Moody's Talks - Inside Economics - Baltimore Port Impacts

Episode Date: March 29, 2024

The Inside Economics team is joined by their Moody's Analytics colleagues, Mike Brisson and Steve Cochrane, to discuss the economic fallout from the tragic collapse of the Francis Scott Key Bridge and the subsequent closure of the Port of Baltimore.  Mark Zandi kicks off the show with a rundown of the latest economic data and a healthy debate on the state of household finances ensues.  The statistics game proves challenging even with Marisa providing an important hint.Follow Mark Zandi @MarkZandi, Cris deRitis @MiddleWayEcon, and Marisa DiNatale on LinkedIn for additional insight. 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 a few of my colleagues. We've got Marissa D. Natale, Chris Doridis, to my two trusted co-host. Hi, guys. Hi, Mark. Good to see you both. And we've got Steve Cochran and Mike Brisson. Steve, how are you?

Hey, Mark. Doing great. Thanks. And podcast listeners know the two of you because you've been on before, haven't you? You've been on before. Yeah. And, Mike, you've been on a number of times before. Yes, I have.

Yeah, you and your buddy Jonathan Smoke over at Cox. Cox Automotive, yeah, right. Yeah, it's good to have you guys both on you. And we're going to talk about the tragic events in Baltimore, the collapse of the key bridge and the implications that might have for the economy. And Steve, we asked, obviously, Mike, your key to that because the vehicle industry is seemingly most threatened by, what's happened there. And then because it's, Baltimore Port's such a large port for entry for imported vehicles. And Steve, we were hoping you could kind of give us some broader context, you know, in terms of what's going on globally in terms of supply chains and anything else we should be worried about. But before we go there, I thought maybe we should just spend some time on the economic data that was released this week. And we did get a lot of data here at the end of the week, GDP on Thursday, and then personal income, consumer spending, some information on inflation here on Friday. So, Chris, do you want to just give us a sense of the data? It's not earth

shattering in any sense, but just to be complete. What did the data say? Yeah, I'd say the data is, well, going according to script. The Q4 GDP number was still quite strong. And you guys notice he's turned into me. I'm just saying. Now, he's taking my, my turn of phrase. And I'm not, I'm not sure how I feel about that. He's taking the deputy chief economist job. I take it very seriously. He's taking it seriously. Okay. So the economy is sticking to strip. Go ahead. Thinking the script, a fourth quarter GDP, 3.4% that's slower than the amazing third quarter, but still a very solid number, very quick pace of growth. Consumption, so consumers really driving the bus still when it comes to the overall economy.

So 2.2% growth in that fourth quarter on an analyzed basis still very solid, perhaps even a bit stronger than consensus had originally anticipated. So consumers are hanging in there and continuing to support the economy in a major way. So, yeah, at least as of the fourth quarter, things were continuing to grow at a healthy clip. Yeah, we got the monthly, though, consumer spending data right through the month of February of this year. And that, that was good, right? I mean, year over year, real consumer spending growth, I think, speaking from memory, but 2.3% is-ish. So here's another Zandhi is right down the strike zone, right, Chris? Are you going to take that from me, too?

No, no, no, I'll let you have that one. Right, right. I mean, you know, that's strong enough to power the economy, move it forward, but not so strong that it fans inflationary inflation and concerns about bed policy, right? So it feels like couldn't ask for better than that. I mean, I guess we got there with the decline in the saving rate, but how, you know, we got down to 3.6% on the saving rate. Any concerns about that?

Always concerns. I guess now there's this theory of permanent revenge spending, right? That we're not really seeing- I haven't heard that. We're not seeing the dip. We're not- right. Consumers are plowing ahead to supporting the economy, which is great, but they are dipping into savings.

They are using more credit, right? Are we setting ourselves up to run out of gas at some point and the consumption is just going to drop off? I guess that's what the bears would say here that this can't continue. It's just too strong. Are you a bit, you're not a bear anymore, though. Are you still a bear? I've always been a centrist bear.

Centrist bear. No, I'm not in the full bear cap. I don't see recession on the horizon here, but I do worry about the dip in savings and the use of credit, you know. You know, I don't worry at all. I don't, I don't worry one iota. Not a, not a, not a, what is it? What is it, is Iota a word?

I don't know. It is a word, Iota. Does anyone know what it means? Very small word. Small word. Iota. That's another zandism, by the way. I don't, I'm not worried about it.

Oh, now you're just pulling words out of the dictionary. You can't take credit. I'm going to trademark that. Yeah. Yeah. Not an Iota. You know why? Because I think the saving rates down because wealth is up.

I mean, stock market is rip-roaring. I mean, you know, the household net worth is just going skyward. And also house prices, right? House prices mean, stock prices are up, I think they're up 60% from the pandemic, over the past four years up 60%. And house prices are up 50%, 550. So, you know, household net worth has gone skyward. Now, I know only two-thirds of households on their own home and a little over half,

probably less than that own stock of any consequence. Exactly. But that's the consumer that drives the train, right? By the way, that's another zandiism right there drives the train. Okay, I'll stick with the bus. Someone ought to write this down. I'm sticking with the bus. They drive the bus.

Okay, right. Am I wrong about that? The wealth effect says, look, if the population is wealthier, then people feel more confident and they don't need to save as much because they typically save for retirement and, you know, a rainy day or their child's education. and if they've been able to do that because of the run-up in asset prices, then they're going to save less, all else being equal. And that's what we're observing, you know, dead on. In fact, I would go so far to say this is a key difference between the U.S. economy and almost maybe every other economy on the planet.

And that is wealth here has risen so much that it is supported the drawdown of excess saving. So everywhere in the world, correct me from wrong, Steve, but everywhere in the world during the pandemic, excess saving built up, in part because of government support, but mostly because people couldn't spend. And everywhere else in the world, no one's spending down that excess saving. Saving rates are still high. Only place that's happening, I think maybe Australia might be the other place here in Australia. Correct me from, I'm going to stop. Australia looks a lot like the U.S. Yeah, yeah.

Yeah, they behave a very similar way. It's the wealth effect, right? So should we be concerned about that? I guess you can be concerned about the valuations in the stock market and the housing market. Chris, right? No? You can be concerned about the valuations. You can also be concerned about that bottom half of households, right?

Okay. They're not driving the bus when it comes to consumption. You're right. But they're in the bus, though. They're in the bus. They're in the bus. But they're kind of at the back of the bus, right there. Okay.

They're piling on the debt. No, that, see, I don't even buy. Marissa, do you want to take umbrage with that? Another Zandhi is. No, I mean, I was going to say something similar that I think a lot of the rise in credit usage has probably been among lower income households and middle lower income households that have drawn down excess saving. And they don't have the same wealth effect, right?

They're not, they're less likely to be homeowners. They're less likely to be invested in the stock market. And they're the ones that are tapping credit. And we've seen credit delinquency rates for a number of lines of credit rise above where they were prior to the pandemic. And I think it's those households. Now, now that said, as I've said before, I don't think that's an existential threat to the economy. So I'm not worried about it in terms of the overall economy.

But I do think that there's some concern at that lower end where it's less likely to be the wealth effect. It's more likely to be spending and borrowing out of necessity. Okay, agreed in a sense. Okay. Top third of the income distribution, I would argue their finances has never been as good as they are today. Ever, ever, ever as good. One third. No argument there.

Top third of the distribution account for, according to our data, two thirds of the spending. Just kind of a heuristic, a roll of thumb. Middle third of the distribution, I'd say they're in pretty good financial shape. Yeah, maybe it would be hyperbole to say best ever, but it's pretty darn good. Everyone's employed. Wage growth is stronger than inflation. There is some excess saving.

They own their own home. They own a home, so they've benefited from the run-up and housing values. They probably own some stocks, so they've benefited from that. They haven't been borrowing. Their debt service is low. It hasn't budged. So I say they're kind of sort of perfectly fine. Bottom third, yeah, a lot of stress.

They blew through the excess saving. They got through government support early on when inflation took off beginning in late 2021. And the high inflation did a number on those groups. They did turn to debt to help supplement their income credit card. and consumer finance loans, that kind of thing. But that's history. That's history.

If you look at the current point in time, debt growth has fallen off quite considerably. I mean, consumer finance outstandings are flat to down, I think, right? Now, cards are still rising, but a much slower rate, and part of that's got to be high-income households spending more on their cards, right? It's just that because that card debt reflects not only people who are evolving, you know, borrowing against the car, but also reflects people that are transacting.

And if they're transacting at a greater level, which they definitely are, spending is up, then that's going to show up as well. And delinquency rates, if you look at delinquency rates on a seasonally adjusted basis, they feel like they've peaked. They've leveled off. And now with the tightening and underwriting centers

since last year's banking crisis, I would expect to see some improvement there. So bottom third of the distribution, yeah, a lot of stress, but it's not like they're not spending. They are in the game. they're in the game. And most fundamentally, their wage growth is still meaningfully stronger than the rate of inflation. So, you know. But Mark, can I jump into this, Mark? Absolutely. On that lower income. Only if you disagree with me. If you agree with that I do

disagree with you. So don't you think. I'm loaded for bear. I'm loaded on the lower income side, don't you think that they're so busy now trying to pay back that credit card debt that they're neither putting money into savings or spending an ordinate amount. No, they're saving rates negative. I know that we calculate that. That saving rates, they've borrowed more than their income to supplement their income. And they are paying more. But they are spending.

I think. Yeah, I mean. But here's the other factoid heuristic. The bottom third of the distribution accounts for 10% of the spending. Yeah. 10%. Right. Look, I'm not arguing that they're not under stress.

and that the economy can flourish if the bottom third is struggling. I think this is a problem. Don't get me wrong. But I do think the U.S. economy can power forward, you know, with the top third and the middle third, you know, just kind of doing their thing, which they appear to be doing. No? No, good enough. From the macro point of view, yeah. Here's the other thing I'll throw into the mix.

Once the Fed starts easing interest rates, which we anticipate, you know, obviously things can go. in lots of different directions, but we anticipate, and it's widely anticipated to discard cutting rates, that immediately lowers the debt service burden for those low-income households, right? Because you immediately see that in lower credit card rates. You see that in consumer finance loans coming in, even to some degree auto loans because they're kind of mid-mid, they're like three, five, seven-year maturity. So you might see some some relief there as well. But no, Chris, you don't buy it at all. Come on. A quarter point, right? If you're paying No, quarter point is quarter.

$0.50 on your credit card bill. Yeah. Yeah. That's not going to really move the needle, right? Yeah, but it moves it in the right direction. It moves in the right direction. Yeah. Yeah.

But that's a, you know, we're also in a perfect labor market economy here, right? So if they're cutting, they're worried about the labor market as well. We're seeing some cracks in that labor market. I think there's, again, I'm with you on the no recession. I think, yes, for all the reasons you gave, things are moving in the right direction, but there are cracks in the pavement. Oh, yeah, okay. All right.

Tracks in the pavement. Now, that's a Derridi's comment. I never said cracks in the pavement. Yeah, that's definitely new. All right. It's new to the nomenclature. Add into this. Now I'm going to steal it.

cracks in the pavement. Hey, Mike, you've been listening to this. Any comments? Well, from the auto side of things, we know that the new vehicle sales has. happen with the top third of the distribution. So not concerned there in terms of new vehicle sales. And we know that the top third is going to be spending the money towards on the auto side of things.

So I'm thinking that it's not anything to worry about on our side. We're seeing people drive. We're seeing people out there. So demands there. And then the decrease in the interest rates is going to help the auto sales as well. So from my side of the buck, it's smooth sailing right now. Got it. Chris, you hear that, Marissa?

He's on my side. He's not on your side. Subprime auto, you're not worried? Subprime auto is the only risk score band that's decreased in delinquency levels over the past six months. So subprime is moving in the right direction if you're going to look at any of the risk score bands. But still elevated, right? Oh, very elevated. 60% above where it was in 2019.

but so is almost every other risk square band right now. But it's moving the right direction. We've had two and a half years now of tightening credit standards and subprime gets hit first there. So they're the first ones to start to see that decrease and delinquency rates. Here's the other thing in the day, and we'll move on after this,

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

is really critical to the stock market, you know, obviously to ensure that the stock market doesn't correct going back to my point about the wealth effects. But it's also very important to business investment in hiring. I mean, if businesses are making money, much more likely they're going to be out there investing in new equipment and software and structures and everything else, and much less likely that they'll start laying off workers. So that was the other thing I took a great deal of Solis. Any comments there, guys, on the corporate profitability? Chris, Marissa? No. Okay. No. All right. Okay, very good. Still no, still no mass, still no signs of layoffs in the jobless claims. No, right? Nothing.

Yeah. Someone keeps telling me to look at the Warren notices. I have not had a chance to do that. Warren notices are by law. I can't remember what the size of the layoffs are. If they're over a certain size, the company has to provide warning to the public via the Bureau of Labor Statistics. Do you guys, Merceda, have you been looking at that at all?

I don't regularly look at it. Sometimes I look at it to look up a specific company. When I see a headline in the news, I look at the warn notice to see what the size of the layoff is and where it's going to be, but I don't, because it is by company. You know, if Google says we're laying off 10,000 people, you can look at the warrant notice and see, yeah. Yeah.

Did you take a look at that for next week? Yeah. I'm just curious. Okay. Very, very curious. Because a couple people have mentioned that to me, that they're up a lot relative to UI claims. And we've talked about some of the, you've talked about some of the measurement issues with

UI claims that, you know, might be playing a role. But let's take a look at that. Okay. let's turn to events in Baltimore, and consider the macro or let's just say economic implications because, you know, obviously could have regional implications on the

economy in Baltimore, but also on the macro. And Steve, let me turn to you. What do you think? How big a deal is this? Yeah, Mark, I don't think it's that big of a deal. And we've talked about Baltimore being such an important port for auto imports. And when you look at who ships through Baltimore and through all of the East Coast ports,

Germany and Japan are the biggest users of those ports. Japan, the biggest, Germany the second biggest. But they use all of four of the ports that have the so-called roll-on-roll-off facilities to get cars in and out of the ships very, very. quickly. So I think the key thing is that they're these big shippers, they have distribution and management facilities in all four of the ports. These are in aside from Baltimore, it's Brunswick, Georgia, Newark, New Jersey, and Jacksonville, Florida. So as long as there's capacity, there's going to be no problem really in shifting the direction of shipment through these other

ports. And indeed, I read this morning that BMWs, some of the other German automakers are already making those moves. So I don't think it is a big deal. There might be some very initial disruptions of supply, but not long. And Mike can chime in on this, but I think inventories of autos in the U.S. are pretty good right now, so they can withstand a short amount of distribution disruption. So from that point of view, I don't really see anything to worry about from a macro point of view for the economy in terms of this big piece of the shipping that goes into the U.S. from these four ports. So the key channel through which this tragic disaster would impact the broader economy is through

the impact on the port. I mean, obviously the bridge is down and that's going to affect commuting patterns and add to costs and commute times and affect the, I'm sure, the Baltimore economy. but in terms of what it means for the broader national economies, everything runs through the port. And what you're saying is that there's workarounds here. There are workarounds in the near term to use other ports. And then I don't know how long it's going to take to clear the port of the debris from the bridge. I can only guess that the federal government is going to do everything they absolutely can

to assist the state and get that debris cleared out quickly. I don't know what the technical difficulties are. But it sounds like weeks. I mean, based on what I'm reading, and the money's pouring in. I mean, yeah, exactly. I mean, the federal government has the money to the Army Corps of Engineers and other, you know, emergency funds are already being used to clear the port. And they may just open up a channel, a small channel to get. That might be all takes, right.

After that, it's an election year, you know, the federal government's going to do everything they can to say, look, we're with you, right? And so I think I would agree with you. It's weeks, not months. Hey, Mike, the auto industry, vehicle industry, that's the, I mean, ostensibly, the industry that would get hit hardest because Baltimore is the largest port of entry, I believe, for imported vehicles. What do you think? How big a deal is this? Quick, just to put a book on what you were saying before. The nearest comparison is that Suez Canal, where the shipping container got stuck there.

Right. And that took five weeks and it didn't have the full resources of the U.S. government coming in. The U.S. government's working 24-7 to get this removed. So I'm saying that would be the highest possible duration that it would take would be five weeks. So then going specifically off of that. So let's just assume a month. And you're referring to that event where that tanker got turned sideways in the Evergrands? Yeah, yeah.

And they had to un-lodge it. Yes, right. Okay. It went sideways. And it's a lot smaller area that they're working with there, too, compared with the river. So from the vehicle perspective, I think Steve said it best where there's workarounds. I know Nissan and Ford have already come out and set out. We've already redirected all of the traffic to other ports.

And we're not expecting any sort of issue. Steve also alluded to the increased inventories. Inventories, as reported by Cox Automotive, they're up to $2.7 million. vehicles and lots across the country. That's over 50% higher than last year at the same time. They estimate it's 76 days supply, which is much higher than it was last year. And that's even given the elevated sales rate that we have over the last four to five months where sales are 15.8 million in February. So everything points to the vehicle industry not being impacted because of the lost vehicles coming in and out. They'll go to different ports. The port of Baltimore brought in

850,000 vehicles last year, so it's about 70,000 per month. So even if we took 70,000 off inventories for one month, well, and that's the upper end of how long it takes to get the port open, that still wouldn't have a material impact on the new vehicle sales numbers on the new vehicle prices, it's not going to raise prices or the subsequent movement of used vehicle prices, which are the substitute good. So I'm not seeing anything in our traditional macro indicators that would be impacted by the current closure of the port. Okay. So just to reiterate, bottom line, you don't see any meaningful impact on the vehicle industry. Not to the macro vehicle indicators. I mean, if you're looking in a dealership in Baltimore, there's going to be

some really local marginal issues. So if you're looking for a Mazda or something, that's someone that has high exposure in Baltimore, and then they have extra traffic coming in and out, and you have shut down arteries within the local area. There might be some very, very localized issues, but nothing that's going to be distributed across the wider economy. You just can go back to the UAW strike.

We lost 138,000 vehicles from production from those 40 days, and we didn't see anything in terms of all, the macro indicators just from that. That was lost production, not even lost imports. Okay. Good point. Good point. So, Steve, the other product I've heard might have been, be an issue as coal.

I guess a lot of U.S. coal, I don't know if it's a lot, but Baltimore report is a, where a lot of coal exports leave from to the rest of the world. big deal, not a big deal? Not a big deal. Not a big deal. The way to think about it, in terms of rising costs, if there's a loss of supply, well, I mean, over the last six months shipping costs have already doubled between the U.S. and Asia. This puts a marginal change on that. It's not going to be really significant.

and the economies are adjusting to that rise in shipping costs. This is due a lot to the troubles in the Red Sea. Second, kind of like cars, coal inventories are ample around the world. So there's no real issue in terms of having to get coal right now. Third, coal is kind of a, I don't know if this is the right word, kind of a nimble resource in that there are many, many sources for it. And there's a very good example about this, and that is where China sources its coal from. So both China and India, which are the countries that are, I think, of most concerned,

they both have a high demand for coal. There's still big coal users, and they have to import it. Most years, they get about half of their coal from Australia. India gets a very small share from the U.S., as does China. But in 2021, China stopped trading, China stopped trading with Australia because of a trade dispute, wine, agricultural commodities, coal. They didn't buy anything from Australia for really about two years. They're just coming back to buy wine. That's the first thing they're coming back to get from Australia, right?

now, then the rest of it will follow. But in that one year, instead of getting about 1% of their coal from the U.S., they got 10% of their coal from the U.S., and they also upped their purchases from Canada, from Indonesia, and from Mongolia, and there are other sources of coal as well. That was in one year. So it just shows how nimble, at least China, could be in terms of shifting its sourcing of coal very, very quickly. So ample inventories right now, if inventories begin to come down, and this is we're getting into the summer months. So coal demand, we're kind of a low part of the annual cycle for coal demand.

I just don't see enough of an issue here to be too worried about. Yeah, I have to tell you, I was surprised we export coal at all. I mean, that just feels like a kind of a, I just was surprised. It kind of feels like low value added, high shipping costs. Why would you, why would you get it from the, I know the U.S. has lots of coal, but I guess, I guess it's cheap enough to make some sense. It is cheap enough. We still get a lot of coal coming out of the Kentucky coal mines. And Baltimore is the port that's probably closest to that source.

So much of it goes out of Baltimore. And then, I mean, we do have to remember a lot of countries still use a lot of. of coal in terms of electric generation and heating and China and India are two great examples. They're both working towards diversifying energy sources, but there's going to be no, there will be demand for coal for quite some time to come from those two big economies. So vehicle imports, coal exports, any other major product coming in and out of Baltimore that might be an issue that you know? You know, everything else seems to be rather diversified.

You know, there is container traffic coming out of there, and indeed, the Dolly ship was a container ship, but, you know, a variety of goods that go into those containers. Okay. Two other quick things. One, since I have you thinking about global supply chains, what's going on over in the Red Sea? I mean, it feels like that's kind of fallen off the front pages here with good reason, is is traffic moving through or or not? Do you know? And have shipping rates come in or not? So shipping rates have not have not come in. And I think there's still a risk premium on those shipping rates given that there is still some fighting, if you will, some attacks going on in the Red Sea.

But they do seem to have diminished. And the Houthis have promised that they will not attack Chinese ships or Russian ships. the Chinese ships, of course, that's important for the shipping between Europe and China. So there is a little bit of relief on that score. But I don't think we're over it yet. There's no broad overall agreement in place at all regarding the Red Sea. Okay. And the final question, any other flashpoints in the global supply chains?

Anything out there that's worrying you? I mean, they've been obviously kind of front and center here since the pandemic. Anything else that we should be worried about on the radar screen? You know, I still worry about the South China Sea. I have to say, you know, they've had some, I want to say very serious. I don't know, maybe that's too much conflicts between China and the Philippines around the shoals that are in Philippine waters, but the China claims. And if you look at the videos,

I mean, the Chinese Coast Guard is attacking, if you will, the Philippine ships with water cannon and creating a ton of damage on these ships that are not really high-quality ships. They're just supply boats going to supply the Philippine sailors that are stationed on these shoals. And so I worry about that. It's still small, but it,

it's active and it also illustrates how extensive the Chinese claims are to that entire South China Sea. You know, they got that dotted line they draw on the map that basically includes the entire South China Sea. A little bit of conflict with Vietnam, but nothing to the extent that we see with the Philippines right now. So, you know, I've always got that on the backup. Yeah, that's good to keep on the radar screen.

Yeah, that's an important one. Okay, we're going to keep this podcast short. So let's turn to the game, the stats game. We just prefer to stat. The rest of the group tries to figure that out with questions, deductive reasoning, clues. And the best stat is one that's not so easy. We get it immediately. One that's not so hard we never get it.

And if it's apropos to the topic at hand, all the better. And we always start with Marissa. Marissa, what's your stat? My stat is 3.4% in February. So it was in the personal income spending report? Yeah, it's adjacent. It's adjacent. It's adjacent.

It was in the government statistics that came out this morning. It was, yeah. Personal income spending report. No. Did it come out this morning? Yeah. I know everything gets blurry out there on the West Coast. You're like an attack.

Yeah, sorry. Yeah. Yes, it did come out this morning. Okay. Well, it's not the saving rate because that's 3.6%. Is it inflation number? Yes. So is it the, I don't know, the monthly core PCE annualized?

No, but you're on the right track. Okay, the three-month moving average annualized core PCE. No. It's the consumer expenditure deflator, though. Yes, and I'll give you another hint. Is it a rising gas prices? What was that, Mike? Rise and gas prices?

No. I'll give you another hint. Okay, that was 3.4. It's similar to, if you remember the statistic I gave last week. Oh, geez. It's basically the same statistic. I don't have any idea. Talk about time warp.

A week ago, are you kidding me? Oh, geez. That's like asking me what I had for dinner last Friday night. I mean, really? I can't, I don't have no idea. Chris, what do you think? No idea. Is it, is it like a market-based core PCE deflator, annualized?

Something like that. It's some component of the consumer expenditure deflator. It is. Oh, it is. Oh, it is. Yeah. Yeah. And is it annualized?

No. This is year-over-year growth. Year-over-year growth. So some component of PCE year-over-year growth. Some, you know, some calculation within the PCE report that we can also do in the CPI report that we look at. Oh, is it super core? Yes, it is. Supercore.

So it's super core inflation from the PCE report. Last week, my statistic was super core inflation from the CPI report. Yes. And I picked this because they're very different. So SuperCore from the CPI report in February was 4.5% year over year, and it's been on the rise for the past several months. It's been inching higher. From the PCE report, it's 3.4%. It's actually been falling.

So these two things have diverged quite a bit in the last few months. We've talked a lot about the differences in the two because of the shelter component, right? Shelters almost double the weight in the CPI. as it is in the PCE. But this is even taking out shelter, just looking at core services, excluding shelter and energy. These two things are moving in opposite directions.

The Fed looks at PCE. They prefer the PCE over the CPI. So I think this, again, bodes better for a rate cut in the first half of the year than in the second half of the year. You know, I don't, I hate the super core, you know, particularly for the PCE, because it's based on all these imputed prices.

I think a big part of that is financial services, right? The way they measure that is it tie it back to stock prices. So when stock prices are up, the cost of financial services is up, therefore supercorer is up. And that's driving it now. So I don't know. If you look at market-based core consumer expenditure deflators, the Fed looks at core consumer expenditure flater, I would say, let's look at market-based. up 0.2% in the month.

It's still a bit elevated year over year. I think it's 2.7, 2, 6, something like that. So it has to be 2. But, you know, I don't know. It feels like another zandism. Yeah, core PCE over the, course, core, just core PCE was up 2.8% here over year. Yeah.

Yeah, it was up 0.3% month over month. Right. Okay. Pris, did you, I saw you shaking your head. Do you agree with me? Yeah. Yeah. Oh.

Darn, I thought you would disagree with me. No, not this time. Not that. I know other things to disagree about. Yeah, okay, fair enough. Hey, Mike, you're up. What's your stat? 10.5 million.

That's got something you would vehicle, autos. Does have to do with autos, yes. All right. Units? Sales. Sales of something? Oh, production. It's production.

U.S. production. Two pet 10.5 million. There it is. Guys, Steve, no, come on. This is how it's done. This is how it's done. Because I have a mind melt with Mike now. Yeah.

All right. Go ahead and explain. So 10.5 million. It's what the last month's reading came out March 15th. It's the average for the last six months of 2020 as well. In 2019, the number was 10.6 million. So we are on a consistent path. is as high as it's going.

Productions all the way back. Production's been back in the U.S. for vehicles. That's why we see inventories where they are. That's why we're not really concerned about the loss of the imports right now because production is back in the U.S. Production around the world is pretty much back to. Germany is about 7% below where they were in 2019. Japan's about in the same place.

And China's up 35% from where they were in 2019 as they continue to gobble up market share around the globe. And in Japan, German production could be down because the market shares down vis-a-vis China, right? Yes. Yeah. Okay. Okay. Well, that was a good one.

So we're back to normal on the global vehicle production. We're back to normal. Global demand is this is right where it should be. So we need new vehicle prices and start declining so we can get, you know, my insurance bill down. I got a whole thing about my insurance bill. I got to tell you about it. Average transaction prices down 6% from the peak. in 2022 as of February's last reading.

So is that going to show up in the CPI here pretty soon? That's what we're forecasting. Yeah, okay. I'm waiting, Mark, your bill's not going to go down. Actually, I highly recommend everyone call their insurance company. Oh, really. Negotiate, yes. And the way you do it is you say I'm going to cancel.

As soon as you say, I'm going to cancel, you get someone on the line. And once you get someone on the line, they're helpful. They're good. They want to help you. And I actually, I won't tell you the numbers, but they were meaning, I felt good about that conversation after I got off the phone. Even though I'm still paying a lot more, I felt good. We went through the same thing, Mark. Right?

Yeah. Exact same thing. My gosh. Anyway, Steve, you're up. All right. First of all, I don't quite know. First of all, you're up. No, no.

No, no. I don't quite know the rules. I need to rule. What the heck are you talking about? You don't know the rules. Can I have two numbers? Yes. You can have.

Yes. Oh, okay. Wonderful. Okay. Hopefully they're related, though. They are related. They are the same indicator, but they come from two different countries. Ah.

Well, you gave us more than you should have, but go ahead. Maybe so. So the numbers are 4.8 and minus 0.1. Percent? Percent, yes. Is inflation? Inflation, yeah. Yeah, it's not inflation.

Is it related to topic at hand? You know, supply chains, shipping? It is, in a sense, yes. Oh, I know what it is. I know what it is. You guys are going to be very impressed when I tell you what this is. I'm sure we will be. Yes, you are.

Very, very impressed. And I want you to. We already are. Preemptively impressed. In anticipation of this. Is it global trading and global industrial production? It is not. No.

Oh. Oh. You know what? Those numbers are really similar. Right. Very. Oh, darn. Are they trade numbers, Steve?

Not directly. Hmm. Correctly. Are they two different countries you said. Oh, yeah. You gave us that hint. Yeah, yeah. I didn't even listen to the hint.

Is one of the countries, is one of the countries China? No. Oh. Sorry. Is it an Asian country? Is one in the U.S.? No, I'm an Asia guy, right? They're both in Asia.

They're both Asian. You're not going to like say Myanmar and Sri Lanka, are you? Well, could be, but I don't even know those. Okay, what's the capital of Sri Lanka? Quick. Tell me. Colombo?

Okay, very good. Your five years in Asia was one. You're hired. You're hired. Wait, well, you're getting off track here now. Oh, sorry. Focus, focus, focus. I'm getting a little punchy.

Yeah. China is China one? No, I just asked that. We just asked that. Okay, I got to pay attention. Yeah. Yeah. See, yeah, Mercia got annoyed.

I've never seen her annoyed. She was actually annoyed. Yeah. First time ever. That's how you get this along. So China is geographically close. I'll give you that. Taiwan?

South Korea. No. Korea is one. All right. Chip, chip exports, semiconductor exports. Exports from Korea is up, more point eight because chips are up. He said it's not exports. Oh, so it was not exports.

He said it wasn't directly a trade number. These numbers came out Friday, Asia time. I think we, I say we give up. What do you go? Unless you can give us another. No, no, like the game. Okay. All right.

Is it North Korea up? North Korea. North Korea. Oh, Mark. North Korea is minus one. If I had any data from North Korea, I'd have a guy. So the two countries are Korea and Japan. The indicator is industrial production percent change month on month in February.

Now, can you guess which one is 4.8 and which one is minus 0.1? It's got to be Korea. Japan is minus 0.1. Japan is minus 1. Japan is minus 0.1. That's right. And Korea is up 4.8. Korea has had positive good numbers for the past seven months.

And Japan has just been flat, you know, negative one month, positive, negative positive. And so the way I relate this to the supply chain or the disruption of shipping. Yeah, try to do that, Steve. I'm waiting to hear how you do that. If indeed there was a greater disruption in terms of shipping of industrial commodities or cars from Korea and Japan, to the U.S. It would hurt the Japanese economy more because it's just on that edge of what you might call recession, whereas Korea has a much more robust industrial sector.

That's good. That was good. Marissa should have known that, you know. She's close. She's out in California. Okay. Let's do one more. Chris, what's your stat?

All right. I'm going to give you a fun one to liven this up a little bit. I thought we were having fun, no? Well, you know. Okay. Well, this is really off topic. It's on topic. It's definitely related to the Baltimore. Okay.

It's away, I think. All right. Six million pounds per day. And it's related to the Baltimore port. Yes. Fertilizer that comes into the Baltimore port. No, but interestingly enough, that Baltimore is the largest. I know.

Exporter on the East Coast. A fertilizer? A urea nitrate fertilizer. Oh, I didn't know that. Okay. Okay, that's interesting. But that's not what you had in mind. No.

But it is some commodity or product that moves to support. Yes. It comes in or goes out? It's sugar. Or moves either sugar. You got it, Steve. Yes. Six million pounds per day are processed by the domino sugar.

Oh, yeah. Right. I read about that. So coal is the largest export and sugar is the largest import into Baltimore. That was a sweet statistic. Thank you. Oh, my. Very good.

Yeah. And we're having fun. There you go. And we're having fun. That's how economists have fun. Yeah. We enjoyed that one. Okay.

I think we should call this a podcast. What do you guys think? No? You want to keep going? We can keep doing this all day. It's been a lot of fun. So let's have a lot of fun. Hold on to that.

Okay. Very good. Anything else anybody wants to say before we actually call it a podcast? Okay. All right. What's on next week? Employment, right? Employment and report.

And we got Dante, I assume Dante, I haven't even asked Dante. I'm just assuming Dante's coming to that. So it should be good. Another big economic stat. And by the way, I had a really good stat, but I didn't tell you. Oh, let's have it. Come on. You sure?

you really want to? Why not? Okay. Mike was ready to go to lunch, you know? So, okay, here you go. You got it. 0.5 and 2.5. Inflation related?

DCE. Not inflation related. Spending? Not spending. GDP report? GDP report? Not income, but it's the GDP report. 2.5.

Focus on the 2.5. first. What's 2.5? Is that year over year? That's year over year GDP. Yeah, real GDP growth in calendar, 2022, it was 2.5. So what's the 0.5? Related.

I go here often. It came out with this release, right? GDI often. GDI gross domestic income. Yeah, real GDI gross domestic income is up 0.5 in the year. So that, you know, that's a big gap, right? So they're both measures of the economy's output. GDP is on the expenditure, so-called expenditure side of the account, GDI is on the income side of the account.

So what we produce, we buy, and then we generate income based on that. So they should all add up. But they're based on different source data and different ways of measuring things. And they can diverge. And last year they diverged a lot, 2.5 and 0.5. And kind of the rule of thumb is to get a sense of reality, you average the two. So 2.5 plus 0.5 is three, divide by two. That's 1.5.

It feels like it was a better year than 1.5, doesn't it? But that's the rule of thumb. But it does indicate that the economy is maybe not as strong as the GDP number would suggest. You know, maybe it's a little bit softer than that. But anyway. Most consumers are really struggling at the bottom, right? There you go. Yeah, yeah, where we started.

Okay, I think we're going to call this a podcast, dear listener. Thanks for tuning in, and we'll talk to you next week. Take care now.