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Welcome to Inside Economics. I'm Mark Zandi, the Chief Economist of Moody's Analytics, and I'm joined by my two trusty co-hosts, Marissa DiNatale and Chris Drudis. Hi, guys. Hey, Mark. Hey, Chris. Marissa. She said, hey, Chris, not hey, Mark. I said hey, Mark first. Oh, really? I missed that. I'm awfully sensitive. I don't know why. Oh, my gosh. I don't know. It might be the rain. It's been a pretty wet week here in Philadelphia. It's

Oh, man, it's so depressing. I mean, it's, you know, this is Memorial Day weekend coming up and it feels like March, doesn't it? Or like early April or something. The weather's been pretty bad. And we got cold. Pretty cold. Yeah. And we've got two of our colleagues. We've got Adam Kamens and Justin Begley. Hi, guys. Hey, Mark. Hey, Mark. And everyone. Good to have you on board.

hey guys thank you yeah to to have a this conversation so justin what do you what do you do for memorial day weekend down there in tallahassee i'm currently at the beach in pensacola i was going to say i probably shouldn't show all of you my background because if it's all muggy and rainy in philadelphia we might be pretty jealous of my current situation is that right it's beautiful it's about 85 degrees water's flat no wind it's great any sharks

Oh, gosh. Not that I'm aware of. If there's any sharks, I'm running clear. I'm not going in the water. Isn't that like... You know, you're talking happy talk and she immediately goes to the negative. What's that all about? I don't know. I think there is shark attacks in the Gulf. I don't know how frequent they are, but...

But they happen. I've never experienced it. Hopefully I never will. Well, good luck this weekend, Justin. Thank you. Thank you. Oh, gosh. Those are even scarier. No, not for me. I'm not a nature person. I don't spend a lot of time outside. And mostly it's because these things, so much exists that wants to kill you. And so I just try to... Especially in Pensacola. No, only kidding. Well, oh, gosh. I mean, it just feels like there's...

stuff down there that can do you in pretty pretty pretty quickly when i moved from buffalo to florida yeah there was the thing in buffalo where it's like if it was a particularly bad summer with bugs and everything there was always the hope of winter that everything would the weather would change and everything would die it doesn't happen here in florida they just they just bury and then when it rains it comes all back out

You know, I've never, I've obviously been to Tallahassee a few times, Florida State, but I've never been to the beaches in the Panhandle. I hear they're beautiful. They are really beautiful. Yeah, it's called the Emerald Coast. White sand, kind of a tealish water. It's very nice. Yeah, yeah. I've got to make my way there. Adam, have you ever been there?

I've never been. I've been like any Long Islander, which I am. I've been to South Florida to visit grandparents, but I've never been to the panhandle. Yeah, I've always been. And Marissa, you're talking about sharks. Don't they have sharks in the Pacific? I think they got like massive. Yeah, they do. Yeah, okay. Yeah, we have great whites out here. I don't know. I just always hear about shark attacks in the panhandle. That's true. That's true.

Chris doesn't have to worry about it because all he does is he pulls up in his wine cellar and plays bocce. Trades crypto. Trades crypto.

Very low risk. Versus all in on this narrative. It's great. I'm a little loopy. I think I have a fever. Oh, really? I'm sorry. Well, thanks for being a trooper here. Yeah, it's great. Hey, in the spirit of Memorial Day weekend, there's lots of stuff going on, obviously, but we're going to ignore all the noise for a little bit and maybe play a

Take the hour to mostly play the statistics game. We haven't played the game in a while. And maybe we'll just take our time here and savor, you know, a lengthy discussion around statistics. And I'm going to open it up a little bit. You know, typically the statistic needs to be something related to something that's going on, you know, in the kind of the economic environment. But let's just open it up. This is a real test to see how good we really are.

with these statistics. Does that sound like a good game plan? Everyone on board with that? - Yeah, I have a couple. If we have time, maybe we can do one more statistic. - Ah, okay, I'm all for it. Okay, so who wants to go first? Marisa, do you wanna go first? - Of course. - Sure. - Of course. - Of course, she always goes first. - Yeah. - Why not? - All right. - Okay, my statistic is 12.1%. - Labor market related? - No. - Price related? - No.

Related delinquency rate? Mm-hmm. Oh, it's delinquency rate. FHA mortgage delinquency rate? No. Which, by the way, that would probably be pretty close, wouldn't it, Chris? I don't think it's that high. Maybe it's a little lower than that. A little, but it's been climbing up. It's in the double digits. Yeah, it's been climbing up. Is it student loan related? It is the student loan delinquency rate in April. Mm-hmm.

Wait, wait, wait. Based on which source? Yeah. Where'd you get that? Really? Really? Yeah. The 90 plus days? No, this is total. Oh, total. The 90 plus is 4.6%. Okay. These are the highest in that entire series back to 2005. So, you know, the student loan had a, as we know, ever since the pandemic started, there was a

moratorium on student loan payments that was lifted in the fall of 2023. But then there was a one-year period where even if people did not pay their loans, this wasn't reported to the credit bureaus, right? That ended at the end of last year. And so now these delinquencies are getting reported to the credit bureaus. And so we've seen since the start of the year, the student loan delinquency rate

creeping higher and it spiked at 12.1% in April, which is the highest it's ever been. And a lot of these borrowers, here's another sub statistic. Guess what the median age of a delinquent student loan borrower is? Ooh, that's interesting. 38%.

You're very close. It's 40, which I was surprised at. I thought it would be younger. So these are people presumably, right, that probably have mortgages and car payments and other forms of debt. And yeah, this is an interesting development. So can I ask, is that the Equifax-based data that we collect? Yeah. Okay. And is that through the month of... It has to be through the month of April then. That's right. This is April. Yeah. And that's... Is that...

i don't maybe i'm pressed too hard but percent of the number of trades outstanding yes oh it is yeah okay okay okay i want to say the dollar like percent of total dollar balance is like eight and a half percent something like that right in my mind that's okay yeah which is yeah this is crazy it's still the highest of all time yeah right actually i was looking at it the other day chris and i were going back and forth on email uh on that

I think there's close to $100 billion worth of student loans. Could that be right? In our data, $100 billion of loans that are delinquent. But that feels a little low. Yeah, because our balances, the balances that we measure are a little bit lower than kind of the statistics you get from the Department of Ed. Is that right, Chris? Do I have that right? We're talking about $100 billion of interest loans.

- It was both. - Oh, it was both, okay. - It was both, yeah. - $100 billion, that sounds-- - Total balance is, I'm sorry to cut you off, Chris. - Yeah, well, I was gonna go there. I think it's 1.7 trillion, right? - Not in our data, though. - In our data, it's 918 billion. - Yeah, I think there's a, I'm not sure what the gap is, what we're not measuring. But anyway, the delinquency rates, I'm sure, very consistent.

Yeah, you want to, Chris, talk about ARC exchange? Because we got a question, in this case from a client, not a podcast listener, about the economic, what does this mean for the economy? So you've got all these folks, I think it's five, six million people that are delinquent, double digit delinquency rate. Now these folks are being reported to the credit bureaus. Their scores are getting dinged.

And I think in the case of student loans, you know, your wages can be garnished. Yeah. Right. And that's just starting to happen. And of course, many of these households with student loans or tend to be lower middle income, don't have a lot of other financial resources, may not have a lot of savings. So that puts them in a pretty tough spot financially. What do you do? Do you make the student loan payment? And if you do, what else aren't you buying or what other options?

Are you going delinquent on your credit card and your auto loan? And we're seeing some evidence of that as well. Chris, do you want to describe what we thought the macroeconomic consequence of it is? Yeah, we did more of a, I call it back of the envelope calculation to figure out what the, or estimate what the impact would be, right? So-

Take the number of outstanding student loans, which I assumed it was 1.7 trillion, assume a 6% kind of outstanding interest rate on average, right? It certainly has been lower in the past, but it's been higher more recently. So six, yeah, round numbers. So that gives you $100 billion, right? And then from that, we have to, so that's about what, 0.3%?

of the GDP. That would be quite substantial. From that though, you have to figure, well, there's a portion of folks who have the financial resources. They knew this day was coming that they would have to repay. So I think we estimate maybe half of borrowers are in a position where they have the resources to pay the student loan. It's not really going to impact their spending to a significant degree.

There's probably 15% that actually will default. That's been the historical default rate, right? So they're also not going to really impact their spending. Obviously, that's a lower income category, so it doesn't really impact the overall spending or consumption. But nonetheless, it doesn't really affect their trajectory. And that leaves us with the remaining group.

right? Which could see some impact. They're going to have to adjust their finances. Some will benefit from income-based repayment plans. So that'll take some of the edge off. But in the end, estimate probably a 0.1, 0.15% GDP impact. So it's not

massive, but it is something. Once you add it with other factors, it's material. Yeah, and that would be for calendar year 2025. Correct. So if the impact is concentrated, let's say, in Q2 right now, this quarter,

you annualize, you know, 0.15, that gets you to 0.6, right? That you reduce the annualized rate of growth. And that's, I'm sure I'm overstating the case because that would play out over maybe a couple, three quarters. But, you know, let's just say for,

conversational purposes, it all happened in the second quarter, 0.6% annualized deduction from GDP, and already GDP was negative in Q1, and coming in on the light side in Q2, that has a meaningful impact on growth in the current quarter. So more of an impact.

I know, Justin, you look at this data a lot too because you spend a lot of time. You put every month a document together going over the Equifax results. Anything else you noticed with regard to student loans or anything else you noticed in that broader data, the consumer credit data that you look at? Yeah, I mean, one note I want to make on student loans is that I think it was from the New York Fed that they estimated something like $5.5 million

borrowers or student loans are facing a at least a 75 point cut to their credit score. Some of some of the borrowers are facing double that. So you got to imagine that that's going to dry up some some borrowing, at least make borrowing more risky for a larger portion of borrowers.

Outside of student loans, I mean, that's largely, actually, Marissa, you took one of my statistics. So that's okay. That's all right. That's good. I have another one ready. But so the total dollar delinquency rate, like seasonally adjusted for April was 2.7%. This is pretty close to what it was in kind of just before 2019. It's been creeping up recently, largely because of student loans, but there's also some other stuff going on.

It felt like for at least about six months that credit conditions were stabilizing. The delinquency rate was largely unchanged and below the pre-pandemic average for several months. But in the last, really since January, most consumer credit instruments have experienced more stress, including bank cards, which are, I think they're up about 17 basis points or so, the delinquency rate on bank cards.

since January, first mortgages are experiencing more stress. And I think we mentioned FHA. It seems that the Mortgage Bankers Association survey for the first quarter confirmed that a lot of that stress is coming from FHA mortgage delinquencies, which I believe is at a 13-year high right now, kind of save for the pandemic era.

So, yeah, there's definitely stress appearing kind of across the consumer credit portfolio, a lot of which, though, is kind of coming from the mortgage side of things. So what you're saying is folks that are now having to pay on their student loans, some are going delinquent, some are…

going delinquent on other, it feels like, we don't know this for sure, it's hard to connect the dots, but it feels, given the timing, it does feel like it's now starting to impact the ability of people to pay on their other credit, particularly cards and auto loans.

I think so. I mean, that's something that I had started speculating back in September or so when we were just waiting for, okay, we knew these moratoriums were ending. We knew that delinquent borrowers were going to start being reported to the credit rating agencies and we're expecting the spike. And it took a little bit to show up in the data, but we were kind of wondering, you know, well,

Like surely if there's a significant spike in student loan delinquencies, it's got to spill over to other credit instruments. I mean, if you're financially strapped in one regard, you're probably financially strapped in another. And so that it does at least again, this is somewhat speculative, but it does feel like it's starting to spill over. Yeah, this is all in the context of a.

It's pretty low and stable unemployment rate, right? We have a 4.2% unemployment rate, no layoffs yet, no pickup in layoffs yet. There's still, at least if you believe in the unemployment insurance claims data. So what does that mean if unemployment, what does this all mean if unemployment starts to rise? I mean, I guess that's the question. Right. Key question. Okay. Okay.

Okay, anything else on that? That was good statistic, Marissa, very good one. Anything else folks want to say about this before we move on? No, hearing none. I'll just say one more thing, which is that I read a really interesting analysis about some of this data, and it was breaking out the people in this bucket that have mortgages, and there is a disproportionate share that have an FHA loan. Okay.

So, and I know that's something you've been watching, right? That delinquency rate on FHA mortgages, those tend to be more first-time homebuyers, people, low middle income, you don't need as much of a down payment for those loans. You can have a higher loan to value ratio. So we might see more stress there.

particularly there where we were already watching that becoming stressed, right? Exactly. That's, Justin mentioned the mortgage, first mortgage, the only considered rate going up. That's all FHA. I mean, it's not Fannie Mae, Freddie Mac loans. It's not bank loans. It's all FHA. Okay. Very good. Adam, you want to go next?

Sure. I mean, I was going to go to Justin, but because I don't want to take his other statistic, then what happens here? He needs to regroup. Yeah. He'll need to regroup. Put me on the spot. To get you into the conversation, we'll go with you and take our chances. Okay. Let me see how precise I want to be here. Okay. So this is a January to April 2024 versus 2025. So year over year.

Say that again? It's- So, January to April. Okay. I'm sorry. Yeah, January to April. First four months of the year, year to date through April. All right. I'll be really precise. It's all stats. 19,017,843 in 2024. Okay.

down to 18,544,446. So a decline of about 2.49% from 2024 to 2025 through April. It's a population number? It is a number of people, but it's not a population number. Jobs? Not jobs.

It's people, but it's not population. Migration? Immigration? You're in the ballpark. It is people moving from one place to another, but not permanently, if that makes sense. Not permanently. Temporary moves? No, it's not. I mean, sort of, if you think about it. Does it go to the migration flows, though? It does not go to migration flows, but it goes to people...

People traveling from one place to another, I guess. Travel. Oh, is it travel? I mean, is it miles driven or something? No. No, it's a number of people. It's a certain type of people traveling to a certain type of place. Is it foreign visitors? Yes.

foreign visitors to the US. Yeah, Justin's on fire. If you'd say this was also your backup stop. It might be not to invite him back.

Sorry about that. Go ahead, Adam. That's a good one. So what is that? So that's the number four travel? Okay. So that is from the so-called, I believe it's the I-92 program. It's compiled by the International Trade Administration. So they take foreign arrivals and departures actually from non-citizens, from US citizens, and compile that on a monthly basis. So that number, as you might expect it, it

So, you know, took a nosedive in the pandemic. And every year there's been double digit growth since then. Right. And if there was another year of double digit growth this year, we would have finally gotten back to 2019 levels of international travel. But clearly, right, that is that is not happening. And the number is down a little bit. It's driven largely. I was looking at you can go country by country on this. Actually, you can go.

US airport by US airport, if you really want to go deep. But it's being driven largely by, as you might expect, the Americas and Europe. A fairly sizable reduction in travelers, particularly from Canada. I think that's been somewhat well-documented. You've seen that a little bit from Europe. Interestingly, Asia is up on a year-over-year basis. China's a little bit down, but there's...

a pretty sizable increase in travelers from Japan. So there is a lot of variation from country to country. But all in all, I think this is a somewhat worrying sign when it comes to tourism and consumer industries, because international travelers tend to stay longer, spend more, and this could be impactful. So this goes to the kind of the tariff trade war in the

particularly with the Canadians and the Europeans, they're upset. And there's been some boycotts about travel to the U.S. And that's what you're observing. That's exactly. And I think specifically with Canada, right, there's been a lot of talk about that sort of thing, about boycotting the U.S. And I mean, to be clear, we're talking about a, even for Canada, 3%, 4% reduction. So most people are not meaningfully

changing their plans, it seems, so far. But with European travelers, especially, and some Canadian travelers, maybe these plans were made far out enough in advance that, yeah, I think you are starting to see some evidence that these

or other reasons for concern that they might have that might lead them not to travel to the U.S., that is starting to show up a little bit in the data. And it's kind of killed some of the momentum that we've had these last few years. So how nerdy are you? I mean, did you look at the airport data? Or is this a real test? I'm nerdy enough that I will.

I was cramming for this, so I haven't done it yet, but I'm now, I'm there enough to be excited to dig into that. Yeah. I'm like very interested in that. Yeah. Like I wonder where Canadians tend to go the most, like does everybody tend to go to the same places or do different travelers go to different places? I can say that. Yeah. They might be hanging out with Justin this weekend. I saw some Ontario. So interestingly, right. I, it looks like,

based on some data on border crossings, which I didn't dig into, I actually just read this, so I'm not totally sure what the numbers are here, but border crossings, northern border crossings, right, into places like Niagara Falls or, you know, from Vancouver into Seattle, I believe those are down more than flights, right? Those, because that might be like, you know, cross-border shopping type of trip. It's probably more elective travel that maybe you can decide sort of spur of the moment.

I've seen anecdotally that places like New York, Myrtle Beach, and some of those destinations that are very popular with Canadians, big parts of Florida too, I think those are being hit a little bit less hard, at least initially. But those are the kinds of places that I think we should be keeping an eye on.

How big a deal do you think it is from a macroeconomic perspective? I mean, it doesn't sound, I mean, you went from 19 plus million in the four months down to 18, a little under 19 million. You said down 2.4% in the year to date this year through April compared to last year. Do you think, how big a deal is that, do you think?

I mean, I think if it stays at 2.5%, I don't think it's a huge deal from a national perspective. I think, you know, I'm a regional economics nerd. Yeah, I think regionally there are some very significant impacts associated with diminished international travel. And I guess the concern I would have is that this may just be the beginning of these numbers starting to dip. And so...

I'm not I don't think we kind of park at two and a half percent. I'm guessing it's going to be more than that as the year goes on. And then I think you start to see some potential, at least sector level impacts within, you know, leisure hospitality, maybe the hotel industry that, you know, has had its share of struggles over the last five years. Maybe some of those come roaring back.

Do you think, is there any evidence that Americans aren't traveling abroad less? Do you think Americans are staying here, which could offset some of that? It's interesting. That data, actually, they also track. So they basically, any flight, I believe,

I believe it used to be you had to fill out a paper form when you flew overseas. I don't think you have to do that anymore. I think they actually take it from the passenger manifest or whatever it may be. I remember those days. They weren't too long ago. I'm still happy. I don't have to fill those things out anymore. Just a few years ago, I would feel like I was filling them out. Pre-pandemic, for sure. Yeah. The last few times I've flown overseas, I didn't fill it out. I thought maybe I was doing something wrong. But no, apparently...

That's just how it is now. But they also track Americans going overseas. And actually, those numbers are pretty healthy. Those numbers seem to be growing still. So it does look like more Americans are going abroad than they were a year ago, whereas fewer people are coming here. So that actually...

the idea that there might be and there might be some offset with redo if there's overall reduced international travel from domestic travelers but we're not really seeing any offset yet i don't think by the way that's adding to the trade deficit in services right because foreign travel here is a u.s export

American travelers over there to overseas is a import. So all everything you just said suggests this is adding to the nation's trade deficit. Yes. Right. And in services where we run a surplus. Right. I spoke at an airlines conference this week, and they were talking about this real bifurcation in the market that the

The higher end traveler, the boomer, just fine, continues to travel, will make those overseas trips, buy premium type of tickets and leg room and whatnot. But the real softness is in the lower end of the market, as you could imagine. Oh, interesting. Even domestically, for domestic travel, they're seeing more promotions going on. So it seems like a bigger deal. And just that bifurcation might lead you to some different conclusions. Yeah.

Well, I guess this is all in the context of a weaker U.S. dollar, too, because that would make the U.S. look more attractive to foreign traveler. And despite that, that's not happening. So that's a pretty strong tell. You know, interesting. That's a great statistic, Adam. Did you have one in your back pocket, too, just in case?

I do. I've got a couple of backups ready to go. I figured nobody was taking that one, but I've got more if we need more content. Maybe there's a second round. Yeah, maybe. Yeah. Although we're already deep into the podcast here, but this could be an all day affair. Okay, Justin, you're up. Let's go back to you. All right. My statistic is 1.02. Consumer credit related? No. Is that the insured unemployment rate?

oh no it is not does it at least that's not what I have in mind actually it is it is the insured unemployment rate is I think one percent that's why I was hesitant that's not what I have in mind but he said 1.02 so you know that's very precise that's very different than one is it some kind of unemployment rate it's tangential to the unemployment rate and is indeed labor market related

It's tangential to the unemployment rate? Yes. So it's 1% of... I didn't say it was a percent. Oh. Oh. Oh. It's a ratio. Is it millions?

it's a ratio oh it's a ratio oh is oh is it uh job opening versus uh it is it is yes it's the vacancy i get credit for that no come on chris tried but no okay chris is too polite i'll give it to chris i give it to marissa she was she was what are you talking about give it to marissa i

I said it at the same time you did. Okay. All right. I heard it all like at the same time, the three of you saying, you can tell Mr. And I are very competitive in this. Oh,

Oh, indeed. Yeah. So, so that this is a vacancy to unemployment ratio. The reason I bring this up is because it feels like it's not quite as relevant as it used to be, but like for the last couple of years, this is like all the people were paying attention to in the labor market because job openings, you know, they're peaked at around 12 million in 20, I think it was like mid 2023. Of course, unemployment has stayed relatively stable throughout that time. But of course, when I,

I think it was maybe two years ago or three years ago when inflation was peaking, everybody was hyper-focused on the tightness in the labor market that was putting upward pressure on wages and spurring concerns of a wage price spiral. And then I think it was Bernanke and Blanchard published a paper really zeroing in on the vacancy to unemployment ratio as a key driver of wage growth and inflation.

But now, because we've had a surge of labor force in the labor force in the last couple of years because of immigration and at the same time, a general slowing in the labor market where not necessarily to a concerning level, but just things returning back to normal. We get this situation where everything kind of feels like it's back in equilibrium. And this is all coming in a time when

when the Fed is still trying to get inflation down to its 2% rates. And I think, at the very least, it's done enough to cool the labor market so that the labor market is basically not really putting any upward pressure on inflation anymore. I never liked that measure of labor market slack. No, but you are absolutely right. That was what people were focused on, particularly the folks saying we're going into recession, right? Because they said...

We saw this huge surge in job openings or vacancy relative to unemployment. The labor market's excruciatingly tight. It's overheating. Therefore, the Fed's going to have to jack up interest rates. We're going into recession. And that was the measure of labor market slack that people kind of were focused on. So I absolutely agree. But I never liked that. Because for me, I always thought things like, why are we going away from the employment to population ratio, the EPOP? That...

That was historically always been a very good measure in terms of what it means for wage growth and inflation. And what it said was, well, we have a full employment economy. We're there. The EPOP for the prime age worker is, I don't know, I'm making this up, 80%, 81%.

But that's exactly consistent with full employment, no more, no less. So, yeah, the labor market's tight, but it's not overheating to the degree that the folks that look at that vacancy to unemployment ratio would have thought. So I was always confused. Why did you guys decide on that one? We've always used EPOP, and EPOP always has been a very good –

And I think history bears that out, right? I mean, we kind of navigated through and didn't have a recession despite all that. But that's a good statistic. That's a really good one. Anything else, guys, on that one? Chris, anything you want to add to that? What are you on that debate about the vacancy to unemployment rate ratio as a measure of labor market slack? Do you have a view? I think it's a useful measure. I don't...

I don't dispute it. I don't think it's the only measure, but, you know, it's helpful from the wage perspective, right?

Yeah, but here's the other thing. I always had questions about the unfilled positions. How reliable are they in the post-pandemic world when everything's online? Does it mean the same thing as it did 10 years ago or 15 years ago or 20 years ago? It always bothers me. But here, I'm going to throw out one related statistic.

Someone asked me, they're looking for esoteric in the weeds statistics that you look at to gauge if the economy's, in this case, now coming under stress. If you look at the job opening rate in manufacturing, which is job vacancies divided by the folks in the manufacturing base.

That actually is a very good leading indicator of recession. When that starts turning down, when it starts declining and you see fewer job openings in the manufacturing sector, that's kind of a 6-, 9-, 12-month lead to recession. Now, I don't want to restate the case because we don't have this data back that far, but in the data that we have, it does a very good job. And it's intuitive because manufacturing is –

You know, interest rates sensitive. Usually it's interest rates rising that, you know, is ultimately the cause of the economic downturn. And it's been, you know, and also it's even taken on more importance in the current context because manufacturing is kind of on the front lines of the trade war. Right. That's what's getting affected here.

And it is turning negative, so an indication that things are weakening. So I don't completely dismiss that measure, but I take it with a grain of salt. Marissa, anything on that? No. No? Okay. All right. That's a good one. All right. Chris, you're up. Okay. I have a very obscure statistic, but it makes a point. Okay.

24 that means we're never going to get it is that what that means pretty much but I'll let you founder for a while yes right embarrass ourselves okay 24 24 is it housing related it is kind of not exactly but kind of kind of uh is it mortgage related no okay construction related no

Uh, 24%. It's not really, let me clarify. It's not housing specifically, really. I'm going to relate it to housing, but. Oh, I see. Is it demographic? Yes. Oh, is this back to generational households? Of course. That's all I ever talk about. So, yes. So is that the percent of households that have more than one generation living in the household? No, no, it's, it's a little lower than that, but it's not it.

it is households it's a fraction of households uh but it's not generational related no no okay it's a fraction of households over the age of 75. oh say that again wait that's it that's it no no it's it's a fraction of households over the age of 75 so 24 24 of households over the age of 75

Can afford a median price single family home? A daily visit from a home health aide. I would have said it would be higher than that. I would have said that too, but it's a very low fraction. And that has all sorts of implications for the housing market. That's why I bring it up, right? So you have this.

This very large population, right, of older Americans is about to get bigger, right? Because the first baby boomers are turning, first baby boomers to turn 80 are coming up here, right? So you're going to have this pretty sizable population here, many of whom can't afford home health aid, even though they've said they wanted to age in place all their life, right? They're not selling their homes. There's an economic reality that's going to come up here. And for that reason, I think there's going to be more

multi-generational housing, right? Their children are going to have to take care of their parents. Also formations are going to come in. Interesting. How did they, where's that data from? There was a paper. It was in a newsletter from the Harvard Joint Center of Housing Studies. Yeah. Huh.

Does this account for... Oh, go ahead. Go ahead, Adam. Does this account for... This is after Medicare reimbursement or this would be kind of just paying out of pocket? Yeah. This is all in. So some people do have some insurance they can tap into. So the study tried to quantify for all the sources of income and just said, well, this is the fraction of...

That could actually afford a daily home health worker, right? Then they broke it out by income, which was interesting. Of course, there you can see the real variation, right? If you're, what is it, 200% above area income, no problem, right? You're going to have sufficient resources. But below that, right, the numbers drop off substantially, right?

Does Medicare pay for that or Medicaid, Medicare? I know Medicaid pays for- For lower, the Medicare does not pay for it. Medicare does not? Medicaid will pay for some, right? Right, because that pays for low-income Americans, but also for elder, I guess for home healthcare, it'll help pay for that? It will. Yes. Okay. Okay.

Oh, interesting. So it's that, it's that middle group, right? That that's, that's falls through the cracks. Um, do you know what that cost is for a, Oh, I, I, I don't know. I know what a, I know what a senior living facility costs cause I'm on a

I'm associated with one, but I don't know what the home health worker, right? It's about four or $5,000 a month for a senior living facility. But your broader point is we've got an increasing number of folks that are in their 70s and 80s and older, right?

they are not going to be able to afford this kind of care that they're going to need on a daily basis. Therefore, they're going to start living with their kids and maybe their grandkids and could be their great grandkids. And that's where there's going to be some kind of grand bargain here. The kids get to live in the home and

maybe for free, and the deal is they help take care of their elderly relative or parent. Yes, it's that sandwich generation, right? You want to help your parents, but you can't afford perhaps to send them or to send a worker in, so you're going to have to

provide that care for that parent. This may be one way to address the kind of the housing shortage. I mean, it plays out over a long period of time. It's not a solution for the here and now, but-

And over time, we're just going to see fewer households form because we just have more intergenerational households. That's right. That's right. Oh, interesting. That's right. At least over this next five, 10 year period. Yeah. And after that, the demographics actually start to work in the other direction. Oh, because these are all the boomers who are now in their 60s and the boomers are now in their 70s. That's what you're saying. Right. That's right. Right. That's right. Oh, interesting. That's great. So after that, as we get into the mid 2030s, then we actually-

potentially start to see surpluses of housing, right? Depending on how the demographics work. If immigration stays at the levels that it's at, right, we're going to end up with fewer, even fewer households

being formed and you can see some surpluses developing in certain communities. How far out is that, Chris? That's not now. That's not next year. That's not now. Is that 10 years from now? What's that? 10 years from now? I think you start to see that 10 years from now in certain areas. And then again, a lot depends on immigration policy and if birth rates were to suddenly...

shift but um given current trends you know as we get closer to 2035 2040 that's when i i do expect you'll see you know household formations really flattening out and construction probably is going to follow and i think that's also one reason why you don't see home builders rushing in to build because they can kind of see this uh coming as well it takes a while to put in a

New development even if you get the the zoning permit, so I think they are very cautious in there in their building for that reason Oh, that's interesting. So, you know, we're in this very severe shortage situation and that's developed since the financial crisis and the collapse of building coming out of the that period and then of course a lot of other pirate now it's expensive to build zoning and tariffs and immigration policy labor costs all those kinds of things and

And, you know, the policymakers have been thinking about, you know, how do I address this? And you're saying, well, even if they don't address it, you know, this may solve itself in a sense 10 years from now, 15 years from now. But, you know, if they do nothing and the level of construction remains where it is, the shortage will start to abate and may even go away because we're just going to see fewer households form.

That's right. At least nationally. Then there's that question. Nationally, right. Yeah, nationally. Right. Are the houses that... Good point. That people inherit in the places that we need them, right? Or are they the right type of house, right? If you're working in Baltimore and...

You inherit a property in Florida, right? The mismatch might not be there. It might be there. So you still need house, home building. I'm not advocating that it goes to zero, but the trends are going to work in that direction. Very interesting. And that also is that, what's that statistic? How many young, how many people that are like in their 30s and 40s living with their parents? I mean, that's also...

has increased quite dramatically since the pandemic, for sure. Those folks, those younger folks aren't leaving and starting their own household. They're staying with their parents. That's right. That's right. It spiked during the pandemic, but then it's come back down a bit, but still very high relative to where we were 15, 20 years ago. So another dynamic that's consistent with what you're saying, intergenerational households. Yeah. Okay. That's right.

All right. Good. That's a good one. Okay. I got one for you. $3.12. Yeah, you should get this. Price it. Oh, that was too easy. Yeah. Way to go, Adam. That was my backup. I call foul. I looked at the AAA gas price, 319. Oh, what am I looking at? I'm looking at- 111? I'm looking at the EIA number. Oh, okay. The Energy Information Ministry. Oh.

I like AAA. I like AAA too. Okay. What's AAA? $3.19? $3.19. All right. Okay. Since that was so easy, let me ask this question and see how good you are, Adam. I shouldn't have answered. $3.53. That was a year ago. Thank God. Good guess, but no. No, good guess, but no. Oh, from the AAA it was a year ago. Oh, geez.

Is that like the higher grade stuff? You mean- Is that like the higher grade? Oh, higher octane? Yes, the higher octane. It could be, but that's what I had in mind. Is it diesel? Diesel. Way to go, Justin. Diesel. Diesel prices. Yeah. Diesel prices. This is a good news story, right? In the sense that prices are down. Although we've been here really for the past at least six months, almost nine months, we've been at this level.

It's consistent with the low oil prices. Oil is hanging somewhere between $60 and $65 a barrel, and that's low. That's just about consistent with the break-even cost of producing and transporting the last barrel of oil to the marketplace from the Permian Basin. We just got that data from the Dallas Fed.

so if you go much lower than that uh then it starts to producers start losing money and they start cutting back on production that so right on the edge of that but 60 65 bucks a barrel three dollars that that feels pretty good predicting on memorial day is when people start you know traveling

One thing I will point out though, and this helps cushion some of the blow, the financial blow to low income households from the tariffs and the resulting price increases that are coming. So that's a good thing. It may take a little bit of pressure off.

But the one thing that makes me a little nervous is usually when oil prices are down, gas prices are down, you see inflation expectations come down with them, right? Because people use gas prices as kind of a litmus test for their thinking about inflation and their broader financial situation. That has not happened, obviously. Inflation expectations remain very elevated, whether that be consumer inflation expectations as measured by, let's say, the University of Michigan survey or the New York Fed survey,

and even bond market expectations. We haven't seen any benefit from the lower oil prices. So that makes me a little nervous about everything, but nonetheless, I'll take it. And it does feel like it's going to stay low, maybe even go a little bit lower. This goes to a weakening economy, less demand globally because of the trade war.

And it looks like OPEC plus, which is, you know, the Saudis and the Russians are going to start producing more oil here. And they've got a lot of Saudis in particular have a lot of excess capacity to produce. And that should keep prices down and, you know, should help out, you know, going forward. So I view that as a kind of a positive story.

How are you? Do you buy 87 grade, Adam? Or do you buy any more? I know Chris, since he's a crypto king, he's buying that premium gas for that little Italian thing he drives around. His Maserati that he drives around. His little Vespa. His little Vespa.

He drives a Vespa with all his crypto rings. You would have thought he would be in that Mazda. It's a very special Vespa. It's a special Vespa. I love that Vespa. Adam has news on the cars. Oh, my car-related news? Yeah. Yeah, I joined Marissa on the EV club. Oh, very good. Yeah. Can I ask what kind of car you bought?

Is that too much? No, the Nissan Aria. Oh, congratulations. Thank you. Congratulations. I'm like Marissa. I'm a convert. Once you start driving one of these things, it's fun. Now, do you get a tax credit? Is there still tax credits available or no? No, I was too late. Too late for that. Okay. All right. No range anxiety, Adam. You're good.

Yeah, I don't go much of anywhere. And when we do, we've got our other car. Yeah, I would have range anxiety if we went anywhere far, but so far, so good. What's the range? Is it about 500 miles, 400? It's a little under 300. Oh, wow. Yeah, so you can't go too far unless you've got the whole kind of charging thing.

game plan mapped out, which Marissa, I think you've done that sort of thing, right? Yeah, yeah. I've taken fairly long road trips. Just figure out where I'm going to charge. Go around the group and get your probabilities of recession. And Chris, I always begin with you on this one. What's your probability of recession now? And where were you? I think I was at 45%. I'm going to hold at 45%.

I think you were at 40. Was that 40? Yeah, I think so. I think it was 40. See how he does that? He kind of sneaks that in. I thought you were at 40. I know I'm always high. No, I was at 45. See what he's doing? I'm at 45. I was at 45. I was with Marissa. I don't think, I think me and Mark were at 45 and you were lower. I think you were lower. We're going to have to run the tape here. All right. Yeah. But anyway, okay. But it doesn't matter. You're at 45. I'm at 45. Did anything change?

didn't change now even like today's uh events you know the president was talking about uh tariffs on the european union of 50 percent and uh tariffs on apple iphones that didn't change your thinking about anything not really i still put in the category of you know part of that broader negotiation if you will um got it okay 45 okay uh marissa

45%? 45%. And that's where you were? Yeah, that's where I was. Nothing's changed? No. Okay. All right. Adam? I'm at 55%. Really? I probably was. I was higher. I mean, but I think there's enough uncertainty and enough of the tariff impacts that have still yet to kind of make their way through. So for example, I'm watching the

tonnage at the port of LA Long Beach, right? And all of these empty ships that are starting to come in that there's enough that hasn't worked its way through yet that I'm maybe a little bit more nervous than all of you. Makes sense. Makes sense. What about you, Justin? What's your problem?

I'm still at 40%. I haven't. Yeah, I mean, that was a little bit higher before last week's China deal or agreement or whatever you want to call it. You know, it seems to be that the administration is shifting at least in a more positive,

a positive direction from where we were at. I think, you know, maybe we do get some more trade deals that we still end up higher than, you know, in terms of the effective tariff rate than before January, but, you know, something at least a little bit more palatable. But yeah, I think, I think 40% is, you know, is, is where I'm comfortable planning my feet at right now. Okay. Very good. I'm at 45. That's where I was. And the, no, Chris, I was not at 40. I was at 45, 45, but yeah,

I did take some solace in some work we've been doing trying to construct a leading economic indicator of recessions, probability of recession in the coming 12 months.

based on a machine learning algorithm. Chris, you want to describe that? Because I know you've been doing a lot of work here. You want to just talk about that a little bit and what it's saying? Yeah, sure. So we've been working on improving our qualitative probability of recession models, right? For a long time, we've had a probit model of recession probability just based on a few key factors.

And now we're exploring the use of AI. And for the listener, don't get wrapped up in probit model. Okay. That's just, you know, that's Chris jargon. Oh, sorry about that. Yeah. No, no worries. Go ahead. Just a regression model. Oh, okay. That makes it easier for the listener. A way to estimate. Okay. Sorry. I'm just having fun. Go ahead. We're using artificial intelligence and machine learning, some of the newest tools that we have available to develop a

more sophisticated model that can look at all sorts of different economic indicators, right? So all these indicators that we talked about each week along with really hundreds of other indicators that we have available for the economy to try to see if there are any early warning signals if you will that give us a sense of what recession probably looks like over the next 12 months. So it's been a really interesting exercise, right? Can kind of feed a bunch of data into the into the machine here and let it loose.

And we found some really good models, first of all, that seem highly predictive. We back-test them and look how they would have predicted in the past based on the information that was known at the time. And yeah, they perform well and they kind of also meet some of our smell test, if you will, in terms of...

For example, the models, the leading contender now actually did put higher probability of recession prior to COVID. Not that it

caught COVID or knew that COVID was coming. Well, it was over 50% prior to COVID. It was saying recession. It said recession's coming. Right. There was no information about a virus, though, of course. No, no, of course. No, no. Which is interesting, right? Which is interesting, right? It did catch the fact that the yield curve was inverted and that there were other weaknesses in the economy at that time. Well, my interpretation of what it's saying is we were going to have a recession regardless of whether we're going to have a pandemic. And if you go back to that period in 2019-

That was a trade war. And you can see the damage accumulating on the manufacturing base and agriculture. They were in recession. And there was – you remember my – I was giving speeches and I said the next recession is going to be June 20th, 2020. Obviously, I was being flipped. But I was making a point that the economy was going to be pretty weak in that period. And this model says –

there would have been a recession with or without a pandemic. Yeah, the odds of recession were high, were very high. Well, that model that we've constructed, it's gotten every recession since 1960 dead on. It had only one false positive, meaning it predicted recession and a recession did not occur. And that was in the late 60s. And that was for like one month. So it feels like it was kind of screaming pretty loudly, we're going to have a recession.

It was. And conversely, in 2022, when a lot of economists were forecasting a recession and there were some signals, this model suggested that- Can I say some economists were predicting recession? Some economists? Some. Some? Some. Okay. All right. A lot. Those unnamed economists, we'll say. Okay. Go ahead.

The model was sending a somewhat higher signal, but it wasn't crossing the threshold. It was still very low. It was not- Not even close. It was not indicating recession at that time. Right. It was like 30%, maybe 35%. 25%, 30 something. Yeah. Yeah. Yeah. You know what I found so fascinating? All this is fascinating, but the thing ... We take tens of thousands of series and test them. This is trained on a lot of data, a lot of data.

What I found fascinating was it ended up with kind of the things we look at all the time anyway. You can kind of rank order what's contributing to the result, the probability of recession. And the yield curve is up there. The conference board's leading economic indicator, which includes a plethora of other leading indicators, everything from consumer confidence to building permits, etc.

Building permits were in there. The other interesting thing was employment changes that if you see slowing employment growth, particularly manufacturing, going back to manufacturing, leading up to the period, then that's a sign that you're going to have a recession. And the thing is, there were some UI claims were in there, but they were kind of lower on the list.

Building permits were on there. They were kind of lower on the list. I noticed rig counts. That goes back to oil demand, and they were down.

Um, so, uh, the, but the thing that struck me was not the variables or the data that the model ultimately settled on. It was the transformations. It was, you know, the lags, the, the, uh, the, the, the, the kind of the transformation, the percent changes a year ago or month to month, or, uh,

the nonlinearities or the interaction terms. So it's not about the variables, it's about how you piece those variables together that is highly predictive, which there's like zero probability that anybody, any human would be able to do that, to get that right. Now I do worry about so-called overfitting.

Meaning that we're just, because we don't have a lot of data points. There's nine recessions going back to 1990. So it feels like you've got to be very careful about that. But these models understand that risk and control for it with different types of statistical techniques to try to address that. But that's the one thing I do worry about that might be overfitted and makes it less useful going forward. But nonetheless, and by the way,

The model prediction of recession in May is...

45%. 45%. 45%. And I think that's why Chris went from 40 to 45, to tell you the truth, the modeling. I'm probably not. No. How did I think about it? Yeah, yeah, yeah. Been around this 45% all week. Yeah, yeah, all week. Yeah. But I thought that was pretty cool. I think that's a pretty... And we're obviously going to put this on the economic view and start using this on a more consistent basis. I thought it was very, very useful. Yeah.

Okay, we're getting a little long in the tooth here. Why don't we end on a happy note? I think we can all do this. Can you identify one happy statistic that kind of says, oh, things are going to be okay here? Can we do that? Is that fair? Okay, everyone's shaking their head, yeah. Marissa, you want to go first? Sure. The number is one.

I didn't want to play a game. I just wanted the number one. He just likes the number one. I see. I like the number one. Is it the insured unemployment rate? Is it the insured unemployment rate? No, it's the number of times I've won at pickleball now. It went from zero to one in the last week. Oh, congratulations. Thank you. Yeah. Who'd you beat? Your mom or, you know? What?

Thank you. No, not my 76-year-old mother. No, my friend. I play pickleball with her every Wednesday. Just her and I were just playing singles to learn. And she has beat me like every single game. And I finally won a game. Excellent. Excellent. So I feel really good about the way things are going. I'll take it. Adam?

I was going to say, by the way, if Marissa wants to take on a 70-something, my dad is formidable at pickleball. He's winning all these senior cups or whatever. I think that's all he does. Really? Yeah, I have to arrange a cross-country match. I see the boomers on the court. They are fierce. Yeah, they're intense. I'm scared of them. Yeah. Anyway. Formidable or formidable? You said formidable. I usually say formidable, but

I say formidable. Is formidable the preferred? I don't know. Well, how do you say it, Justin? Formidable. It might be the Long Island accent. Is that what that is? Is that the Nassau County? Are you from Nassau? Every so often it comes out, yeah. Yeah, there you go. Okay, so what's your feel-good stat? All right, I was going to say it's 7%, and it's the –

the open table seated diner reservations, which is something we used to look at a ton during the pandemic. It's a year-over-year change in people who make reservations to eat out versus a year ago. That number has been positive throughout. This is the average over the last 90 days of that number. In other words, people are eating out more according to that than they were a year ago. It suggests to me that there's at least some evidence that consumers are not...

running for the hills or not heading to the bunker whatever analogy you want to use they're still going out and and spending their money so that's yeah some reassurance is there an underlying trend growth rate i mean because i know i'm just using it more because it's and i i'm not going out more i'm just using it more because that's the way you make reservations that's true and certainly if we're comparing that to like 10 years ago i think that would okay the case i don't

I don't know. Unfortunately, they used to publish the entire time series and now you actually have to only get 90 days from their website. So I'm not exactly sure what the long-term trend is. I remember from back when we were looking at during COVID, I think sort of normal is probably around there, but I mean, it clearly was down or flat for quite a while. Okay. Well, that's a good one. That's a good one. Yeah.

Justin, I didn't get your feel-good stat. Did I? No. Not yet. No. Okay. Mine's 133.5. It's the Conference Board Consumer Confidence Present Situations Index. Now, I should say this. I should qualify this by saying the Conference Board Index is decidedly not positive.

It's fallen about 25 or so points since November, largely because consumers are very anxious about tariffs.

That said, pretty much the entire decline has been because of the expectations index. Just a fear of what is to come. But the present situations index is indicating that altogether, consumers are feeling okay about the present situation. They're still spending their money. They still have their jobs. The unemployment rate remains low and jobless claims remain relatively subdued. So I think it's a very lucid indicator that right now, people are okay.

um that might not it might change and there's certainly the fear of that is is getting shown in the statistic um but just right now everything it seems like it's okay yeah that's that's i you know i i like the conference board survey of consumer confidence it's my all-time favorite kind of leading indicator if i had to pick one thing to look at to gauge recession it would be that

But I've never looked at that component. I wonder if I did, whether I'd get a different story or a different perspective on things. I'm going to take a look at that. That's very interesting. Chris, what's your feel-good stat? Price of eggs. They're down? They're down over the week, over the month. Yeah. That's good. That is good. Like the price of gas, it's one of the things consumers do key off of, right? Right. They're down how much?

Over the, let's see, over the week, I'm looking at wholesale prices. It's down 15% this week, down 7% over the last month. Some volatility in there.

Yeah, that's a good one. That's a good one. Well, I won't tell you that what they are over the year though. Cause we're still up a lot over the year. I guess keeping this a happy. Yeah. Yeah. This is, this is feel good. Yeah. Well, my feel good is 4.2% unemployment rate. I mean, you know, despite all everything, uh,

unemployment is pushing up. You know, it's higher than it was. I mean, we were three and a half back a year ago. I'm making that up. I think it was close to three and a half. We're now four or two. But that would, that was by design, not, you know, that's not, that's a feature, not a bug, I think, because we wanted to cool things off a little bit. Now we'll have to watch it because it does feel like the unemployment rate is creeping higher. And, you know,

you know, when Dante comes on and goes to the first and second, third significant digit, then we start to see, you know, we pay, you know, it's, it's creeping higher. So we got to watch, but you know, so far so good. If we, if we continue to hang kind of around the 4% range, uh, that's not, that's fine. Yeah. We'll, we'll navigate through. Oh, we'll be okay. Okay. That, that feels, that all feels good, right? Everyone feel pretty good.

Yeah. Yeah. Okay. Excellent. Anything else you want to add before we call it a podcast? Adam, Justin, it was great to have you guys on. I appreciate that. Thanks for having us. Thanks. Yeah. And always good to have my two trusty co-hosts.

Yeah. Everyone enjoy a nice holiday, long weekend. Yeah, happy Memorial Day. Well, I guess if it's raining all weekend, you guys probably won't. I think we're going to get some sunshine here in Pennsylvania this weekend. A little chilly, but well, I hope everyone gets to get a hamburger or ribs or chicken or whatever it is they get. Okay, with that, we're going to call this a podcast to your listener. I hope you found it of some value and interest, and we will talk to you next week. Take care now.