INSIDE ECONOMICS

Mark Zandi:                      Welcome to Inside Economics. I'm Mark Zandi. I'm joined by my colleagues, Ryan Sweet, director of Real Time Economics, and Cris deRitis, the deputy chief of economist, and we have Marisa Di Natale back. Welcome, Marisa, good to have you back.

Marisa Di Natale:            Thank you.

Mark Zandi:                      Yep. You are head of global forecasting. The last time you were on a couple weeks ago, two, three, four weeks ago, we were talking about forecasting. This go around, we're going to be talking about the state of the American household. Better put, the state of the ... What should I say? The financial health of American households. I don't know why that was so hard to say. We're going to be talking about how well American households are doing. It's apropos to have you on, because you have a lot of expertise in understanding household balance sheets, and we'll get back to that in just a minute.

                                             This is a little weird, this podcast, right? It's Wednesday morning. Typically, we record this podcast Friday afternoon. We have a whole week of economic data to talk about. Because I'm going to be on a plane traveling, we decided to push this up a little bit. But it feels a little weird, doesn't it? To me, it does.

Cris deRitis:                       It does.

Mark Zandi:                      Yeah. We don't have as much ... Go ahead, Cris.

Cris deRitis:                       Just a preview, I'm going to break the rule in terms of the indicators within the week. I'm going to look back two weeks.

Mark Zandi:                      Ryan, is he allowed to do that? He just unilaterally changed the rules.

Ryan Sweet:                      I guess. I guess we're going to have to comply.

Cris deRitis:                       Just three days, not even Wednesday.

Mark Zandi:                      No, that's fair. I was thinking of doing the same thing, but then I was thinking Ryan would give me all kinds of grief for doing that.

Ryan Sweet:                      I'll do that anyway.

Marisa Di Natale:            Mine is from last week too.

Mark Zandi:                      Okay.

Ryan Sweet:                      I already know what ...

Marisa Di Natale:            I figured it was fair game since it's a short week.

Mark Zandi:                      Okay. Fair enough. That sounds good. I think that's fair, given the situation that we're in.

                                             I did, though, send an email out just outlining the conversation a little bit. I think we should focus on indicators that relate to the Delta variant and the impact on the economy. Is that fair? Is everyone on board with that? indicators?

Cris deRitis:                       We also want to talk about the household financial health, right? A little bit of both maybe?

Mark Zandi:                      Okay, a little bit of both. Okay, fair enough. I have a feeling Cris is ...

Marisa Di Natale:            I know what Cris' indicator is.

Cris deRitis:                       Yeah, yeah. I just gave it away. I was home.

Mark Zandi:                      Fair enough. Why don't we begin with you, Cris?

                                             I should say, just for the fair listener, as you know, part one is a discussion of the indicators, and we each put forward our favorite indicator for I guess now last week and this week. Then we do turn to the topic at hand. We are going to focus on the health of the American household, the financial health of the American household.

                                             Okay. With that, Cris, let's start with you. I'm intrigued. What's your indicator?

Cris deRitis:                       This is underhanded softball now. It's 37.7 billion.

Mark Zandi:                      Now I think I know. Marisa, do you know? I think this is right.

Marisa Di Natale:            I think so.

Mark Zandi:                      Okay. Got to let you go. Ladies first. Go ahead.

Marisa Di Natale:            Well, is it growth in household credit over the last quarter?

Cris deRitis:                       That's right. The G.19 series from the Federal Reserve. That's total consumer credit, revolving plus non-revolving.

Mark Zandi:                      Okay. Let's make this a little harder. Before I do that, give us some context. What kind of number is that?

Cris deRitis:                       That's strong. Certainly, that's strong in normal times certainly. It's a big jump. Certainly, coming out of COVID, it's a big increase. Increases in, like I said, both non-revolving and revolving, almost a 50-50 split of 18 billion on the revolving side and almost 20 billion on the non-revolving side. Consumers are out there borrowing once again. They're charging on their credit cards. They're still borrowing for auto, student loans. Really across the board you see credit growth. That's supporting some of the spending we've seen.

Mark Zandi:                      Revolving means basically cards, bank cards?

Cris deRitis:                       Basically bank cards, although now things are shifting as well. We can get into some of these trends as well. The millennial generation in particular is attracted by the buy-now, pay-later type of arrangements, less interested in the credit card perhaps, although that remains to be seen. That revolving component, it seems as though that also captures some of these newer fintech type of loans as well.

Ryan Sweet:                      And gas prices. When gas prices go up, you see revolving credit go up.

Cris deRitis:                       For sure.

Mark Zandi:                      Non-revolving is mostly auto debt and student loan debt, correct?

Cris deRitis:                       Yes. It would also include the fixed-term personal loan.

Mark Zandi:                      Right. Here, let me make this a little more complicated. What was the increase in total household debt in the quarter?

Cris deRitis:                       Including mortgages?

Mark Zandi:                      Wait a second. Was that 37.7 billion the monthly increase or was that the quarterly increase?

Cris deRitis:                       That's the monthly.

Mark Zandi:                      Monthly, okay. It was a monthly increase.

Cris deRitis:                       May to June, yeah.

Mark Zandi:                      May to June. Really? Okay. What was the quarterly increase ... This is Q2 ... in total household debt outstanding, which would also obviously include ...

Cris deRitis:                       Mortgage.

Mark Zandi:                      Mortgage debt. Marisa, you should know this I think, because this is based on the Equifax data.

Marisa Di Natale:            Yeah. It came out last week, but I don't know it off the top of my head.

Mark Zandi:                      Came out last week, yeah. No? No, you don't know that data? Oh, okay.

Marisa Di Natale:            I can look it up and tell you.

Mark Zandi:                      I'm going to show you up. It's about $100 billion increase in the quarter. Actually, credit card ...

Marisa Di Natale:            94 billion.

Mark Zandi:                      How much was it, 94?

Marisa Di Natale:            94 billion, yeah.

Mark Zandi:                      About 100 billion.

Marisa Di Natale:            Sorry, that was the month of June.

Mark Zandi:                      Was it the month of June? Okay. I thought it was the quarter. Okay. The month of June.

Marisa Di Natale:            Sorry, July. It was July.

Mark Zandi:                      Oh geeze. I think we should start this podcast over.

Ryan Sweet:                      The perfect podcast has ended.

Mark Zandi:                      All right. We sort of know the data. Look it up. Okay.

                                             But it does show that household credit growth is picking up. It's accelerating. We're now seeing mid-single-digit year-over-year growth. For a while there, it was obviously declining, so a big turn around there. Okay fair enough.

                                             Ryan, what's your statistic?

Ryan Sweet:                      I've got two. I have an economic one and a non-economic one. We'll save the non-economic one, because it's the perfect transition to the big topic.

Mark Zandi:                      All right.

Ryan Sweet:                      I'll give you the economic one right now. You're going to scream that this isn't fair, but Mark asked for something that shows the Delta variant impact, and the number is 32.1%.

Mark Zandi:                      32.1%

Cris deRitis:                       That's positive? No negatives?

Ryan Sweet:                      I know my science.

Mark Zandi:                      Inside joke, by the way.

Marisa Di Natale:            Not that inside if you listen to the podcast.

Mark Zandi:                      Go back to listening to the last podcast Marisa was on.

Marisa Di Natale:            32%?

Ryan Sweet:                      32.1%. It's a weekly number.

Cris deRitis:                       It's a weekly number.

Mark Zandi:                      You said it's related to the Delta variant or showing some impact of the Delta variant?

Ryan Sweet:                      Yep.

Mark Zandi:                      Can you give us another hint?

Ryan Sweet:                      The only market to show an increase was Philadelphia.

Mark Zandi:                      Oh. I don't know.

Ryan Sweet:                      This is the metric that I've been tracking. It's off the radar.

Marisa Di Natale:            Is it the stringency index?

Ryan Sweet:                      It's not. It is not.

Mark Zandi:                      I don't know. I don't know, Ryan. What is it?

Ryan Sweet:                      You went back into the office. When you would go in the office, you swipe to get in. There is a Kastle back-to-work index, and they track across 10 markets the number of people who are going in and out of the office. This is down from 34.8% at the end of July. Since the beginning of August, we get this big surge in COVID cases. It's slowing and reducing the number of people that are going back to the office.

Mark Zandi:                      Has it been steadily improving and this is the first step back then?

Ryan Sweet:                      Yeah. It was improving, and now, all of a sudden, since late July, it's been coming down.

Mark Zandi:                      Interesting. Philly was the only metropolitan area out of, what, you said 10?

Ryan Sweet:                      Yeah. They tracked 10. In the last week, Philly was the only one that went up. They were down across the board.

Mark Zandi:                      There's hardly anyone going to work in Philly. I know that, at least into the office buildings. That's interesting.

                                             I was in the office, our office, was it Monday? Yeah, on Monday. I think that was the first day that people could go back if they wanted to go back. I think we called it a phase-one reopening. I tell you, there were three people in the office other than me, three people. It's funny. I ran into two of them. They were brand-new employees. I mean literally brand new. They were just looking around, looked a little lost. I didn't know who they were. And Phil, the really good data guy, was in also. Oh, Summer was also in, the office manager. But that was it.

                                             Okay. Are we going to come back to you then Ryan for the non-economic one in a minute?

Ryan Sweet:                      Yeah.

Mark Zandi:                      Okay. All right. Good. We'll do that.

                                             Okay, Marisa. What is your statistic?

Marisa Di Natale:            I think this is easy.

Mark Zandi:                      Okay.

Marisa Di Natale:            It is 96.7. it's an index value of a week ago.

Mark Zandi:                      Do you know, Ryan? This also sheds some light on whether the Delta variant's having some impact on the economy? 96.7.

Ryan Sweet:                      Is this our back-to-normal index?

Cris deRitis:                       That's my guess.

Marisa Di Natale:            Yes.

Mark Zandi:                      No.

Cris deRitis:                       For which state?

Ryan Sweet:                      I've got to check out the state.

Mark Zandi:                      Now you're going down to the state level. Oh, Florida.

Ryan Sweet:                      Florida.

Marisa Di Natale:            Yeah. It's Florida's back-to-normal index. I think it's significant because Florida had risen up above the 100% back in May and reached ... It's indexed to 100. You guys have talked about it a lot. It's indexed to right before the pandemic. In late February 2020, it was 100. It combines a whole bunch of private data and big data and economic data to see how back to normal every state is. Florida has been well above the national average almost the entire time, just given that it hasn't had the stringent lockdowns that a lot of other states had. But it got back above 100 in May. It was well above 100, about 102, 103, for most of June. That has been falling since Delta really emerged in mid- to early July. Now it's 96.7. It's still above the national average, but you definitely see it faltering.

                                             Matt Colyar, who's our colleague who puts the index together and covers it, writes about it on economic view, was saying that, of all the states where Delta has surged in the past month, this index value has fallen about a percentage point. In the states that have reimposed lockdowns that are doing relatively better, the index is still rising and rose by about a percentage point. You're really starting to see the impact of I think the virus itself taking a toll on some of these states where there's a resurgence of cases, hospitalizations, and now deaths, even if the state isn't necessarily implementing new lockdowns or restrictions to spread the slow of the virus.

Mark Zandi:                      Just for context, nationwide ... I think this is a really good indicator to follow, because we construct it every day. We release it once a week on a Friday. It's at a state level. It really is very sensitive to what's going on right now. Nationwide, we're stock at 92%. We steadily improved. It steadily improved in the spring, early summer as vaccinations got rolled out, and then, really since mid-June, really early July, it's gone flatline nationwide. That reflects declines in the index in states where vaccination rates are low and the economy's starting to struggle. That's being offset by continued improvement in some of the other states that are more vaccinated and infections are low. New York continues to improve. Still going sideways here.

                                             That's a good one. That BNI index, that back-to-normal index, we constructed it with CNN Business. We put it on our Economic View set, but you can also find it on CNN Business as well. They have a pretty good visual there that helps you look at that index over time by state. That's a good one.

                                             I'm going to give you two numbers just to help you out a little bit. They are related to providing some sense of the impact of the Delta variant on the economy. The two numbers are 70 and 15, 70 and 15. These are related indicators. They're different indicators, but they're related. One of them came out this week on Monday. The other one came out last week on a Friday.

Ryan Sweet:                      The 70 is something with UMich. Is that because of present conditions?

Mark Zandi:                      That's the overall index.

Ryan Sweet:                      The overall. That was down 11 points. That was an enormous drop.

Mark Zandi:                      In fact, I think 70 is the lowest reading since the pandemic hit, even lower than last March and April.

                                             What about the 15? It's related.

Marisa Di Natale:            That's our global business confidence survey.

Mark Zandi:                      Exactly. That's right.

Marisa Di Natale:            That was my second. That was my backup statistic.

Mark Zandi:                      Was that right? Okay.

                                             We have our own business survey, weekly survey, we've been doing since 2003. It's a diffusion index, so percent of positive less percent of negative responses. It improved again in the spring and early summer when vaccinations were getting rolled out but has gone flatline now over the last really six, eight weeks.

                                             Here's the interesting thing in last week's reading, though. One of the questions is a broad one around present conditions. The survey respondents asked, "How do you assess current business conditions broadly?" Again, that's a diffusion index, percent of responses of things are improving less percent of negative response of things are getting worse. That turned negative last week for the first time since back in March. That present conditions question is I think the most sensitive to what's going on in the economy real time.

                                             That gives you a sense that I think the Delta variant's having an impact. It's really starting to ... I don't know. We got retail sales yesterday. They were very, very weak. There's a lot going on there, Ryan. I don't know if you can [crosstalk 00:17:07]

Ryan Sweet:                      It has nothing to do with Delta.

Mark Zandi:                      Nothing at all?

Ryan Sweet:                      No. You'll see it in the August data for retail sales, the Delta variant, the impact on restaurants.

Mark Zandi:                      I see.

Cris deRitis:                       [crosstalk 00:17:21] was actually up.

Ryan Sweet:                      It was up in July.

Mark Zandi:                      What was up in July?

Ryan Sweet:                      That's pre-surging in COVID cases. July, that was the timing of Amazon's Prime Day, the drop in vehicles. That all weighed on retail sales.

Mark Zandi:                      I'm sorry. What happened in July? What was up in July, in the July retail numbers? Restaurant spending?

Cris deRitis:                       Restaurants and bars.

Mark Zandi:                      Okay.

Cris deRitis:                       It was up 1.7%.

Mark Zandi:                      Was it? Okay. All right. Very good.

                                             But what do you think? How big a deal is this? I guess, if we're all assuming, and it feels like we're all assuming the Delta variant's going to roll over here, that infections and hospitalizations are going to start to come down in the next few weeks, kind of what happened in the United Kingdom, which seems to be leading us a bit in terms of the waves here, but if that doesn't happen and infections and hospitalizations continue to increase, how worried should we be? Let me put it this way: when should we get worried? What do we have to see before it starts impacting the economy to the degree that our optimism about the economy starts to fade a little bit? Or has it already started to fade?

Cris deRitis:                       I think it's all about the schools.

Ryan Sweet:                      I was just about to say that.

Cris deRitis:                       If the hospitalizations actually ... That's the key factor I would watch. If those rise to a level that threatens the hospital system, then you could see more imposition of stay-at-home requirements.

                                             If the schools have to go online again, then I think that certainly is going to impact the outlook certainly over the next quarter at least.

Mark Zandi:                      If schools don't reopen for in-person learning, that would be a clear tell that this thing is going to do some real damage to the economy.

Cris deRitis:                       I think so. I don't know, Marisa, Ryan, what you think.

Mark Zandi:                      It just feels like the data ... The data coming, they ebb and they flow, so I don't want to read too much into the ebbs and the flows, but it feels like it's ebbing a little bit here. All these different statistics coming together, the big statistics like retail sales and it's the minor statistics like the home builders' sentiment index, they all are coming in now surprising to the downside a bit it feels like.

Ryan Sweet:                      You don't want to read too much into it, because things are still really, really strong. Control retail sales are still 18% above their pre-pandemic level. Things are coming off the boil. The economy was booming earlier this year.

Mark Zandi:                      Control retail sales being?

Ryan Sweet:                      That's total retail sales excluding autos, restaurants, building materials, and gasoline. That's what feeds into the BEA's estimate of real consumer spending. A lot of that was a shift from service spending to goods, because, during lockdowns and the pandemic, people weren't going out to restaurants, they weren't going out to movie theaters, and things like that. They shifted their spending towards goods, which is mostly what retail sales captures.

Marisa Di Natale:            Correct me if I'm wrong, Ryan, but we're not really seeing huge movements or slowdowns in the Google mobility [crosstalk 00:20:59] or anything like that.

Ryan Sweet:                      Even weekly gasoline demand is still holding up.

Mark Zandi:                      I don't know. Bank of America, they track card spending. You see their release? It showed spending on airline tickets really starting to fade here in the last couple weeks. Spending on I believe hotels fading. Travel seems to be being affected.

Cris deRitis:                       The number of people going through TSA checkpoints is declining, but there could be some seasonality there. We're coming towards the end of the summer. It's really hard to read through the signal versus the noise.

Mark Zandi:                      Okay. I think you're right. We haven't changed our forecast. It's still a very positive, upbeat forecast. I do think that's why I love the GDP tracker that we have that takes all the spare pieces of information and, through statistical techniques, translates that into an estimate of GDP growth in the current quarter, which is Q3. Right now I think it's still at 6.5% annually, correct?

Ryan Sweet:                      That's correct.

Mark Zandi:                      I read this morning housing starts came out today, and they were okay, a little on the soft side, but they didn't change that 6.5%, which would be [crosstalk 00:22:21]

Ryan Sweet:                      No, it didn't.

Mark Zandi:                      That's pretty good. Okay.

Ryan Sweet:                      Part of it is that completions is still pretty solid. Permits, which lead housing starts, they rose. I think we're in this little bit of a blip. Things should start to pick back up for housing.

Mark Zandi:                      It's the ebb and flow. This is just a temporary [crosstalk 00:22:38]

Ryan Sweet:                      Yep.

Mark Zandi:                      Okay.

Ryan Sweet:                      Housing starts are very volatile. They're unreliable. They're subject to enormous revision. We really don't want to read too much into the month-to-month fluctuations in starts.

Mark Zandi:                      I guess, Cris, the statistic you've been following pretty regularly here, initial claims for unemployment insurance, they're elevated, but they continue to move in the right direction. Is that right? There's no sign in that data that Delta's doing any damage, certainly not to the labor market.

Cris deRitis:                       Not yet. The last read was for early August. I think August 7th. At that point, it was 375,000 for the week, and that was trending down. Still elevated by historical standards, but showing continued improvement.

Mark Zandi:                      Okay.

Ryan Sweet:                      We get claims tomorrow for the payroll reference week. People are going to read too much into it, but they're going to drop a lot just because of seasonal adjustment issues. People are going to be like, "The Delta variant's not affecting the labor market." You really can't trust claims right now, not until later, another week or two.

Mark Zandi:                      Payroll ... Do you notice Ryan? He's getting to be very jargon-esque. "Control retail sales, payroll reference week. Keep up with me, guys." Come on. What is the payroll reference week?

Ryan Sweet:                      I'll let Marisa. Marisa, she used to do the reports. She can elaborate much more than I can. She's an expert.

Mark Zandi:                      She used to [crosstalk 00:24:10]

Marisa Di Natale:            I can interpret Ryan's jargon.

Ryan Sweet:                      She's my interpreter.

Mark Zandi:                      Okay. She's your whisperer. Marisa is the sweet whisperer.

Marisa Di Natale:            Okay. The payroll reference week is when the BLS surveys employers to find out what the count of employment gains or whatever are each month. They're asking about a specific pay period during the month. They're asking about the pay period that includes the 15th of the month for the payroll survey, the 12th of the month for the household survey. Do I have that the other way around?

Mark Zandi:                      Wait. I think she's got that wrong. My goodness gracious.

Ryan Sweet:                      You had a chance to redeem yourself.

Mark Zandi:                      Oh my god.

Marisa Di Natale:            One is the 12. One is the 15th.

Mark Zandi:                      You got it backwards.

Marisa Di Natale:            Do I have it backwards?

Mark Zandi:                      Yeah.

Marisa Di Natale:            Okay. The 12th for the pay [crosstalk 00:25:07]

Mark Zandi:                      You used to put things together for the BLS? Oh my god.

Ryan Sweet:                      It's been a while.

Marisa Di Natale:            It's been 18 years, thank you.

Mark Zandi:                      I don't think Marisa appreciates my humor.

Marisa Di Natale:            I do.

Cris deRitis:                       It's early for her.

Mark Zandi:                      I forgot about that. You're sitting in California. It's really early there for you. You don't even have Wawa coffee in California.

Marisa Di Natale:            No. But I have a nice Nespresso.

Mark Zandi:                      Okay.

Marisa Di Natale:            I'm good.

                                             Anyway, they're asking about this specific pay period during the month. That's what employers are answering the question about, how many people are on your payroll during this pay period. The jobless claims figure that comes out during that week gives us a preview into what the payroll number might be.

Mark Zandi:                      Okay. Ryan, you're saying it's actually going to be a positive surprise.

Ryan Sweet:                      Yeah. It's going to fall a lot more than I think people anticipate.

Mark Zandi:                      Okay. Interesting.

Cris deRitis:                       What's your guess?

Ryan Sweet:                      I don't guess. There's no guessing.

Mark Zandi:                      Geeze.

Cris deRitis:                       You just said it's unreliable. It's unpredictable.

Ryan Sweet:                      Mark's criticizing me for jargon. I got 350, but I wouldn't be surprised if it comes in lower than 350, 350,000.

Cris deRitis:                       That's a substantial drop.

Ryan Sweet:                      It's a big drop.

Mark Zandi:                      Okay. All right. Good. Very good.

                                             The indicator I've been watching also suggests no damage from Delta, at least not globally. That's copper prices, although I didn't look in the last ...

Ryan Sweet:                      They dropped a lot yesterday.

Mark Zandi:                      Did they?

Ryan Sweet:                      [crosstalk 00:26:52] almost 3%.

Mark Zandi:                      Okay. Where did it fall to?

Cris deRitis:                       4.15 I think was ...

Mark Zandi:                      Okay. Still over $4.

Cris deRitis:                       Still over 4, but approaching.

Mark Zandi:                      Copper prices, anything over $4 a pound is consistent with a pretty strong economy globally, so Dr. Copper. It was at 4.35, so that came down quite a bit. That is interesting. I'll have to watch it.

                                             That came down with the market. All markets were down yesterday though. Equity markets are down. That gets to bond yields. They're back down to ... Tenured treasury yields were back down to 1.25 I think. Oh my goodness. I guess Delta is having some impact here.

Ryan Sweet:                      Yeah, a little bit.

Cris deRitis:                       Yeah, a little bit.

Mark Zandi:                      And in all markets I think. I haven't looked today, at what the market's doing today, but I'm curious to see. Anyway.

                                             The conclusion, bottom line, don't worry. Delta, it's not helping. Certainly no upside here. But the downside feels limited. Unless schools en masse decide to stay online, we should be okay here. We should navigate through. Our optimistic outlook for the economy should hold forth. That's the general consensus view here. Anybody disagree with that?

Cris deRitis:                       I'd agree. I think we're banking on things rolling over. Missouri is a good example where things got really. Now they seem to be improving. It seems as though this Delta variant will burn itself out hopefully.

Mark Zandi:                      Okay. All right. Anything else on the indicators you want to talk about? I think we covered a lot of ground there.

Ryan Sweet:                      Do you want my number for the perfect segue?

Mark Zandi:                      Yeah, the perfect segue. Let's hear it.

Ryan Sweet:                      The perfect podcast, we know it's over. It's Wednesday. It's wacky Wednesday. Here's the number. It is a perfect measure of consumer behavior. 32,340.

Mark Zandi:                      This is non-economic though, right?

Ryan Sweet:                      This is non-economic. I guess there's a little economics to it.

Mark Zandi:                      Is there any probability we would know this number?

Ryan Sweet:                      No.

Mark Zandi:                      Okay. What was it again, 32,340?

Ryan Sweet:                      Yeah. It's a Guinness World Record. You might be up there if they had it for Wawa coffee. It's a personal consumption of something.

Mark Zandi:                      Is it global or US?

Ryan Sweet:                      It's one person since 1972.

Mark Zandi:                      One person consumed 32,340 of these things?

Ryan Sweet:                      Yep, since 1972, two a day.

Mark Zandi:                      Two a day. This somehow relates back to the health of the American consumer?

Ryan Sweet:                      Maybe the health of an individual consumer.

Mark Zandi:                      Okay.

Marisa Di Natale:            We're getting really micro here.

Ryan Sweet:                      We are getting very micro, yes.

Mark Zandi:                      One person world record, anybody want to take a crack at that before we say we give?

Cris deRitis:                       Hot dogs.

Ryan Sweet:                      Close.

Mark Zandi:                      Wow.

Ryan Sweet:                      It's a food item.

Cris deRitis:                       Hoagies?

Marisa Di Natale:            Chewing gum. Breath mints.

Ryan Sweet:                      Big Macs.

Cris deRitis:                       Big Macs?

Ryan Sweet:                      Big Macs.

Mark Zandi:                      She's projecting now. She's projecting. Yeah, breath mints.

Ryan Sweet:                      One individual consumed 32,340 Big Macs since 1972, two a day.

Marisa Di Natale:            Is that person still alive?

Ryan Sweet:                      Yeah.

Cris deRitis:                       Still adding to the record.

Ryan Sweet:                      They're still adding to it.

Mark Zandi:                      What does this have to do with anything, Ryan?

Ryan Sweet:                      Consumer spending. Can you imagine the amount of money they spent on Big Macs? Hence segue into the American ...

Cris deRitis:                       Wow.

Mark Zandi:                      Man, that is a huge leap.

Marisa Di Natale:            [crosstalk 00:30:45] reach, Ryan.

Mark Zandi:                      That is a reach.

Ryan Sweet:                      You guys aren't impressed by that? 32,00 Big Macs?

Mark Zandi:                      32,000.

Cris deRitis:                       Impressed or a little bit disgusted?

Marisa Di Natale:            I am slightly disgusted.

Mark Zandi:                      Since when, Ryan? Did you say 1970?

Ryan Sweet:                      1972.

Mark Zandi:                      1972. Wow. I didn't even know they had Big Macs that far back, '72. Interesting I guess.

                                             Okay. The topic ...

Marisa Di Natale:            When you said the health of the American consumer, Ryan took that literally.

Mark Zandi:                      He took that literally.

                                             That is the issue here. When I think about the health of the consumer, I think broadly three things: one, jobs and income, are they employed and are they getting pay increased; second, debt leverage, obviously big problem prior to the financial crisis, not so much right now, but leverage; and what do they own, assets, house prices and stock values, that kind of thing. If you look at the American consumer from that perspective broadly ... And here I'm generalizing. It's a broad brush. There's obviously lots of distinctions we can and should make across the population. 

                                             But, broadly, it feels like the American consumer's in pretty good shape. Clearly, the pandemic has been a problem, and we're still recovering from the pandemic, the consumer. Unemployment's 5.4%. It was 3.5% before the pandemic. But we're creating lots of jobs. Unemployment's coming in. It feels like we're going to head back to full employment pretty quickly. Wage growth has held up admirably well in the pandemic. People have been able to save. There's a lot of excess saving.

                                             Leverage is low. Here's a statistic for you I was looking at in preparation for this. The financial obligations ratio, that's the percent of income disposable after taxes, income that consumers, households, are devoting to meeting their financial obligations, which includes not only their debt payments but also lease and rental payments, is 12.9% as of Q1 2020. That's a record low. We've got data back to 1980. The average is close to 16%. Leverage seems low.

                                             Asset prices are ... Well, they've gone skyward. Housing values and stock prices and bond prices and crypto prices, anything you own I think is worth a lot more today than it was a year ago, two years ago, three years ago, five years ago.

                                             Am I wrong that, broadly speaking, the state of the American consumer is good? Would anyone disagree with that or take umbrage with that?

Cris deRitis:                       It's an aggregate under that representative agent type of model. Sure, absolutely.

Mark Zandi:                      Okay.

Cris deRitis:                       But, once you peel it back, that's when you see the distinctions certainly.

Mark Zandi:                      Okay. Go ahead and peel it back. How do you want to peel that back?

Cris deRitis:                       You can peel it back in any number of ways. I guess one way would just be by income or education. Certainly, folks who are more educated have been able to fare better during the pandemic than folks with less education just in terms of their ability to work remotely or hang on to jobs. While savings rates are up, and they're up in aggregate, and they actually are up across the board, they certainly are much higher for folks in the upper income distribution, more highly educated, than at the bottom part of the distribution.

Mark Zandi:                      So you're saying the obvious distinction underneath is across income and wealth distribution, that there's been this ongoing skewing of the distribution. Low-income houses, low-moderate-income households, have been left behind over the last, well, almost 30, 35 years, something like that.

Cris deRitis:                       Sure. The asset gains that you'd mentioned during the pandemic, whether it's housing or financial, those have accrued to the upper part of the distribution by a significant degree. Folks at the bottom don't hold a lot of financial assets. Many of them don't own homes. They really haven't participated in those gains.

Mark Zandi:                      Right. One fortunate thing in the pandemic is all the fiscal support that's been provided, because that really helped low- and moderate-income households in particular navigate through the pandemic, not gracefully. That's definitely the wrong word, but reasonably gracefully. The stimulus checks, the unemployment insurance, the food assistance, the rental assistance, that kind of thing. Would you concur with that?

Cris deRitis:                       Yeah. Like I said, the savings actually are higher. If you look at checking account balances by income, they are larger today, or higher today, even for folks in the bottom tenth-percentile than they were prior to the pandemic. I attribute that certainly to a lot of pandemic stimulus support as well as lack of spending opportunities during the pandemic. If you just looked at that metric, sure, they're better off. But, proportionally, or relative to the upper end of the distribution, their gains are small.

Mark Zandi:                      The other thing I've noticed is the labor market has tightened up, but it's really tightened up for lower-skilled workers. Wage growth for folks in the bottom part of the wage distribution, part of that is increases to minimum wage, but a very tight labor market for the bottom part of the wage distribution. Wage growth there has actually been quite strong. That's helped too I think.

                                             Marisa and Ryan, any other way you would broadly characterize the American consumer? I talked about in aggregate. Cris talked about it across income and wealth distribution. Is there any other way we should be looking at it that provides some insight into the health of the American consumer broadly speaking? No?

Marisa Di Natale:            With any income cuts or wealth cuts, certainly looking at it by race, for example, the vast majority of wealth and asset gains have gone to white households, not to Hispanic or black households. Same thing with the income cuts.

                                             I think another thing ... You had mentioned that the financial obligations ratio is at its lowest level ever I think you said.

Mark Zandi:                      Yeah.

Marisa Di Natale:            A lot of that, what Cris just said, there's been not as much to spend on until recently. Then we've had a lot of fiscal support. I was just looking at the data on the child tax credit payments that have started to go out. Those are quite large and going to a lot of households. You can see in that data ... This is from the Census Bureau Pulse Survey that they've been doing since the start of the pandemic. People are really using that. 40% of people said that they're using it to pay down debt. Then another third of people are using it to save. Only less than 30% are actually spending it. It just goes to this notion that there's a lot of excess saving and debt is coming down because people have been able to use some of this money to pay down debt as well.

Mark Zandi:                      I didn't know that. I missed that. In the most recent Census Bureau's Household Pulse Survey, which I recommend to everybody ... That's a pretty cool survey that they've been doing more or less regularly since early on in the pandemic. In the most recent survey they had questions around the child tax credit?

Marisa Di Natale:            Yeah.

Mark Zandi:                      And you can see that the bulk of that is being used to pay down debt and to save, not to spend?

Marisa Di Natale:            Yeah. 40% of it is going to pay down debt.

                                             This is data that goes ... I think the latest iteration that they did goes through early August. The questions were as of a couple weeks ago. It's a wonderful dataset, because they ask all kinds of health questions, about how COVID has affected people's lives in terms of not only health but how they're working, how their children are going to school or not, if they're doing remote learning. You can glean a lot of really interesting things I think from that dataset.

                                             But, yeah, one of the sets of questions is about all of the fiscal stimulus. They ask about if you're using extended unemployment insurance benefits, what are you doing with that, how much are you using it, what about just the stimulus checks, and now the child tax credit is part of the questionnaire as well.

Mark Zandi:                      Go ahead. Sorry, Marisa.

Marisa Di Natale:            You can clearly see that paying down debt and saving, it's turned from those initial payments that went out, the first tranche of stimulus. People spent it, which makes a lot of sense. But, as you kept going, the spending fell a bit more, and it went more toward paying down debt and saving.

                                             That's true across all income buckets too, which is very interesting. We know low-income households are more likely to spend than save, and that was certainly true early on in the pandemic, but even now those lower-income households are using it to save and pay down debt as well.

Mark Zandi:                      Just to provide context, the child tax credit was expanded as part of the American Rescue Plan. That was the legislation support package passed in March. In current law, that is from July to December, and then it will expire in January 2022, unless, with this new legislation that's being debated in Congress, there's an extension of that child tax credit through 2025.

                                             One of the reasons for this is it's actually quite substantive. It's a pretty big, expensive line item. It can be very costly.

                                             But it is clearly helping out low-income households at least save more and pay down debt and help them with their bills. That's good to hear.

                                             That leads to a critical question with regard to our outlook for the economy, our optimistic outlook for the economy, and that is how much of this excess saving will be spent and over what period of time.

                                             Just to make that clear, what I mean by that, people's saving rates have increased dramatically during the pandemic. Part of that was "I'm sheltering in place. I can't go to a restaurant. I can't travel. I can't do stuff." I might spend a little bit more on a heater for my back deck, I'm talking me now, or a power washer, but there's only so many power washers one can buy. Therefore, you save more. Then it's also the government support, the stimulus checks and other support. A lot of that has gone to low-income households who have spent it because they needed it to navigate through because they lost their job, but some of that went to middle-, even some higher-middle-income households who have been saving it. Now, as you point out, even some of the child tax credit that's going to low-income households is going to savings and paying down debt, which is the same thing.

                                             Saving rates have been very elevated during the pandemic. Excess savings represents the difference in the actual saving rate and the saving rate that was evident prior to the pandemic. If there had been no pandemic, that's the saving rate one would have expected. If you totaled up all of the dollars saved in excess, this excess saving, by our calculation it's almost $2.5 trillion, $2.5 trillion. That's over 10% of GDP. That is a lot of cash sitting out there in people's deposit accounts and one other reason why asset prices are rising.

                                             The question is how much of that excess saving is going to be spent and over what period of time. I'm just curious. What do you think? If all that excess saving got spent quickly, over the next 12, 18 months, that would be obviously a ton of growth, and the economy would probably overheat. That's not what we're expecting. I'm just really curious how people are thinking about this and how much of that excess saving will be spent. Do you have a review, Ryan, on that?

Ryan Sweet:                      Our baseline's a third, correct?

Mark Zandi:                      A third between now and the end of 2022.

Ryan Sweet:                      Correct. [crosstalk 00:44:17] currently. I think that seems reasonable, but I think the risk is that it's spent slower and less than what we're anticipating, given the distribution of the excess savings really favors high-income, high-wealth households. They have a much lower marginal propensity to consume. I think they might treat that more as wealth than extra cash. I think our forecast is reasonable, but I wouldn't be surprised if it comes out slower.

Mark Zandi:                      Cris, I know you've put together a nice deck with a lot of slide, and I saw one on excess saving. I think you actually went and calculated the increase in the amount of cash sitting in people's deposit accounts based on where they were in the income or wealth distribution.

Cris deRitis:                       That's right. This is data from the FED. They produce distributional account information now. They actually break out all different asset types. I just picked the checkable deposits just as the most liquid form of savings. This goes back to my early point about there's a lot of cash sitting in these checking accounts really across the income distribution, but, as Ryan said, it's really skewed towards that higher-income households. I agree with Ryan. I think that the risk is actually to the downside in terms ...

Ryan Sweet:                      Less.

Cris deRitis:                       Yeah, less of a burn or less of a cash coming in to the economy over the next 12, 18 months.

Ryan Sweet:                      That would be consistent with what happens after post-World-War eras where you have a lot of excess savings during them. When you come out of it, it really didn't get released very, very quickly. It's a small sample size, but that might be what we see going forward.

Mark Zandi:                      There was a really great piece in Barron's going back to after World War II, and they had one quote from an economist in that period saying, "Watch out. There's a lot of excess savings." I think he even used the term excess savings. I think. If he didn't, that's what he was implying, because there was a lot of pent-up demand. People couldn't spend during the war because they were all producing military equipment. We weren't producing homes or anything else. His argument was "People are going to come home from the war. There's going to be this massive increase in spending, and we're going to have this huge spike in inflation. We're going to have a real problem in inflation." It felt just like the debate we're having, literally the debate we're having today.

                                             Of course, that did not happen. People did not go out and spend ... Spending was strong post-World-War-II, but it was not booming, and certainly not booming to the point that it led to this runaway inflation that the economists at that point in time were worried about. I think that is a pretty good analog today.

                                             Marisa, any insight here on wealth, on excess saving, that we missed?

Marisa Di Natale:            What you just said led me to think about another question, which was all this stimulus that we've had over the past year. I remember there was some debate back when that was being proposed that pumping all of this cash into the economy and giving all of us this cash to households and could that eventually spark inflation. I don't think there's much evidence of that too. It's been so gradual. A lot of the spending is still to come and will trickle out over the course of ... Particularly the infrastructure stuff where it has to be dispersed to states, and states need projects, that will happen over a longer period of time. It's an incredible amount of money that's going into the economy, but it seems to be being dispersed at least gradually over the course of years. We're not seeing any huge spikes I think that we can blame on that, on inflation, either. I don't know if you agree with that.

Mark Zandi:                      Yeah, I do. I think that's right. I do think the ... One other concern expressed about all that support, fiscal support or stimulus, as you labeled it, was that it's a waste of money, because you're not stimulating the economy if people are going to save it. But I would take umbrage with that. I think it's very important to help out these low-, minimum-income households that were having a great deal of difficulty, and still are having a great deal of difficulty, navigating the pandemic through no fault of their own. They had no savings. Helping them out here to navigate through was obviously helping them out but I think ultimately helped out the economy. I don't think that argument was a very good one either, but that was one you also heard.

Cris deRitis:                       I'm actually hopeful that the savings stick. Before the pandemic, we were very concerned about financial fragility, as you'll recall. So many homes can't afford a $400 emergency expense.

Mark Zandi:                      The other thing ... I'm sorry. Go ahead, Cris.

Cris deRitis:                       Just to say, if these stimulus funds help them to build up some cash buffer, that points to our long-term resiliency.

Mark Zandi:                      The other thing I really worried about, if you go back a year ago when things were really tough, unemployment very high, and you remember the riots in the street that we were experiencing last summer, it felt like the whole social fabric of the country could come undone. I get it. If you're a household, you're out of work, no prospect for going back to work, you're stuck at home, your internet connectivity's poor, you've got kids there that are struggling to adjust to the situation that they're in, incredible hardship, if we hadn't provided that support, what would have happened? Would the fabric of the nation actually rip apart? It didn't. It held together, and I think one could argue that that's because of all of the support. It really did help these households navigate through this period reasonably well. I think that was important from that perspective also.

                                             Another issue, concern, again about the health of the American consumer is sticking to government support. The federal government has also provided support to households with debts. Various moratoriums on rental eviction, moratoriums on foreclosure, for government-backed loans from Fannie Mae Freddie Mac, FHA, VA, [inaudible 00:51:09], also forbearance on mortgage payments for government-backed loans. If your income was disrupted by the pandemic, you're having trouble making your mortgage payment on a Fannie Mae loan, you could get forbearance. Forbearance means I don't make those mortgage payments. I think it was up to 18 months in total. Student loan borrowers also have forbearance. Correct me if I'm wrong, Cris, I think that now extends into January, doesn't it, January 2022?

Cris deRitis:                       That's right.

Mark Zandi:                      But all of those supports to consumers on the debt side of their balance sheet, on the leverage side of their balance sheet, are going to expire. It feels like it's now probably by early next year this is all going to go away. The rental eviction moratorium, which is extended through October, if it's not changed by the courts, will expire. The forbearance is starting to wind down.

                                             One of the concerns was that, as that support faded away, this so-called forbearance cliff would be a problem, that households would struggle with that and that that would hurt their ability to spend on other things. If I don't have to make a mortgage payment, I can spend on other things, but, now that I have to make a mortgage payment, that will create problems. It will also lead to other credit issues, people not making mortgage payments or student loan payments or car payments or whatever it is.

                                             How worried should we be about that at this point? Any insight there? Cris, I'll turn to you and then to Marisa. How are you feeling about that so-called forbearance cliff at this point in time?

Cris deRitis:                       I'm not particularly worried certainly when it comes to mortgage, just in terms of everything that has gone in addition to the forbearance, particularly the rise in home prices. The demand is strong. Incomes are growing. Jobs are plentiful. I believe that most homeowners will be able to resume their payments. I don't see much of a problem there.

                                             For those that can't, that can't replace the income or continue to struggle, from the bank perspective or the lender perspective, at least they have the option to sell their homes. For many of them, they have positive equity. I don't expect to see a wave of foreclosures, for example, at the end of the forbearance period here. For mortgage, I'm not particularly ... Lending standards have continued to remain very tight, even prior to the pandemic. I don't see a foreclosure cliff coming any time soon there. From that perspective, I'm feeling pretty comfortable.

Mark Zandi:                      what about student loans? Should we be worried about that.

Cris deRitis:                       For student loans, I think we'll see the problems that we had before the pandemic, before the forbearance went into effect, will be revealed once again. There it's a little bit different situation because the defaults are highly correlated with the performance of the borrower as a student. We se that most defaults, or most significant defaults, come from people who took out some student debt but didn't actually complete the degree or studied in an area where the degree has very limited value. As the forbearance expires, I think the people who have well-paying jobs, college educated, they do have student debt, I do see them as being able to restart their payments. But it's that group, once again, that has perhaps a limited amount of student debt but doesn't have the income generation opportunity to service the debt. I think that will be a problem, but I don't see this as a problem that's any worse than what we had prior to the pandemic, again, because the labor market is relatively strong.

Mark Zandi:                      Marisa, anything to add to that, any different perspectives? Do you disagree with any [crosstalk 00:55:17]?

Marisa Di Natale:            Back on the mortgage forbearance, it's relatively small. The number of people that are behind on mortgage payments is about seven million people, and that's a little under 8% of all households that have a mortgage.

Mark Zandi:                      That's the Equifax data that you're referring to?

Marisa Di Natale:            No. This is actually also from the CPS. The Pulse Survey.

Mark Zandi:                      Oh, the Pulse, the Pulse Survey.

Marisa Di Natale:            Yeah. This is very current as of a couple weeks ago.

                                             There are seven million people that are behind on their mortgage payment, and almost 40% of them, a little less than half of them, are unemployed currently. I think you can clearly see how helpful some of these programs have been just to get us through the past year and a half on this stuff. But I think that's still a relatively small percentage of all homeowners, mortgage owners.

                                             I think, like Cris said, just given the increase in asset values over the past couple of years, I think that becomes less of a worry when this does start to roll off.

Mark Zandi:                      Marisa, I don't think I'd be using that data. I'm not sure. Seven million? That's a lot. There's 49 million people with mortgages. 7% would be a very high delinquency rate.

Marisa Di Natale:            Okay. It's people that live in an owner-occupied home where there's a mortgage on the home. I think that it could be higher because you have multiple people in a household.

Mark Zandi:                      Oh [crosstalk 00:57:07]

Cris deRitis:                       That's what's going on. [crosstalk 00:57:09]

Marisa Di Natale:            They're asking individuals and they're asking about does the household have a mortgage.

Mark Zandi:                      Okay. I think I would use our data, the Equifax data, which shows very low delinquency. Some of it's because of forbearance, to your point. I'm not sure I'd use that Pulse Survey. I'm just a little wary of it in that context in terms of the numbers.

Marisa Di Natale:            I wanted to look at it just because I wanted to cross it with the different kinds of stimulus and forbearance and fiscal help that's been [crosstalk 00:57:47] to see how those people are or are not using it.

Mark Zandi:                      Here's another statistic. This is from the Mortgage Bankers Association. There is 1.6 million people that are receiving some form of mortgage forbearance at this point in time. That's declining very quickly. They release that data every single week. It's falling pretty quickly. I think the forbearance rate is about 3.5%, but that's coming in pretty quickly now at that point. That makes me more ...

Marisa Di Natale:            [crosstalk 00:58:20]

Mark Zandi:                      ... with what you're saying. We're coming to the same place using different data. I feel less worried.

                                             I think it is important to point out, though, that delinquency rates, loss rates, foreclosure rates are going to rise, because they are very, very low because of all this forbearance. As that goes away, they're going to rise simply just to normalize to levels that prevailed prior to the pandemic.

Marisa Di Natale:            They're already rising. If you look at the Equifax data across all different kinds of household debt, they're rising, but from, like you said, very, very low levels. They're starting to tick up as credit is expanding and people are spending again.

Mark Zandi:                      We've talked about income and savings. It all feels pretty good, okay. Obviously, higher-income households a lot more excess savings than lower-income households, but it across the board feels like we're moving in the right direction. We talked about leverage and debt, talked a little bit about the forbearance cliff. There again feels like we're moving in the right direction. Everything feels pretty good. We've got a ways to go before we're back to normal, but we're headed in that direction.

                                             Let's talk about the asset side of the household balance sheet. Of course, assets are largely owned by a small part of the population. Home ownership rates are 65%. That means 35% of the population are renters. But if you look at stock holdings, only 50% of the population owns any stock whatsoever, and the bulk of that is in the top 10% of the wealth distribution. Deposits and other savings accounts and fixed-income assets, again, pretty skewed. But there, that feels really ... What's not to like about what's going on with asset prices? Now, I've got a couple of worries there, but, before I express my worries, do you guys have any concerns about that? What's bugging you about the asset side of the balance sheet, or is there nothing to worry about on the asset side?

Marisa Di Natale:            One thing I would say is just, as we're talking about excess saving with all these high-income households, it's very likely they're invest some of that even further. Especially high-income households with that cash, they're not going to have that sitting in a savings account. They're likely to invest it either back into equities or maybe into real estate. I think you're going to have even more growth [crosstalk 01:00:58]

Mark Zandi:                      I've got a good story there. My mother-in-law, every time a CD rolls over, will call and say, "What do I do with that money?"

Marisa Di Natale:            So does my mom.

Mark Zandi:                      This is what I tell her. I'm curious what you tell your mom. I say, "I don't know."

Ryan Sweet:                      That's a good answer.

Mark Zandi:                      Because she's in her 90s. Do you really want to invest in equities or even fixed income? I said, "Mom, maybe just keep it in cash." She wanted to know about gold. I said, "Not so sure." She goes, "What's this thing called Bitcoin?"

Ryan Sweet:                      Oh god. Oh no.

Mark Zandi:                      I know. I said, "Why don't we just keep it in cash?" She goes, "Okay. What is it you do for a living again?"

                                             Okay. How do you answer your mom when she asks that question?

Marisa Di Natale:            I tell her that she's paying a financial advisor to answer these question and go ask him. No. It's just how much do you want liquid. Basically I told her, "Just let it roll over and give him the money and have him invest it."

Ryan Sweet:                      I don't know what it is, but any time anyone asks me what I do and I say I'm an economist, the first question is "What's going to happen with the stock market?"

Marisa Di Natale:            Me too.

Ryan Sweet:                      I am the wrong person to ask that question.

Mark Zandi:                      Ryan, what's going to happen with the stock market, man? That's what everyone on this podcast wants to know, what you think is going to happen with the equity market.

Ryan Sweet:                      I think it's going to keep going up until ...

Mark Zandi:                      It goes down.

Ryan Sweet:                      Exactly. I think the fourth quarter of this year is going to be rocky. You're going to have the FED tapering. You're going to have the debt ceiling battle. But, again, corrections are normal. They happen every one to two years on average since the 1970s. Over time, I think it's going to continue to climb.

Mark Zandi:                      Okay. I've got two worries. I guess there were three. We just tackled one, and that is what do I do with my savings, where do I invest. That's one worry.

                                             The second worry is what happened to the wealth effect. Let me throw this out. This might be anathema. Could there be the wealth effect's been flipped on its end? The wealth effect is, if I'm wealthier, if the value of what I own increases, then I'm going to save less and spend more. It may not be a lot more, but I'm going to spend a little bit more, because I'm wealthier. I'm prepared for retirement, my child's college education. I don't need to save as much. Historically, that is what happens. Stock prices go up. People's savings rates go down. House prices go up. Savings rates go down. People spend more. That's not what we're observing now.

                                             In fact, could it be flipped on its head because we're seeing Boomers, people now in their late 50s, in their 60s, early 70s, saying, "Hey, I'm worth a lot more than I was. Do I really need to work anymore, particularly given this mess called the pandemic?" We have seen participation rates for people 55 years and older really come down a lot. They're not coming back, at least not so far. That may be a pretty big hole to the labor market. It's actually hurting growth, not helping growth.

                                             Am I onto something here? What do you guys think? Does that sound right to you? It's a negative wealth effect.

Ryan Sweet:                      Isn't there a positive spin to it, particularly on the housing side, that people aren't using their house as an ATM anymore, which caused a lot of problems during the bubble, the housing bubble in the early 2000s? You could make the argument it's actually a good thing that people are saving the wealth in their house instead of tapping it like an ATM machine.

Mark Zandi:                      That's consistent with what I just said though.

Ryan Sweet:                      I think that's good though.

Mark Zandi:                      Okay. It's actually a negative wealth effect. It's not a positive wealth effect. It's reducing it. Higher wealth traditionally meant more spending, more growth. Now we're saying, "Higher wealth means less spending, less growth." That's different. That's a big change.

Marisa Di Natale:            This sounds like you're saying it's a temporary thing.

Mark Zandi:                      I don't know how temporary it is.

Marisa Di Natale:            Around the pandemic.

Mark Zandi:                      It's temporary ... What's temporary though? The wealth effect could be flipped on its head for the next two, three, five years, depending.

Cris deRitis:                       I also wonder if households really believe the wealth that they [crosstalk 01:06:03] that the assets that they have are real. Sure, they have gains on paper, but I think increasingly people are worried about and expect some type of house price correction or adjustment or financial markets. They would expect to see some decline there. Perhaps they're not willing to spend these gains that look great on paper.

Mark Zandi:                      Yeah. That goes to my third concern, and that is how resilient are these asset prices?

Cris deRitis:                       How durable.

Mark Zandi:                      How durable are these asset prices? It feels like they're disconnected increasingly from underlying fundamentals, stock prices to corporate earnings, housing values to rents, crypto to nothing.

Ryan Sweet:                      That's where crypto's headed.

Mark Zandi:                      To nothing.

Ryan Sweet:                      To nothing.

Cris deRitis:                       $2 trillion market though. That's crazy.

Ryan Sweet:                      There he goes with his pitch.

Mark Zandi:                      But what do you guys think? Am I on to something do you think? Maybe we should explore this in more detail, because that would be different than anything we've experienced historically.

Ryan Sweet:                      To Cris's point, it could be maybe the wealth effect, the lags are much longer. Wasn't the stock market wealth effect over one to two years they spent that money? Maybe it's a little bit longer than pre-pandemic.

Marisa Di Natale:            And any spending that could've been done was interrupted by a pandemic.

Cris deRitis:                       I also wonder if there's a permanent shift in consumers' preferences. Does the pandemic influence conspicuous consumption and what people want to spend on? More sensitivity to the climate so they're not going to buy a flashy car perhaps.

Mark Zandi:                      Cris, that's definitely not your household. Come on. Take a look at your household. Ryan, doesn't he spend like ... They're out of control over there in the deRitis household.

Ryan Sweet:                      I drove by the office the other day. There was a Tesla in the parking lot. [crosstalk 01:08:09] I know it's not yours. First thought was Cris.

Mark Zandi:                      No. Actually, Marisa, she's out of control over there. She's in Newport Beach, eating at all those chi-chi restaurants. No?

Marisa Di Natale:            I am actually thinking of buying a fully electric vehicle next year.

Cris deRitis:                       For California, that's required.

Ryan Sweet:                      That's standard.

Mark Zandi:                      All right. I think we covered a lot of ground. Bottom line, we're feeling pretty good about things. Obviously, again, a lot of pressure on lower-income households, minority households in particular. It's not fair to say abstracting from that issue, because that is a big issue. In aggregate, in total, the health of the American consumer is good and should support the economy going forward for the foreseeable future, right? Any disagreement with that? We're all on the same page.

Marisa Di Natale:            I do have some concern about the eviction moratoriums. I think if there's one piece of all of this that concerns me, it's that.

Mark Zandi:                      That's a good point. I forgot to bring that up as part of the forbearance cliff that I was mentioning, the rental eviction moratorium. The Center for Disease Control extended the national moratorium through early October, but it's challenged in the courts, because it may not be constitutional for the CDC to do that. It may expire earlier. By our estimates, there are 6.5, 7 million renters out there, and that is a lot of renters. There's probably, what, 47, 48 million renters out there. That's a lot of renters that are behind on their rent and at risk of being evicted. I agree with you. That could be an issue.

Cris deRitis:                       Do you think the funds are going to get allocated more quickly from what Congress had set aside?

Mark Zandi:                      Well, just to bring everyone up to speed on that one very quickly, because I know we're running out of time here: Congress and the administration ... Actually, under the Trump Administration Congress, they passed a rental assistance of 25 billion. That was December legislation. In the March ARP, American Rescue Plan, they passed another over 20 billion. If you add it all up, it's 45, 46 billion in rental assistance.

                                             They're having a hard time getting that money out, because it's being administered by state and local governments. The Treasury Department is cutting checks, but then the checks are sitting there. There's a great piece I read yesterday about New York's rental assistance program dead in the water. They haven't been able to get any money out. Think about it for a second. It's not easy. You've got to set up some portal where people can go and apply. Then they've got to review records on their income. Landlords have to participate. There's all kinds of issues, just nitty-gritty issues, involved in cutting a check to a landlord to help for back rent. It's not going so well.

                                             I don't know. I think this is going to be tough for them to really get that money out quickly. Another reason to be a little nervous about that for sure.

Cris deRitis:                       Yeah.

Mark Zandi:                      Okay. I'm cognizant of time. We have been chatting, and my wife is peering through the door here, saying, "What's going on?" She's been making sure the dogs don't bark.

Ryan Sweet:                      Mine's texting me.

Mark Zandi:                      Great job, honey. Great job.

Ryan Sweet:                      My wife is texting me if we're done yet.

Mark Zandi:                      Is that right? Okay. Marisa, anything else you want to add here that we missed? Okay. Very good.

Marisa Di Natale:            I don't think so.

Mark Zandi:                      Pardon me?

Marisa Di Natale:            No.

Mark Zandi:                      No? Okay. Very good.

                                             Have you noticed Cris has also gotten into emojis recently? He sends nothing but emojis.

Marisa Di Natale:            Yes. I have noticed that.

Cris deRitis:                       I'm all into the emojis. I resisted for a long time.

Mark Zandi:                      An emoji maven. Actually, my wife, she's over here looking at me, she is the emoji maven. She could really help you out, Cris, on what emojis you should be using if you're interested.

Cris deRitis:                       That's great.

Mark Zandi:                      Thumbs up. Okay. Very good.

                                             All right. We're going to call it a podcast. Thanks, everyone. Take care. Talk to you next week.