's going into mitigation efforts right now. Germany is and the UK [crosstalk 00:51:23]-
Mark Zandi: Austria.
Diane Swonk: Austria, yeah. Just a big one in Austria. And I hope that, I mean, we're not as vaccinated as we need to be. Although kids are getting vaccinated really rapidly, that's good. But I do worry about what is this next wave. Even when we don't mitigate, we pull back on those services that we've not fully recovered on. And so, but there's also disruptions. And so I think, from we're not you mean the computer chips are back online, and cars are being produced again. That's great. So there's some signs that there's uncoiling in those supply chain, even though they're still really long. And by the second half of next year, you shouldn't have as much of a problem, but we don't know. And then I have a lot of questions about even though there's no precedence for what we're doing. It's not the 1970s. It's state portion. It's not that. But the wage price situation, I'm not sure about.
Actually, when I look at the imbalance between employer demand and the supply of labor, I don't know why wages aren't going up fast. Because it really is huge, the gap right now. And I don't know exactly how that gets resolved, but I do worry that in the midst of all this, some higher interest rates will be justified. The question is, will it be a situation where the Fed actually achieves a soft landing? It's like in this environment too. I remember during the financial crisis, it felt like I was forecasting standing on fault lines trying to get my footing. This is like quick sand. Every time you think you have a tether to pull yourself out, you get back in again, because something changes with the pandemic. And that's, it's humbling. And I don't, I mean, a lot of people in the Fed are my friends. And I admire them and I'm glad they have to make the decisions and I don't, but I also know they're hardwired to worry about inflation. That's their job at the end of the day.
And even though they want a full and inclusive recovering employment, as we talked about earlier, it may not be that in the overall level of numbers, if people don't have multiple jobs, the payroll numbers could be distorted by that. And the other issue is that they could go too far.
Mark Zandi: So in my mind, and I'm obviously overstating the case, but just to make a case, the firewall between inflation moderating... And there's a lot of variables that'll determine how fast it moderates. Will the pandemic come back, so forth and so on. I get all that. But the firewall between moderation and something more persistent where wage price dynamics go in the wrong direction, you get into that negative wage price spiral is inflation expectations. And people and investors-
Diane Swonk: There's someone at the Fed that actually wrote a paper saying, "Inflation expectations aren't the best. We don't really know how they work." But-
Mark Zandi: Right. So that's my question to you. I mean, do you, that's how I think about it. I take great solace in the fact that, investors still seem to think that inflation's not going to accelerate in a persistent way. Economists, you and I, we contribute, I think you contribute to the Philly Fed survey, which is probably the best measure of what economist think. And by the way, this sounds self-serving, but I think that's actually a pretty good measurement expectations because the economists are the last to change their minds. They change their minds, we're done. [crosstalk 00:54:59]. But so far so good.
Diane Swonk: And we're also working remote we don't look at gas prices.
Mark Zandi: Yeah. And that's true. So do you agree with that or not?
Diane Swonk: So a lot of the way... So I was mentored, Jim Annable. We mentioned him earlier, my former boss for 20 years, he mentored me and he was an expert on inflation in the labor market at the Fed. Actually wrote a couple books on it when he was first starting at as an academic, after his academics in the 1970s. And what his work suggested was 80% of wages in the 1970s were tied to a cost of living, a collar adjustment. And I remember my dad coming home from work and he was a white collar worker at General Motors. And he would get his CPI increase for the year. So he would automatically baked in all of the increases from OPEC cartel into wages. And the only way to cut your payrolls was to cut people. And we had a tripling of inflation from 1960 to 1970. And then we got this wage price spiral, because we also at a high level of immunization and white collar workers got the same thing that blue collar workers or in their contracts. I mean it was contractual.
And that has broken down. So in that sense, I don't think that's going to happen. But I'm just not sure how the gap in demand between will it be automation? I mean, we heard CVS say they're closing 300 stores this week. And that may be way that we-
Mark Zandi: Who said that?
Diane Swonk: CVS.
Mark Zandi: Oh, CVS, right?
Diane Swonk: They're going to close 300 stores and go digital on those stores. And I do think that we're going to see more and more employment. It is actually happening that more and more employment concentrated at large retail tech savvy Bahamas. It can take advantage of productivity. And that makes me sort of less worried about inflation that I also think they're fairly effective at not allowing immunization and we can debate whether that's better and different. But they have algorithms that they detect it to try to head it off. But that concentration at the large [fenopsonies 00:57:10], I think will eventually slow down and stop us from becoming anything like the seventies. So I'm not worried about that wage price spiral. I don't put it in the same form of expectations. Because if firms can't pay it, then they won't. And if they decide it's not worth it, then they won't. But I'm not sure though how long it's going to take us to get from here to there, and what that transition's going to look like.
Mark Zandi: All right. Okay. Well fair enough. So my takeaway though, is that there's obviously, a lot risk-
Diane Swonk: We have a similar forecast.
Mark Zandi: Yeah. That [crosstalk 00:57:49] in the right direction. We've got a problem with inflation, probably temporary, assuming the pandemic doesn't go off the rails again-
Diane Swonk: And temporary to economists is a year or two where-
Mark Zandi: Well, yeah-
Diane Swonk: Individual consumers, it's not.
Mark Zandi: No, of course. Tomorrow that is no longer temporary, if it's going to be next week or next month, I'm paying these, the high prices. No doubt about it. It's just from a 30,000 foot level looking down. And you're saying there is a risk, the Fed messes this up, which is always obviously a risk at this point in the business cycle when-
Diane Swonk: And, I mean, I don't envy them. I mean, it's an easy... I mean, who knows?
Mark Zandi: Yeah. And it's a little bit more complicated than normal, because you've got these very inflated asset values, stock prices. We talked about crypto, credit spreads in the Biomark, I don't know if you've been noticing, but the housing market looks like it's getting a little frosty. Even though some speculations during [crosstalk 00:58:45]-
Diane Swonk: There's lots of. Yeah.
Mark Zandi: It wasn't the case 6, 12 months ago for my eye, but now I'm seeing a lot of flipping.
Diane Swonk: Yeah. And the investors coming in, flipping the rent.
Mark Zandi: Yeah, exactly. Flipping... Yeah, exactly.
Diane Swonk: If you Google in Houston, it's such a huge thing in Houston. It's like, that's a huge business for some reason in Houston is a huge market for the flip to rent market. Buy it, then flip it to rent. I mean, it's-
Mark Zandi: Short term, like Airbnb-
Diane Swonk: No. It's people renting because they can't afford.
Mark Zandi: Oh, is that what you're saying?
Diane Swonk: Yeah.
Mark Zandi: Oh yeah, for sure. Yeah. Right. Because the rents have gone skyward here, so...
Diane Swonk: Yeah. And the rents on, I mean, we've also seen the rents, even in the urban areas because young people have returned. The office space hasn't, but young people have returned and that's pushed up rents again in urban areas as well on apartments. But, yeah.
Mark Zandi: So I guess the last, just to close the loop, because I want to respect your time. It's late on a Friday. I don't want to keep you. And you're headed to Michigan. I think you said so-
Diane Swonk: Yeah. We have to go after the traffic. So I've got some time believe me.
Mark Zandi: Okay. But I don't want to keep you. But I do want to ask-
Diane Swonk: Chris and Ryan are, "No. We don't want to stay longer for this."
Mark Zandi: I'm sorry. I missed that.
Diane Swonk: They're like, "Yeah. It's late on a Friday."
Mark Zandi: Oh, those two guys. Oh, no. Don't worry.
Diane Swonk: [crosstalk 01:00:11] Friday and holiday week.
Mark Zandi: He-
Cris deRitis: We've got the post podcast.
Mark Zandi: Cris doesn't respect boundaries. He's tweeting me, not tweeting, emailing me at all hours of the day, and expects a response right away. That's replying to you [crosstalk 01:00:26].
Ryan Sweet: Cris is talking to [crosstalk 01:00:26], yeah.
Diane Swonk: I've been up every day, this week at three in the morning and I do send my people emails at three in the morning, but I don't send them texts because they get up for text. So-
Mark Zandi: Oh, that's good to know. But that's a little scary that you're up at three in the morning doing emails.
Diane Swonk: I was actually, I write a whole 5,000 or 3,000 word documents on my iPhone.
Mark Zandi: That is amazing.
Diane Swonk: Google that.
Ryan Sweet: That is amazing. Don't get any ideas, Mark.
Mark Zandi: No, I can't do [crosstalk 01:00:58].
Ryan Sweet: If you start texting Cris and I at midnight, it's not going to end well.
Mark Zandi: No. But Ryan answers email all time of the day. No matter what it is. I mean, literally.
Ryan Sweet: For sure.
Mark Zandi: I'm telling you, Diane. He's-
Diane Swonk: Do you have a thing that goes off? You can turn it off.
Ryan Sweet: Yeah, you can turn it off.
Diane Swonk: [crosstalk 01:01:11] silent. I mean I told my people-
Mark Zandi: Ryan, responds no matter what. Yeah.
Ryan Sweet: I actually don't have the email on my phone.
Mark Zandi: Oh, you don't?
Diane Swonk: Wow.
Mark Zandi: So you're on the PC all the time? You're looking at the PC in the night?
Ryan Sweet: Wow. I want to stay married. Because if I had it on my phone, I would just be constantly doing stuff. I just [crosstalk 01:01:29] responding all the time.
Cris deRitis: Yeah, I know.
Mark Zandi: May I ask one last question around the consumer. Obviously, there's been this massive shift from services to durable goods. Do you think we're in store for a period when there's going to be a very significant weakening and durable goods spending? Because maybe not for autos, but for many other, because there I expect there's some pen up demand, but for other stuff, I'd call it spent up demand. Talk about carbon footprints, three propane heaters down on my back deck over here. I got two, what do you call them? Water, what do you call those things, where you-
Ryan Sweet: Power washer.
Mark Zandi: Power washers. Two power washers. I won't have to buy a power washer until... Well, I'll be dead by then. So-
Ryan Sweet: Why do you have two power washers?
Mark Zandi: To clean the other one. Well, I'll tell you it's a long story.
Ryan Sweet: All right. I just didn't understand why you have two power washers.
Mark Zandi: That's right, exactly. Come on, Ryan.
Diane Swonk: Actually, there's, on Craigslist. There's a lot of boats and jet skis and-
Mark Zandi: Really?
Diane Swonk: Yeah. Everyone got boats when they got their second houses or their Airbnb-
Mark Zandi: And a dog. Everyone got a dog.
Ryan Sweet: And a dog.
Diane Swonk: That's actually, it's really hard. My daughter trains dog, she's in graduate school. But she's training, for lined up electis and stuff and PTSD dogs. Not our dog, the dog that she got when she was 18 and brought home, she didn't train him. He trained my husband. But his name is [Pria 01:03:03]. But she's really worried about all the people that are now returning animals to the shelters.
Mark Zandi: Yeah. Ryan was telling you, Ryan's wife is a vet and she's-
Diane Swonk: Oh.
Mark Zandi: ... saying the same thing. Yeah.
Diane Swonk: And there's not enough [crosstalk 01:03:15] out there-
Ryan Sweet: She's really concerned.
Diane Swonk: ... She's busy.
Ryan Sweet: She's [crosstalk 01:03:18]-
Diane Swonk: She's probably busier than you are.
Ryan Sweet: She's very busy. Yep. She works way harder than I do.
Mark Zandi: So do you think there's going to be a backside to all this where there's going to be pretty weak building material and supply. I mean all these retailers that are reporting great earnings now. There's a backside to this.
Diane Swonk: Yeah. There's a backside. And that, again, it gets into that bull effect too. Because people are double ordering.
Mark Zandi: Yeah.
Diane Swonk: And that means we could have an overhang. So what I'm also worried about is an overhang of inventories in 2023 that we have to work through and we could see some real discounting then. So be careful what you wish for.
Mark Zandi: Yeah, exactly. Ryan's been making that point.
Diane Swonk: I mean, that's sort of the flip side of this, right. And that's what, I think there's, the signals on demand are being distorted by the fact that, I know builders, who've gone out to home depot to buy the appliances. They were waiting for that won't come until January, and they want to finish the house and sell it. And give it to, it's pre-sold and get it off their balance sheet, and get the cash and get onto the next one. And so, but they're double ordering. When you double order like that, you've got an impulse through the retail sector and the wholesale side. And at some point in time, we're going to have too many inventories. And we have a lot of stuff that people won't want.
Mark Zandi: Well, [crosstalk 01:04:34] we got a lot to talk about, Diane. We're going to have you back to talk about that and-
Diane Swonk: About all our stuff and how we get rid of all our stuff.
Mark Zandi: All our stuff. Yeah. Hey, since we got Diane, last question to you, Chris or Ryan, there was anything you were wondering about that I didn't get to, or didn't ask Diane about that you want answers to?
Diane Swonk: They're like, "No, we already know way too much about her."
Ryan Sweet: All right. Cris, go ahead.
Cris deRitis: I can't think of anything. [crosstalk 01:04:59] it's a great conversation.
Diane Swonk: That's good.
Mark Zandi: It was great. It was a fantastic conversation. You were so engaging and so lovely. And it's just a pleasure to chat with you. So thank you very much.
Diane Swonk: Oh, It's fun to talk with you too, Mark. I mean, and we've known each other almost our whole careers.
Mark Zandi: Yep. A long time. Yeah, indeed. Well, hopefully many more years too, Diane. So [crosstalk 01:05:20]-
Diane Swonk: And now, you know I have your Moody's, your old mug.
Mark Zandi: I'm going to send a new one by the way. And [crosstalk 01:05:27]-
Diane Swonk: That would be great. Yeah, I would love it.
Mark Zandi: Definitely.
Ryan Sweet: It's going to have Mark's Twitter handle on it.
Mark Zandi: Oh, you're right, Ryan. I know I'm shameless.
Ryan Sweet: That's all right.
Diane Swonk: You guys have to go look up cowbell Saturday Night Live.
Mark Zandi: Oh, definitely, yes.
Diane Swonk: You have to watch it immediately. Because if you don't... I mean, my daughter at, for a while, she was the head biologist. Well, she's a biologist. She was head of a breweries, their entire quality control and also they're testing all the beer and bacteria and all that kind of stuff. And they always would say more cowbell and she didn't know where it came from. So I played it for her. She's like, "Oh, my God, I'm never going to be got to listen to that song again without saying more cowbell." And Ryan knows exactly what I'm talking about.
Ryan Sweet: I know.
Diane Swonk: But it is-
Mark Zandi: Oh, I got to go listen.
Diane Swonk: Carl Quintanilla who I just love on CNBC, he tweeted it out on its anniversary. Its 20 year anniversary, I think.
Mark Zandi: Oh, is that right? Yeah. I definitely got, I love Will Ferrell, he makes me laugh out loud.
Diane Swonk: Is it Christopher, who's in the [crosstalk 01:06:41]-
Ryan Sweet: Christopher Walken. Yeah.
Diane Swonk: Christopher Walken too.
Mark Zandi: Yeah. Oh, this sounds like classic.
Diane Swonk: It's amazing.
Cris deRitis: Diane's right-
Ryan Sweet: It's amazing.
Cris deRitis: ... it ruins this song. Whenever you hear it, you're just forever. You're just going to think cowbell. Yep.
Diane Swonk: You have to play it. You have to go and yeah, you have to play get [crosstalk 01:06:58]-
Cris deRitis: So Ben's-
Diane Swonk: Google it. Cris, before you try to put this whole thing together, go Google that. And any of your listeners should also, it's just something if you need a moment of joy.
Mark Zandi: Well, Diane, the hardest part for us of this podcast is after we end, the three of us have to come up with the title for the podcast and [crosstalk 01:07:19] for doing it. I somehow think cowbell is going to be in the title-
Diane Swonk: Cowbell should to be on it. Yes.
Ryan Sweet: I already have the title for it.
Diane Swonk: [crosstalk 01:07:25] Cowbell.
Mark Zandi: Oh, you already got the title? Fantastic. All right. Well, I think we're going to call this a podcast. It was fantastic. Really good to have your voice. And the only thing I can say, Diane, since our outlooks are similar, we're both going to be wrong. So, you know-
Diane Swonk: Yeah. I know-
Mark Zandi: [crosstalk 01:07:42] about that. Yeah.
Diane Swonk: Well, at least we're in good company.
Mark Zandi: Yeah. We're in good company.
Diane Swonk: And we can commiserate together, but it's been a humbling year. And all I can say is, it's good to be on as hard as the pandemic is and it's still going on. I will never forget what a gut punch it was seeing the claims go up so quickly and the jobs go so quickly and just how devastating that was.
Mark Zandi: Oh, yeah.
Diane Swonk: And to at least be at a place where there's some hope on the horizon is a good thing to do. And for me personally, having 11 surgical procedures and six major surgeries, and so far beating cancer through the pandemic and it's just a good place to be right now.
Mark Zandi: Well, you're strong and thank goodness for that. Amen. It was good to [crosstalk 01:08:35] that. Thank you so much and will call that-
Diane Swonk: Good to see that.
Mark Zandi: ... a podcast. Take care now.
