Moody's Talks - Inside Economics - 3 Lenses, 1 Economy

Episode Date: April 17, 2026

Stock prices are hitting new records, while consumer sentiment has fallen to record lows. Businesses are of mixed minds. What’s driving this disconnect—and who’s right? Mark and Cris are joined once again by colleague Matt Colyar to break down the divergence between investors, consumers, and business leaders. Their insights reveal key dynamics shaping the economic outlook. Plus, the statistics game returns – back by overwhelming listener demand. To view the Wall Street Journal article mentioned in this episode, visit: Gen Z, Locked Out of Home Buying, Puts Its Money in the Market Email us at [e-mail] for more info about the Moody's Summit '26 Conference in San Diego Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s Analytics Follow Mark Zandi on 'X' and BlueSky @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn   Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics, and I'm joined by one of my trusty co-os, Chris DeReedies. Hey, Chris. Hi, Mark. Good to see it. Good to you as well. Where's Marissa? Is she off today? I'm not sure. Where she is? She's a client meeting. Client meeting. Okay. Well, we'll miss Marissa, but we've got Matt Collier joining us. Hey, Matt. Hey, Mark. Hey, Chris. Thanks for having me. Yeah. Weren't you on last week, Matt? It was inflation, double inflation week last week. So yeah, I was here. Good. Good to have you back. And Matt and I were in Atlanta together this week. Yeah, we had a client dinner and Matt was involved. Did you learn anything at the client dinner, Matt? Yeah. These are people mostly that we're talking to. They're just getting experience day to day that we don't, which is, you know, what businesses are talking about when they're borrowing money or all that kind of.

intimate experience that way is a ton to learn. I'm not asking in Syria. I'm asking, you know, what did you learn? What did I learn? Mark gets to travel better than I do is one thing. I certainly learned. Two, that everybody is

cautiously optimistic. I think we're scared about the same things when it's, you know, it's AI, it's energy. But in general, nothing's falling off a cliff. There's some anecdotes and there's things that people are really focused on, different lending products that people are focused on. But in general, everyone seems

to think that this is a pretty resilient U.S. economy. Was that your takeaway, or am I too rosy? No, no. I think generally that was the case. We went around the table asking probabilities of recession over the next year, and there was a range, but I think it settled in some are pretty consistent with consensus, 35, 40%, don't you think? I think, broadly speaking. Yeah, I'd say 40% would be the right percent. So kind of exactly where we are. So that was one thing. You know, the clients in the dinner were banks, folks from the banking community,

commercial real estate focused, a lot of CRE focused, and auto. We had a fair amount of folks in the auto industry. And I went on to, you didn't go with me to Dallas, but I went to Dallas. and Dante joined me in Dallas for a dinner and a very similar kind of kind of result although I'd say the Dallas book I didn't do the probability of recession

with those books but I'd say they were even more optimistic or more upbeat than I would than the books in Atlanta in general Which would have guessed that beforehand? Yeah, I would have. Yeah, exactly. Dallas is always upbeat, you know, always upbeat. Okay, that's all good, but

how about news? you can use TSA lines? What's the, what's the situation? Nothing. Nothing. Okay. No, I, you know, I have TSA touchless. Do you have THA touchless?

Where you don't, you just go up and they take a visual scan and, oh, yeah, let you go through. You don't have to even hand over an ID. And I don't think I waited more than a minute in both Dallas and in Atlanta. And I think those were, weren't they like grounds? zero for the problems like Atlanta was, I'm pretty sure. Atlanta and Houston were pretty bad. Atlanta, Houston, yeah. No, no, no, no, no difficult.

No problem. Okay. Yeah, okay. I think the news you can use is you were with me in Atlanta, Dante and Dallas. Surely there was a preference or there was some difference of experience on your part. Did you enjoy the company of one over the other? Oh, wow. Oh, what?

I should say, Dante, I have a very close relationship. We get breakfast very regularly. We talk about all things. So there's no hard feelings that I'm asking it. You could hurt somebody's feelings, I guess. Soapie's choice. It's better not to ask certain questions. Well, no, no, no, no.

To be absolutely frank, you both were great. Absolutely. You're both great. Now, you and I went on other client meetings. I didn't have the opportunity to do that with Dante. Did I? Did I do any means? No, I don't think so.

You guys with the Fed, right? And I thought those were quite good as well. you know, very, very good meetings. But, but no, no, you're both very easy to travel with on time. I will say, Dante. It's a little funny. And we go to a little meeting in, by the way, I went to Fort Worth, too. I had been in Fort Worth, in 50 years, I think.

And it's really a happening place, a lot going on there. And anyway, I visited a client there, which, Dante and Dante didn't bring any ID. So it's like, Rocco, really? No idea. But fortunately he had his passport picture on his phone. So, you know, otherwise it might have been a proud of it. So if I had given that, I'd say, you know, maybe, you know,

Yeah, that has to tip the scale. There's all been attention there for maybe a half a nanosecond, you know. I agree. That must have been tough. Anyway. All right. Well, it was good to spend some time with you, Matt. really enjoyed it. And here we are. This is Friday morning of April 17th. And we just got some big news, right? Chris, what was the news?

The Iranians have declared that the Strait of Hermuz is open for commercial traffic during the ceasefire. And markets went crazy. The stock market is up several percentage points. I think 1,000 points on the Dow. Treasury rates are down. Oil prices certainly down, I think 12% or so. So, yeah, we're in the midst of a broad market rally at the moment. Right. So it feels like the president has done what he typically does is stand down, try to figure out a way to pivot and he's pivoting and declare victory and move on.

And that seems to be what we're in the middle of right now. We're closer to the end of that process than the beginning, fortunately. Does that sound right to you? At least for today, right? At least for today. Cease fire is great. We certainly want resolution, but it's one step here. And I should note that the president also noted that the naval blockade, the U.S. naval blockade, is still in effect.

So a little bit unclear what this all means at the moment. So more script to be written here. Correct. Correct. Yeah. Right. I did. Right before we went on, I noticed to your point, the stock market took off and we're

now at record highs, I think across the board, across all the indices. I typically look at the S&P 500 and we're at 7,100, and that's an all-time high. Bond yields of 10-year treasury yields have come in a little bit. They're still elevated from the start of the war, 4.5% on a 10-year bond. We were closer to 4-1-4, under 4. mortgage rates are still elevated a bit. We're at 6.30 on a fixed mortgage, which is up 30, 40 basis points from where we were.

Oil, that's back down. We're now $85, $85, $90 barrel on futures. And, you know, before the war, we were at 60, 65. So we're still, you know, up, you know, $20 a barrel from where we were. So we certainly moving in the right direction here, but you're saying more to go and markets, you know, with the falloutness still has to be felt and still more work to be done here. Yeah. Yeah.

Again, obviously, hope everything continues moving a positive direction here, but it's not quite over. Right? We have a ceasefire in effect, but no permanent agreement yet. Right. Lebanon is also in a ceasefire with Israel. That's all positive, the whole movement in the right direction, but we know these are pretty volatile situations. So just need to be a little cautious. Right.

So I guess this gets to something I'd like to discuss, and that's, you know, given everything that's going on and given that it's still the script. to still being written. And given that even if everything went back to pre-war tomorrow, oil prices, gas prices, diesel cost, jet fuel, everything kind of just settled right back in. There still would be economic fallout. But despite all of that, the stock market is at a record high. You know, stock market is that? How do you digest that?

I mean, does that make sense to you that that would be the case? I mean, if I told you, gave you all the economic statistics and the change since the war began and asked you what would the stock market be doing, I don't know. Would you say it would be at a record high? No, logically, no. I'd say it should be higher, right? The probabilities have now moved in a more positive direction that something gets resolved here. But, you know, we're risk managers, right? There's still that tail out there that, you know, it could go in the other direction or that this could get extended. Something could flare up. pretty easily, right? It's not a far-fetched scenario here. So I just struggled to see that there's a lot of risk management, if you will, in the investors' playbook. It seems like they got this signal and they're running with it and suggesting, you know, I'm going to discount the future here and everything looks bright from here on out. Yeah, maybe it's a temporary dislocation here as we get oil prices down. Refinaries need to start back up again, but it seems like the stock investor is kind of,

Again, just looking right through that and excited about AI, excited about all the other things that were going on prior to the conflict beginning. Yeah, and of course the other, and I want to come back to, you know, more explicitly why this is happening. You know, what are the reasons possibly behind why the stock market is as strong as it is? But just want to also point out and also discuss that consumer sentiment confidence is, if you look at the University of Michigan survey, at least, at a record low, right? I mean, that, that, how do you square that circle between stock price, stock market at a record high at the same time that consumer sentiment is a record low? I mean, that's really, really, I haven't looked, but I can't imagine that's ever happened. before anything close to that ever happened before.

No, I think it comes back to the old adage, though, that the market, stock market is not the economy and the economy is not the stock market, right? They can move in different directions even for an extended period of time, right? They're different sets of consumers, they're different people, they have different anxieties,

they're different worries, different timelines. So you're right. I don't think it's happened to this degree, but certainly it's possible that the two can move different. at least for some period of time. That someone certainly has to be right, you would think. No, that's certainly what we're saying now.

And then, of course, then there's business sentiment, which that's, that is harder to measure, I think. We've got different surveys, got the small business survey from the National Federation of Independent Business, and there's other surveys done of CEOs and CFOs. They're kind of sort of in between, it seems to me, right? got the stock market at a record high, consumer center at a record low, and business people kind of somewhere in between. Is that? That's my sense of it. And it also varies by, as you put, the size of the business, small businesses getting hurt much more than the larger businesses that have more maneuverability.

It depends on which industry or sector. So I think it uncovers or just illustrates that you have to be careful in terms of the heterogeneity here or the variation, right? Some companies are doing quite well, right? higher oil prices was a boon to them. Others, not so much. Yeah. Hey, Matt, before we go back and kind of dig deeper on that, did I get that characterization right in your mind that, you know,

we've got investors, consumers, and business people, in their perspectives on the world, at least measured by the surveys and other things that we take a look at on a regular basis, are in very different places. Is that a fair characterization, do you think? That's certainly how I read it and explaining why at each turn I think is more art than science right now because it is perplexing. But that's the direction of travel for a while now. And it's just reaching a maximum now where we have record high, S&P, record low University of Michigan, which isn't, you know, the goal.

It's a very long history and an important consumer sentiment measure, imperfect. But those two things would seemingly be impossible to coexist. But here we are. Yeah, here we are. Okay, so let's go back to the stock market in the rally. You know, I think there's a slew of things that work here. But in the list of things that are driving the equity market, Chris, what do you think is at the top of the list?

Well, clearly, two or three that reasons for what's going on. Well, clearly it's the optimism around the oil prices, right? Opening, at least in the short term here. Right. Oil prices had spiked. There was a lot of concern about that they would go even higher, right? Forecast as high as $200 a barrel. We're thrown around at one point. So clearly with the latest statements, investors are feeling more comfortable or confident that we will get to a better place, right? Maybe not. We may not go all the way back to the mid-60 barrel oil that we had before the conflict, but we're on the road. We're on the right path in terms of getting prices down. that should start to move things along across a number of different industries, transportation costs come down and so on and so forth. So I think that's certainly the immediate term optimism.

On top of that, you have, I think, that AI rally is still in the background, right? There's still a lot of interest there, and that actually concerns me. I don't know if you notice about this, there have been a couple of companies that suddenly put a dot AI after their names. They became AI companies like Allbirds, which was a. sneaker company. Yeah. Yeah, Albirds were the sneaker company.

They actually went effectively bankrupt. They had to sell all their merchandise and equipment. And now they've rebranded themselves as an AI company. They're going to be selling GPUs. I don't know exactly what that means, but all of a sudden, their stock price is up sixfold, right? So that to me has some at least rhymes of what happened during the dot-com era, right? If you remember back then, you had companies all of a sudden putting the dot com on their name and seeing a big spike up for no real apparent reason.

So Albers went from a shoe company to a GPU company? Yeah. I haven't been following this at all. Those are the chips, right? Those are the... Well, I think they may, my interpret, and they, of course, not a lot of detail here. My sense is that they're going to, yeah, install basically a data center or have a data form that they can rent out, right? Oh, I see.

But, you know, just like the big major hyperscalers are doing. I don't know what their angle is or why that's a preferred type of business. But anyway, that's the gist. They're clearly not in the shoemaking business anymore. So I heard three explanations for what's going on. The one that's kind of in our face right now is optimism around the war and the war winding down and the straight of Hormuz opening up and energy flowing and the price is coming back in. The second is AI. And I think the kind of statistic that sticks in my mind in that regard is that almost half of the market cap of the S&P 500.

So you take the market value valuation of all the companies in this fiber. About half, not quite half, are tech companies. You know, the Amazon's and the Microsofts and the metas and so on, the top 10, 15 tech companies. And that runs on its own dynamic. That has nothing to do with anything or whatever. It doesn't matter. That's on its own dynamic.

And the third reason you gave is, speculation creeping into the market related to the optimism around AI, specifically AI, but perhaps more broadly. In speculation meaning that people are buying stocks not based on anything fundamental, not anything based on earnings or interest rates or anything else that fundamentally drive equity prices, but just the view that they're going to rise, and therefore I'm going to catch that train right as far as I can. That's what you're saying. Yeah, that's right.

Well, if you do want one fundamental reason, it's, we're in the middle of earnings season, and a lot of the financial companies reported this week, and overall, I'd say the earnings look pretty good. So there is some reason to have higher prices, but, again, I don't know that it justifies the multiples that we have at the moment. Right, right. Hey, Matt, do you want to add to that list? Any other explanations for what's going to?

going on in the equity market? I think businesses have, I think it's what Chris just added is what I would add first is profit. I mean, margins have been protected throughout a lot of different shocks in a way that I think investors have grown accustomed to. And I'd also add that being really optimistic as an investor over the past few years has been really lucrative. I mean, so it's, it's pandemic recovery.

It's war in Ukraine, Fed tightening tariffs, now this. I mean, there's kind of a learned. optimism to look through a lot of these disasters or these shocks and come out on the other side. That other side is coming quicker and quicker because of that psychology, because of retail investing, I'm sure having an important part there too. And I think that drives. I think that's how you see a lot of Vs over a long enough time series, which is really sharp bouncebacks. And investors are being rewarded for that. So that dynamic, I think, is important. Learned optimism. I like that. Yeah, there's probably more simplified.

It's just optimism, maybe. But yeah. I mean, you're saying I'm conditioned from the fact that in previous corrections or sell-offs or even brief stumbles, the market comes roaring back, you know, and recovers everything that was lost and then some and we're often running to the next up part of the market. Yeah, that's been prudent to buy quickly. Yeah, right. Hey, I've got to throw out a couple of other potential reasons to just get your feedback, your review.

How about the tax cuts? The one big, beautiful bill act, the OBBA had, has very significant tax cuts for businesses, specifically, the most notably the expensing of investment, which I think is quite meaningful in terms of what it. hat what it means for the tax liability of businesses. So if you have a price earnings multiple in the equity market and you give businesses a big tax cut and their earnings improve and you assume the same P.E. multiple, you're going to get higher prices by definition. So it would add by 10% doing a bit of a calculation, a rough calculation. So I'm rounding. But that tax cut should add at least five percentage points to the stock market, maybe a little bit more than that? What do you think of that is an explanation of that? I think that makes sense. I mean, backing into what multiples we're looking at

and how you could drive that. But when does that get priced in, though, last summer when the tax and spending bill is passed? Is that driving growth today, or is that just kind of a six, 12 months story? Well, you're right. But, you know, we're just now, a new record high. I mean, if you look back, the stock market has been kind of sort of where it's been for the last six months or so. So I'd say if we're trying to explain, you know, not only what's happened in the last day or a few days, the current record high, but what's happening over the past year or so, and I think the S&P is up 15, 20 percent from where it was a year ago. And this is even, when I'm even going back earlier, let's go back before Liberation Day, because

that was a pretty bad day and we saw a down drop. But if you go back before Liberation Day, I think we're still up 15, 20%. And I think I would argue that, you know, a fair share of that is probably, it's not the number one reason for why stock prices are up so much over the past year, but it is a reason. Chris, would you push back on that? I think the S&P's up, isn't the S&P up 35% from a year ago? Well, I think, isn't that Liberation Day? That's the Liberation Day thing. Yeah, yeah. But if you're, yeah, you're smoothing out. Yeah, just, yeah,

abstracting from that. Yeah. But nonetheless, yeah. So I think, I think certainly the tax cuts do lead to higher prices. I'm more sympathetic with Matt in terms of the timing. I don't think suddenly today investors woke up and said, oh, by the way, there's this effect. Let's drive prices higher. But I think it does explain kind of the general upward momentum, right?

Yeah. Not the only reason, right? But I think certainly something to continue. contribute. Contribute, yeah. Let me throw on an even more, this is highly speculative. All right. Meaning, I don't have any data to prove it.

I just throwing it out there to see what you guys think. It's not my idea. I think I've heard this from somebody, but, you know, me, when I hear someone else's idea that's good, I think it's mine. They're an economist. That's what we do. I don't think this is mine. Somehow I want it to be mine, but I don't actually think it in.

But I think it's kind of an interesting argument, and that is young people in their 20s and 30s, they can't buy a home. Housing is unaffordable. I mean, if you look at the house prices, the median price is five times income. And that's also close to a record high. And typically, you know, you have to get back to four times, maybe three and a half times before housing becomes affordable. assuming no change in interest rates, you know, in that calculation. And so if you're in your 20s and 30s and you've been saving for a home, and of course people view a home as they buy it for lots of reasons,

one of which is to build wealth, right? It's one of the, one, if not the best way for most Americans to build wealth because it's a levered, house prices generally rise, and it's a levered investment because you get a mortgage. And so your returns are quite high. And you build. And it's kind of forced savings because you have to make that mortgage payment. And that mortgage payment includes the interest payments plus the, you know, buying it into the home, the equity in the home.

And so if you can't do that, if you're in your 20s and 30s and you're working, you know, you're making money and you're saving. Where are you going to put that? And now it's not going to a down payment. You know, what do you do with that money? It feels like the stock market is the place to go, especially in the context of the fact that it has been running strong in a consistent way. And the trading platforms have gotten really good at helping young people and investors that are less versed in the equity market that participate in the equity market. It becomes more gamified, easier to do and funner to do. and they're doing it.

So they're going from, they're taking their down payment of fund and using that to buy equity. What do you think about, Chris, what do you think about that argument? Or maybe that was your argument and I took it from you. Could that possibly be the case?

I contributed to a Wall Street Journal article not too long ago on this topic. And I did some simulations to show that actually, you know, under your scenarios there, a lot of young people are actually better off. renting and taking the difference, if you will, relative to a mortgage payment and the maintenance and insurance, that was a really big piece of this. If you take that amount and invest it in the stock market, assuming an 8% return and of historical average, you're actually building more

wealth over time than kind of buying at the top of the housing market, assuming you know, the house price growth is going to be more subdued going forward here. So yeah, I'm sympathetic to that argument. And I think related to that is that you do have the rise of more passive investments as well. So people just sticking their money in it in an index fund. Right. So that also contributes to kind of the ever increasing levels of prices. And perhaps even more automated or AI trading. I think that's part of this sudden volatility that we're seeing as well.

That, you know, why does stock market go up a thousand points today? Well, I think there's a lot of program training that's going on that's really driving it up. So just a lot more volatility as a result of that, but I think these are all contributors. Again, I don't know that there's the main reason, but I think your hypothesis holds. I think that's certainly a reason why you see more flows coming in, particularly from younger investors.

I missed that Wall Street Journal piece. Can you send that to me? A link to me? Yeah, sure. Yeah, I missed that. That sounds like a great analysis. So was that the thesis of the premise of the piece, that you got young people that are going into the equity market?

because of the returns? So the angle that the journalist was taking was more on, like a personal finance, right? Right. A lot of young adults are bummed out that they can't find a home, unaffordable home in their price range. Right. They feel like they're missing out on wealth generation, right? As you mentioned, for previous generations, house was a great way to generate a lot of wealth.

So she wanted to look at the math if we make some different assumptions, right, especially given, again, I harp on this, but the price of insurance and property taxes and maintenance, those are all sunk cut. That's not contributing to your real appreciation of your home values. So once you take those into account in certain areas, again, you're better off just renting, assuming there's a tradeoff, right? You're going to rent a smaller apartment versus owning a larger home. But if that's acceptable, you actually could be wealthier in the long run if you just stick to a long-term investment plan.

Interesting. Hey, Matt, you're a young guy. Does that argument resonate with you at all? Or is that a little bit? I don't feel particularly young. But I think that's really, if that is, I mean, I think the increased retail investing the Robin Hood phenomenon over the past years, like there's a lot of ink there that I've read. I mean, specifically the choice that younger people are making and how that could be, you know,

lifting equity markets to a larger degree than we think. I think that's really interesting. And to underpriced that is to have. a bunch of young people with really liquid assets instead of a home. And that seems to have all kinds of knock on effects. And what that might look like in 10 years is really interesting to think about. It also seems a lot riskier than having a bunch of money invested in the home that you're living in or raising a family in and instead trading in ETFs and different stocks on your phone. That seems like it's the kind of beginnings of potential financial issues later on.

but it certainly seems true. Everybody knows either sports gambling or on Robin Hood on their phone. Or playing the prediction markets now. Oh, yeah, not so much sports anymore and more prediction markets. Yeah. Well, I want to play the game.

And by the way, in our travels, I learned that people want us to play the game. There's like no ambiguity about that. They really enjoy that. So I want to do that. And I'll take a few listener questions. But before we get there, Let's talk about consumer sentiment.

So stock investors, and by the way, it's not just stock investors. I mean, if you look at bond investors, you know, in the corporate credit market, for example, the market for corporate bonds, that market is also quite euphoric. If you look at spreads, the difference between yields on corporate bonds, compare that to the yield on 10-year treasuries, the risk-free rate, that's the compensation that investors are requiring to, to get for the risk of investing in those corporate credits, the potential for DePaul. And those spreads, those differences in yields are very narrow by historical standards. So they're not screaming the same way stock prices are, but they're pretty, they seem to be in a pretty good spot as well. But let's turn to consumer sentiment. And consumer sentiment is, as I mentioned, at least as measured by the University of Michigan survey,

A survey that's been done since the 1950s on a monthly basis is at a record low, fell to a record low. The conference board survey, I prefer that survey for a bunch of different reasons. That hasn't fallen nearly as much, but it's held up pretty well. I mean, it's come down. I should say it's not at a record low, but it has come down. So both those surveys are signaling, you know, the consumers are having, a difficult time with what's going on in the economy. Chris, what do you think is behind the weakness and consumer senator? Yeah, well, it's, I think it's, you know, it's psychological, right? So it's,

seeing the oil prices or gas prices rising, right? That certainly doesn't make you feel good about the future and just prices in general. I think there's still this anchoring effect, right? Prices have gone up since the, since COVID and they haven't come down and consumers are still angry that you know, so what if the rate of inflation may be decelerating? Still, the prices are much higher than what they used to pay. And so I think that certainly colors them. Then on top of that, it's the labor market, where you have weakness in the labor market, no job growth as we've mentioned, and a lot of anxiety about the future, right?

College graduates are having a difficult time finding their job. They're finding jobs. It's taken a while. If you are laid off, even though layoffs are low at the moment, if you do get laid off, taking longer to find a new job. So that certainly weighs on confidence about the future as well. Even if you have a job, you're seeing your neighbors or your children struggling, right? That certainly has to, you know, color your outlook. And then on top of that, you have all to talk about AI and the potential to wipe out millions of jobs. That's certainly going to depress some confidence as well.

Right. Anything that I'd there, Matt, on consumer sentiment? Just the fact that Chris mentioned seven, eight variables, it seems like you could point to. I think that, you know, polycrisis type of mentality is seeking. I mean, it's been different things throughout the past years. The vibe session conversation has been really interesting, but it's soft. I mean, it's interpretive. It's not, there's no way to say that people should feel a certain way, given the misery index, right? The unemployment plus inflation, right?

because that changes and people's expectations change and the broader context that we're all living in changes. So I think it's very hard, but you put all of those risks in a blender, all that uncertainty, and it just seems like it's incessant. I think that's a really important point. This much as price levels, which I know a lot of people hold out. It's inflation's slower, but it's price levels. And restaurants used to cost this much. And food used to cost this much, even if it's growing more slowly now, it's so high that it's painful and it's,

I think all this things matter, but I think the totality is probably the story. Poly crisis? Did you catch that, Chris? I did. I'm going to be using that. I've not heard that.

Oh, really? Optimism, poly crisis. I'm on a role. This is, yeah, this is great. I would love nothing more than to be acknowledged for words. Yeah. And yet people are spending.

Yeah. Right? So that's, there's a bit of a disconnect there as well, right? Well, did you guys mention the political overlay? I missed that if you did. We didn't. No, but that certainly part of it as well. You can see.

Yeah, I mean, and that maybe helps explain this dichotomy between where sentiment is by the University of Michigan survey, the consumer confidence survey, and spending. I mean, sentiment is weak, but it's not the worst it's ever been in the history of surveys back to the 1950s. And that probably is due to the political overlay, right? I mean, you know, you can see that because the University of Michigan survey does, I don't think, I don't know if the conference board does as well, but they, they break, the University of Michigan breaks down the survey into Republicans, Democrats, and independents. And very clearly, depending on who is in office, which party is in office, plays a big role in how people are

thinking about their own finances and their own perspectives on the world. And so I think there's a great deal of angs among Democrats and even independence over President Trump, and that's being reflected in the sentiment surveys. So that may help to explain it, you know, a little bit. But the one thing, though, that I find, and this goes to the point around spending, is I find a little weird, is usually the wealth effect, you know, the idea that when you have rising wealth, rising stock prices, rising house prices, people's wealth is increasing. They feel more confident. You see that in the sentiment surveys, and that is one of the

basis for them to go out and spend more. That's the so-called wealth. More wealth, more spending. And that has been a key part of the spending that we've been observing. But we don't, you know, It's hard to connect those dots given the weak sentiment. Now, I know you can also look at these surveys cut by income group, and folks that are higher income tend to have higher levels of confidence. But they, too, are less optimistic than they were previously. So that also makes a little bit more difficult to square, you know, what's going on. Any comments on that, that observation?

Chris? Yeah, it's curious. it goes to revealed preference, right, or revealed actions. I just, even if you are benefiting from the wealth effect, you're seeing your stock portfolio rise and housing values up, I think there's just this trepidation out there that, well, something could go wrong, right? So it's been going rights for so long, and we've been lucky. We've kind of, as Matt mentioned earlier, we've been through a couple of different cycles here, shown a lot of resilience, but still I'm a little bit guarded. something could take us off.

But it, but only we have one life to live. I'm going to spend, right? I'm going to continue to move ahead here and take some advantage of the wealth that that has been gained. So I think there's a little bit of maybe psychological disconnect. Yeah, I will point out spend. Oh, sorry, Matt, go ahead. I was just going to say that people's expectations of the economy, I think, are probably different.

And, you know, your 401K may look really. great because you're exposed like everybody to AI stocks that are, is smashing through record highs, but that same technology is going to prevent your kid from getting a job when they graduate college. And how do you square that personally and say, hey, I feel good about my retirement, but my son, daughter's never going to start saving for their retirement. That's a little, you know, too explicit of a cause and effect. But that's a unique situation. I mean, I'm not a historian enough to know that there's been technologies that have at once, you know, frightened everybody to that level. and driven their own personal wealth at the same time.

So I think it's very hard to square, and I think the revealed preferences, I don't feel great about this, even if I can afford more and spend more, and I'm doing so. Oh, that's interesting. So what you're saying is AI is driving the stock market, which is driving wealth,

but it's making spooking people at the same time. Even though they're more wealthy as a result, they're more scared about what it all means. That's what you're saying. I can retire earlier, but my kids never going to leave the house. Yeah. Oh, that is an interesting argument. That is an interesting argument.

Okay, so, and then, of course, we got businesses. I don't know. Do you watch, Matt, the NFIB Small Business Survey to any significant degree? I look at the price components, the top line stuff. That's another one that's very politically oriented in a lot of ways. So I take it with a big grain of salt. Right. But it's...

You're saying there are a lot of Republicans generally participate. in that survey because there are a lot of smaller businesses that tend to be prioritized light regulation lower tax over everything else and they respond to I mean the biggest two jumps on record were 2016 and 2024 late you know November December so yeah all right all right but you know I will say anecdotally one of the things I did come away with in our travels over the last week in Atlanta in Dallas talking to to folks in the business community is that they are nervous around the uncertainty.

It's not per se that their business is feeling the ill effect of whatever it is that's going on, the war or anything else. But it's just the up and down and all around in policy. Going all the way back to Liberation Day, you know, this time last year with the tariffs and Doge and tax policy and now the war. and this is only one of a series of kind of foreign policy steps that have, you know, raised a high-level banks. So it does feel like the business community is somewhere between the stock market and the consumer and is just nervous, cautious, and kind of sitting on their hands. Kind of sort of like what the Fed is doing. The Fed's like saying, hey, I don't know how this thing's all going to play out, and I'm going to wait and see before I make any moves here. So I'm just going

to sit on my hands. Same kind of thing. So, okay, so you've got. And I'll have to say, in my mind's eye, I don't think I've ever seen such a dichotomy in revealed sentiment of investor, consumer business people. This is, they're all over the place. Which is it when it comes to the economy? Which is it, is the stock investors signaling the economy is the economy is going to be just fine and really, if not even better than just fine, it's going to be really good? Is it the consumer sentiment that's saying, oh, well, you know, we've got we got a problem here, maybe even recession, or is it the business people, the business person, we're going to be okay. We're going to kind of make our way through, but it's not going to be easy. It's going to be a bit uncomfortable at times. So which is it, Chris? It's the business person. It's the business person. Yeah. Yeah. I trust their judgment. They've got their finger on the pulse, really. They have to make it work, right? They have to. figure out a way to deal with higher costs or labor shortage or whatever it is. So I trust their opinions a bit more than the other two groups there.

I'll qualify that by saying, of course, there's a lot of variation across businesses, across households. So all can be right. Right. So you would put your head in the ring with the business person, that, you know, we're going to be okay. We're going to make our way through. The economy is going to be fine, but it's going to be a bit of a struggle. That's right. That's right. Okay.

Yeah. Whether it's oil prices or adopting AI, right, whatever the investors are looking at, it's not that easy when it comes to actually running a business, right, adopting those technologies or adjusting your supply chains, whatever it is. So I think they're right. It's going to take some work. So, Matt, what about you? Well, are you more, is your mind closer to the investor?

the business person or the consumer? I don't know that one of them has to be proven wrong. They don't have to converge if you, I mean, eventually something will, I mean, you could have AI that makes every one of the most profitable, productivity, enhancing, prognosticating, they all come true and the stock market will go through the roof, but we may have 10 to 12 or 13% unemployment. I mean, I don't think that's the outcome, but that's plausible. And you could expect consumer sentiment there to be pretty low in that scenario and the economy

measured by the stock market would continue rolling along. I think that businesses probably are right, but I'm higher. Like my recession probabilities are higher than the group, I think. And my thought is that that learned optimism eventually will bite. And you can't throw it. I mean, we have an energy shock now. It looks a little better today. But I'm less confident that we're going to get anything durable near term.

And I think people or investors are underpricing a lot of risk. That eventually will bite every business cycle. happens and every business cycle has a period where it seems like it's going to go on forever. So I probably lean towards the sentiment, the consumer sentiment, although I wouldn't be at record lows right now. I'm familiar with what the early 1980s were like. So a little bit less business to the right of Chris towards the consumers. Yeah, I'll have to go with the business person. I'm with you.

I just don't see the euphoria of the investor. or maybe the thing about the equity market is it's not representing. To your point, Chris, it's not the economy. It's just something totally different. And, you know, if it's largely AI, then it's running on its own dynamic. So you can't get a lot of signal from that. And then you go to the consumer and same deal. Maybe it's not saying what we think it's saying.

It goes to the politics, goes to the end. angst over AI, it goes over, it goes to, you know, a lot of things that are unrelated to the economy. But for the business person, they're focused on, they are the economy. They're focused on the economy and the business. And they're thinking about this very carefully and they're saying, look, I can't make a big decision around adding to my payrolls. I can't make a big decision around investing, expanding until I have some clear understanding of how things are going to play out here. And so therefore, I'm going to sit on my hands, do nothing. I'm not going to pull back. I'm not going to do that. But I'm not going to be all in, fully engaged and expanding my business going

forward. And so that would argue for an economy that continues to grow, but one that continues to grow very modestly. It doesn't go anywhere fast. I think that makes the sense. Okay. You want to play the game? You want to play the stats game? We each put forward a stat. The rest of the group tries to figure that out with clues, deductive reasoning, and questions. The best stats, one that's not so easy to get it right away, one that's not so hard we never get it. And if it's apropos to the topic at hand, I guess which is sentiment, confidence. But it doesn't have to be. There's a lot

going on. All the better. Matt, you want to go first? Sure. Let's go with July 2nd. July 2nd. 2026. Who said that? Chris? I did. I did. July 2nd, 2020. You know, you got to be careful with Chris because he does that. He gives a half-back. Yeah. So July 2nd, 20. So something's going to happen on July 2nd, 2026. That's important. to the economy. That's what you're saying. Maybe.

Maybe. Oh, this is the World Cup is played in Philadelphia. That could be the case, but no, I don't. That's not what you're thinking. Is it a economic event, a political event? It's a hypothetical. Oh. But I was not expecting anyone to get it,

and I figured this would take a while. Is it related to the economy? Yes, yes. Financial markets? No. The economy. First, do you have any idea what he's talking about July 2nd? That's two days before July 4th.

Has anything to do with the centennial, the 250-year centennial? No. No? I should just talk about it? All right. Push it out of our misery. Yeah, go ahead. It's our estimate, and I say ours and my, just threw it together.

If gas prices stay where they are today, roughly, that'll be when the average American household has spent more on gas than they saw in a tax return coming back. So the stymidive effects of the old BBBA, we thought a long time, hey, first half of 2026, you're going to see that's expansive fiscal policy. We're going to see consumer spending pickup because of this 10, 15 percent increase in tax refunds that households are seeing. And that was our base case. But now with gas at $4 per gallon, we can make a similar cost estimate of when that, much when when that amount of money is going to be offset by prices for diesel prices for unleaded gasoline so if we stay where we are roughly four four 10 uh we're going to we're going to offset

the entire stimitive effect of the obbba for for households by july second so just so i understand so you're saying okay uh because of the tax cuts to individuals the obbva tax cuts to individuals refund checks are marters so if i add up all of the refunds that have been distributed so far this year, compare it to last year. It's up about what, 30, 40 billion, something like that? A little bit more than that. We're close to right now just under 50 billion, cumulative, and that's total difference. And some of that's going to be wage growth. It's not all going to be tax policy, but I'm taking a conservative estimate saying all of this increase is because of the tax and spending bill. Yeah, but you're saying the refunds, there's $50 billion more

refunds this year compared to last year. That's what you're saying. at least today. That's right. And we got some weeks to come. Okay. Now, if I do, if I look at the increase in spending on gasoline and diesel, since the war began, I guess, I guess since the war began, you're saying that, you're saying right up to this point in time it's what?

Is it? It's about $21.5 billion dollars. 21.5 billion dollars. So the tax cuts are out, or, or ahead of the. spending on gasoline and diesel by about $25, $30 billion, something like that. That's right. And still growing, but we'll soon taper off. Yeah.

Which all of, of course, the effects of the war are manifold. They go well beyond the cost of gasoline. But nonetheless, that's a big part of what's going on, so at least so far. And that would suggest that the tax cuts are cushioning the blow from the war. That would. Okay. But then what you're saying is if gas prices stay where they are today, which is just over $4 a gallon, by July 2nd, then all of the increase in spending on gas will now have out, significant, it will have outpaced the increased tax refunds that people have received. That's right. Okay. Got it. But that seems less likely now, though. That doesn't. This is an estimate put together earlier this week, and then we get news today, and I see gasoline futures dropping commensurate with like 380 per gallon.

So you're already getting outside of the all-El sequel, you know, keeping gas prices today forward. So I will say, but that's the estimation. That's really cool. That's a really cool statistic. Okay, I'll go next because it's related. That's a hint. $119 per barrel. Spot prices?

Spot prices, right. Right, right. So there's this, the wide gap between futures prices, which is what, you know, we look at when we go look on our screens or what you just, you just put forward the 85, excuse me, the, where are we now, 85 to 90 bucks of barrels on futures, I believe. About 85. Yeah. That's the number that people focus on. That's what the price would be, what traders are expecting the price will be, will be when, that contract comes to fruition, and that's in June or July. So that's at least a month or two

down the road. But if you look at actual prices being paid today, if you want to go buy oil and you need oil, the so-called spot price on Brent, it's just around $120 a barrel. So it's still very, very elevated. And ultimately, the price that we pay at the pump, you know, what airlines pay for jet fuel, what trucks pay for diesel, is some combination of spot in futures prices. It's not just futures prices. So it could be the case, and the spot prices are high, higher than the futures, and right now, to a very significant degree, an unusually large degree, maybe even unprecedented degree, because the futures markets are anticipating that this war is going to wind down and oil is going to flow through the straight. But for the here and now, for the people

we need oil, the market is physically disrupted. You know, 10 million barrels of oil of production have come offline because of events in the Middle East. And it's just hard to get physical supplies of oil, and that's pushed up the spot price. And the spot price is also very important to determining current gasoline prices, jet fuel prices, diesel prices. And so that's why the cost of a gallon, or at least one reason why the cost of a gallon of regular unleaded is still over $4. You know, it's come down from the peak, the peak was probably closer to 420, 425, but still nowhere near what you would expect if you just looked at futures alone. And so, you know, we may see elevated gasoline prices for an extended period. So it may not, in your calculation,

$4.4.10 may not be the number we should be using to do the calculation, but it's not, it's not $3.50. It could be $3.30, $3.90, you know, some. somewhere in that were magnitude because of that discrepancy. Um, good. All right, Chris, you're up. All right. We've got a somewhere related last that caught my eye this week. It's a two part or 1.6 and 5.6%

1.6 and 5.6. Yep. Is it government data? This is like official government. Okay. Yep. Yeah. Uh, inflation related.

Yes. PPI? No. CPI? No. PCE? No. Oh.

This week, right? You say it came up this week? Yep. Oh yeah. Okay. Government data, inflation related 1.6 and 5.6. Import prices? Yes.

All right. Oh, I'm sorry. No. Oh, come on. No. What? No. It's very close. Yeah.

Import prices X gas, X petroleum? No, if not import prices. Export prices. Export prices. I'll take it. I'll take it. He gets credit. He does.

He wins. Yeah. 1.6.5.6%. So, first of all, we tend to focus on the import prices because of the old price shock, right? That's all of our focus. We're looking at all the goods. And Matt does a great job of summarizing the impact of consumers. But the other side of ledger is export prices and 1.6% in a month and 5.6% year over year is three times faster than the import price growth.

Right. So while it's true, consumers and businesses are facing those higher import prices, there is a benefit in terms of the export prices, at least in the month of March, because of the increase in oil prices and commodities, some agricultural commodities. So there's some offsetting effect here. If you put that all in the mix, I think Matt's July 2nd date kind of gets pushed out because you do have some companies and some by extension employees and shareholders who are actually benefiting from the higher export prices that American manufacturers are able to charge. Oh, that's interesting. So because of the higher energy prices, U.S. exporters are passing through those higher costs to. Well, the U.S. now is a big exporter of petroleum, right? So those energy costs, they can.

Oh, oh, oh, obviously. So the Pacific Rim countries, for example, not getting their oil from Iran or getting their oil from the U.S., some U.S. exporters, right? So they're actually benefiting from the situation. So just to say that, you know, I think we've made this point in the past. Given the U.S. is a major exporter of petroleum, you know, if you have some offsetting effects, even when consumers are taking a hit from higher oil prices, other parts of the economy are actually reaping some benefit. And that's part of the resilience I see here.

Yeah, good point. I mean, we talked about this earlier on when the war began. but if you look across the globe and ask what's the impact of an increasing price of oil, only one, two countries actually benefit, one being Russia, the other being Norway. Then after that, U.S. is third. We get hurt early on because of the hit to consumers, but we are producers of energy, and we produce 20 million barrels of day of oil. and consume about the same.

But those producers benefit, and that's what you're saying. That is an offset that becomes more evidence if it's large, if prices stay high. And the rest of the world, most parts of the world just don't produce as much energy, so if there aren't any at all. So they're getting nailed and doing much worse than we are as a result of that. So we're getting hurt, at least initially, but not hurt nearly as badly. and your data makes that brings that point home. Yeah, got it.

Good. Well, we're running out of time. I can't believe it. We've already been chatting for about an hour. And I've got another webinar to do. But let's take one question if that's okay. Maybe two if we have time. But Matt, you want to do a listener to question it?

Sure. I will do my best, Mercer, impression. This, to me, seems relevant given news at the week with investigations and Powell, Jerome Chair Powell at the Federal Reserve potentially resurfacing, we'll see. But this is a assumption that prospective chair Warsh has put forward. So is AI more likely to be inflationary through demand and investment or disinflationary through efficiency productivity gains? I've got a view.

Chris, do you want to take a crack at it, though? Yeah, I guess the qualifier would be the timing. What's the time horizon we're talking about here? So my view is that probably, you know, it's increasing demand in the short run, but over time, I do expect to see productivity gains, which will, you know, be deflationary. So that's my simple answer. Yeah, yeah, no, I think that's right. I mean, demand is out. AI is boosting demand much more than supply, meaning AI is boosting demand through the, obviously the data centers and everything that goes into the data. So there's all that business investment. And then you've got the wealth effects we were just talking about, because of the run-up and equity prices that's driving consumer spending. So there's a lot of demand, but the supply benefits of AI are, and that really what we're talking about is the productivity gains

have been, I'm sure there's some, but they're hard to discern and certainly not very large, at least up to this point in time. So it feels like AI's juicing demand more than supply, and that would imply higher prices, higher inflation. And actually, you can see it in the inflation data, right? You can see the cost of electricity, which is used to power the AI, the data centers that are powering AI. You can see it in the PPIs, right? Matt, you know better than I, but if you go look at the PPIs for computers or electronics or chips, they're taken off. And those are affecting measured inflation. The consumer expenditure inflator uses those PPI's when it's constructed. And so you can feel the inflationary effects of the AI

in the data. But I also think, Chris, you're right, ultimately, the productivity gains from AI will start to manifest more fully that supply benefits of AI will become more evident. And, you know, over time, we may in fact see supply outstrip demand, and that would be disinflation or deflationary. But for the here and now, it's inflationary. And it doesn't help the new Fed chair, the presumptive new Fed chair, Kevin Warsh, who's been saying AI will allow me to cut interest rates.

No, maybe a year, two, three, or five from now, but certainly not this year or next year. It's because it's adding to inflationary pressures. Okay. Let's take one to do one more. That was fun. That was a good question. We'll stick with AI and we'll touch on something I heard you observe earlier this week. Are traditional unemployment metrics missing emerging white collar labor market weakness?

So AI softening professional industries, and we're not really seeing jumps and UI claims that would correspond with what we're concerned about. Is there any way that the data is missing that, perhaps? Yeah, I think there's here's more conjecture than, and we're doing some work here to try to make this more database. But my sense is that AI is having it, where it is having a supply side effect, and raising productivity is in the tech sector, obviously, and in the financial services and professional and business services industries. That's where it's most likely to substitute out. The AI is most likely to substitute out jobs and hours.

And the folks that work in those industries tend to be higher paid. Those are higher paid job. And so if they lose those jobs, the actual benefits they can receive from UI, tends to be too low to make it worth their while to apply for it and to to to to use it. It's just not enough to make a you know a difference in their lives and you know to get you I benefit and I should say those benefits generally this go state by state have been cut back from where they way back from where they were before the during the pandemic and pre-pandemic.

So they're just not quite as attractive and therefore people are not filing. And the other thing is when you file, that comes with strings, right? You've got to look for work. You've got to show that you're looking for work, and that takes energy and time. And I think many of the folks that are losing potential jobs in those industries due to AI, they just find that it's not worth the energy and time to do it. So that, again, I don't have proof positive, but I think that's a reasonable conjecture and something to explore and we are exploring that.

Anything to add to that, Chris? I'll add a related conjecture of mine, which is, again, not proven, but something I want to try to follow here. And that's early retirements. So my conjecture is that you have folks who are later stage in their career, right? And they're just behind the curve in terms of AI. I don't want to really invest in acquiring those skills and competing with the young whippersnappers. So they may hang their shingle up early. Right? And so you could see some labor market effects as a result of that. So that's a that's a parallel to what we saw with the construction industry during the or after the global financial crisis. You remember we had this big building boom beforehand. And then with the crash in construction, you had a lot of older construction workers who decided just to exit rather than try to retain, retrain themselves. So that's my. I don't know how big of effect that would be. I don't know that it's that large, but I think it's in certain industry that you put it.

it could have an effect. That resonates with me, particularly if you look at participation rates, because the participation rate has fallen very sharply over the past year, and it's all older workers, right, 55 plus. So that's very, very consistent with that data. Yeah. Very good. So that was a great question.

I think I've got to go to this other webinar. So I think we're going to have to call this a podcast. Anything else before we say goodbye to folks? I mean, obviously we're going to be in San Diego at the summit. May 6th is Economics Day. I hope you can join us there. Please do. Anything else, guys, before we call it a podcast?

No. Nothing for me. Stay tuned. Great. Well, thanks, Matt. Thanks for joining us. Absolutely. Your impression of Marissa, you have to work on that.

Well, with that, dear listener, we are going to call it a podcast. Take care now.