Moody's Talks - Inside Economics - Confidence and Consumer Spending Momentum

Episode Date: July 9, 2021

Wayne Best, Chief Economist of Visa, joins Mark Zandi and the Moody's Analytics team to discuss the labor market, housing, and Visa's spending momentum index.  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 Zandi, the chief economist of Moody's Analytics, and we took a couple week vacation. Everyone went away for 4th of July. I'm joined by my two colleagues. Chris DeReedy's, the deputy chief economist of Moody's analytics. Chris waived. I know you guys can't see that, but he waved. By the way, you will soon be able to see this. We are resuming this, and we are going to start recording the video. So I think with next week, we'll, we'll see that. we'll have a video with this audio. So then you'll be able to see Chris's red shirts, his typical red shirts that he wears. I have a question about that. When we start doing video, are we going to have a dress code? Absolutely not.

Okay, just making sure. Yeah, no dress cut for me. Perfect. You're lucky I have this T-shirt on here. Very lucky. And that, of course, is the voice of Ryan Sweet. Ryan is the director of real-time economics. How can I forget that?

Actually, I didn't forget that. He is a maven at getting the economic statistics, right? And we have a special guest. We are joined today by Wayne Best. Wayne is the chief economist of Visa. Wayne is also waiving. Wayne and I go way back. Wayne, you seem to remember everything.

I can remember nothing. Do you actually remember the first time we met? Do you have any memory of that? Yeah, we actually started our relationship with you, Visa did, back in 1993, a long time in coming when I was just starting to form an economics group at the company. And you were one of the first companies that we used for our economic forecasts at the time. So yeah, it's all the way back to 93. See, I knew he would remember that.

Well, if it's 93, we started to company myself, Carl, my brother, and Paul Gettman in 1990, January 1990. So you have to be at the very close to the very top of the family tree, Wayne. So thank you for all your support over the years. And you want to tell us a little bit about your background? You have a very different kind of background, at least as far as economists go. So curious to hear how you describe your background. How did you get to be chief economist of Visa? So, yeah, my background is quite varied.

I started with education, Bachelor of Science, and Nuclear Engineering, and actually worked in the nuclear engineering field from Arizona State, worked in the nuclear engineering field for about 10 years or so, doing cost-benefit analysis, emergency planning, a lot of things related to a three-mile island at the time, et cetera, that had just happened. and got an MBA along the way and again doing more cost-benefit analysis for the power industry as a consultant. And then in 1990, I ended up joining Visa and was doing cost-benefit analysis now for the financial services industry.

Got heavily involved with cost studies, understanding the cost and benefit dynamics of card programs, credit and debit card programs and the acquiring side of the business. and was also responsible for forecasting revenue for the company, and all of a sudden, we had a recession back in the early 90s, and our growth rates then were quite robust early on, obviously, with the card industry, and I suggested we should have an economics group. So I ended up working under an economist for a few years, learning the trade, and continued that process up until becoming the chief economist. One of the niches that I had, was being able to talk to business people. You know, obviously we have economists that are academic economists and business economists,

and I fit more in the business economist aspect. So we've been meeting with clients throughout the United States and around the world for, geez, a number of years now. I've been holding this position for over 20 years. Yeah, very cool. You know, we've done a lot of projects over the years. Yes, we know. Yes, we know.

Yeah. I remember the, we're actually, we're updating one for you now on the payment system and economic growth. and have shown how important a well-functioning payment system, obviously VISA is key to a well-functioning payment system globally, is to growth in many parts of the world, particularly in emerging economies. It's really kind of critical. So very interesting work there.

Yeah, removing the friction, removing the friction from a transaction or from people conducting commerce enables additional growth. It's not like, you know, gargantuan in terms of its size, but every little bit helps in terms of increased employment, increased GDP, et cetera, et cetera. And yes, the studies that you did, I think, are still on our website. And we are updating that work. So very exciting around the world. I have a really good story about this.

So the first time we did this was, I don't know, when it was a long time ago, maybe a decade ago. And everyone was very excited about it, at Visa, including the CEO, who had, I can't remember, remember who that was. But anyway, you invited me to come to Vancouver for the Vancouver Winter Olympics. Do you remember this? Yes, that's right. And the CEO was very interested in the study and wanted to meet and talk about the study. So it was a great experience. One, you know, Vancouver. Oh, Wayne, were you with us when we went to the hockey game between Canada and the U.S.? the finals. Were you at that? No, somehow or another. I didn't get included with that particular but I remember you talking about it. Oh my gosh. Oh my gosh. We were we this is in Vancouver.

America versus Canada finals, winter Olympics. The game was tied at, uh, at the end of regulation. We go into overtime. There was one row of Americans, all visa folks and myself and my wife. My wife was there was with us. And we're the whole. like one's cheering for the Americans. I'll tell you what, I'm very happy the Canadians actually won that, that, that, that, that match because they, you know, it would have been devastating for, for them if they didn't win that. But it was, it was great.

We had a great deal for it. But anyway, the point was, I gave this talk to the CEO, and I guess there's a couple of their senior managers. And it all of a sudden had dawned on them that, that, yes, there was a very significant statistical positive relationship between the payment system and economic growth. But it was small. It wasn't like this, you know, game-changing event. As you pointed out, it's on, it's kind of on the margin, but it's important.

It really, you know, makes a difference over time. But once he figured that out, I think he was thinking, why did I invite this guy to Vancouver? I'm pretty sure. I was a lot of fun. Well, it's glad I'm very happy to have you, Wayne. Thank you. And we're obviously going to die. The big topic today is the American consumer.

And I know you've been doing a lot of work here and you put a new index together and we want to talk about that. come back to that. But as is tradition on the Inside Economics podcast, we begin with the economic statistics, and we each pick a statistic or two that we think is important to characterizing what's going on in the economy, the financial system. And I generally always begin with Ryan when we play this little game of statistics. So this time I'm going to start with Chris, just to mix it up a little bit. All right. So Chris, what's your statistic? I do have a question for Wayne. Okay, far away.

Oh, okay. Just based on the background, the question is, so is it easier to predict the atom or consumer behavior? Definitely the atom, because it's definitely, there's no rationality or irrationality associated with it. But, you know, consumer mood can affect a lot of things in terms of spending behavior, for sure. Great question.

All right, all right. All right, in terms of the statistic, it was actually the first statistic of the week. I'll give you a little hint. Main statistic that came out, 15.4%. 15.4%. Mark, you know this one. This has to be an overhanded softball for sure. Oh, overhanded softball.

15.4. You know, this week feels so long. And what was the first statistic? 15.4. Tuesday morning. Pardon me? Tuesday morning came out. Oh yeah, Tuesday morning.

10 a.m. You're not saying the business confidence index, are you? No, no. Which, by the way, it was 15.4%. I'm pretty sure it was. Yeah, that's what I thought it was. Yeah. Oh, yeah.

We have our own business confidence index, and I think it was 15.4%. Are you sure? You're not getting mixed up, Chris? No, I'm sure. I'm sure about this one. Okay. It was pretty shocking to be.

All right. 15.4% year over year. Oh, year over year. Are you going with the Joltz report? Is there something within there? No, no, no. No, no. No, this is year over year.

It's a core logic HBI. Oh. He always goes to. We should know this by now. He always goes with the housing. I wanted to go with something else, but this one just jumped out. that I had to highlight it, 15.4% year every year.

Any slowing yet? I mean, any sign? Because there's a lot of anecdotes or a lot of pieces. Yeah, a lot of anecdotes, not in the prices themselves. They just keep going up and actually. More and higher. And especially with the latest date of the tenure coming down, that's going to add to ability for mortgage rates to drop a little bit too.

That will probably add to it in terms of the fever. Absolutely. We'll come back to that in just a second, the tenure, because we always do. So we'll come back to that. The only negative is really sentiment. Home buyers in their surveys are getting more frustrated and reluctant. But so far, prices remain very robust.

It's not showing up any data yet. Yeah. I think, yeah, with Wayne's right, with mortgage rates going back down, that might power things up again. Okay, that was a good one. But I'm still sticking. I think it was the business, or the movies, analytics business confidence.

Right, Ryan? That's what I thought it was. He's moving the goalpost on us. Yeah, yeah, yeah. Of course, I look at that business confidence index rate. I write that every week. I look at that every week. Okay, so Ryan, what is your statistic?

3.604 million. Well, that's got to go to the joltz somehow. And we know it's not job openings because that's like $9 million plus. I don't think it's layoffs because that's like one in half to two million. Is that quits? 3.6 million? Chris got it. Yep.

Oh, did Chris get it? Yeah, he said it quickly. Oh, he said it quicker. Oh, yeah. See, I create drama. Why create drama, you know, when I do this? So it's down from roughly four million, but it's still higher than what we saw throughout most of the last expansion.

Hey, that reminds me. We didn't have a chance to talk about the employment report last week, the $850K gain in June. The one bit of a surprise in that report was unemployment ticked higher and went from 5.8% to 5.9. And I think that was largely because of an increased number of people who quit their jobs, right? Is that right, Ryan? It was a lot of the unemployed were people who quit jobs, which probably are just people in transition, you know, from moving one of the job to the next. Yeah, and there's just a lot of labor market churn. And I mean, you can see it in the monthly employment report.

You can see it in Joltz. And something we discussed in the past, so I dug into it. It looks like when you have a lot of quits, so like a lot of churn in the labor market, revisions to the monthly employment are larger. So something to keep in mind as we get, I think in August we get the preliminary estimate of the benchmark revision to non-farm employment. Oh, explain that to people. they don't know what that means.

Which one? The quits and the revisions or the benchmark revisions, yeah. So employment is subject to, the monthly employment numbers are subject to three revisions. So, you know, you get the first, second, and third revision. And that's just as they collect more data. So the response rate typically increases with each employment report. And then once a year, they do this big benchmark. revision and they use data on unemployment insurance benefits and it's in the QCEW, which, Mark,

you know what that means all the top of your head. What's it quarterly? Quarterly senses, the sense of employment and wages. Exactly. And that's what employment gets benchmarked to. Yeah. And so the BLS, Bureau of Labor Statistics releases, this is a little early for them to release that benchmark, isn't it? It's not the official. It's like the preliminary one. It's like they do this every August. Usually the preliminary and the final one are very close to each other. So you have a good idea of what that revision when it gets released early next year will be. But I'll be keeping an eye on it to see if it's larger than what we've seen, you know, after past recessions.

You think employment is going to be rised up or down? It feels like a bet is going to come on here. There's a bet coming on. I want to say revised up. Okay. No bet. I'm with you. How much?

Oh, well. Meaningful, meaningful, meaningful. Meaningful. Meaningful. Because all those business formations, they're not, BLS is not capturing the jobs that all those firms that are forming. So I think they'll capture that. Well, that's a good one. The quits are good.

Hey, Wayne, you know, you don't need to participate in this game, but you're more than welcome. Do you have a statistic you want to throw into the mix or do you want to ask? I do. I do. And the statistic is the number one. And no, Mark, this is not what precedes. the number two. I was going to go with that.

I know you were. Number one. This is a ranking or an actual? What's that? Is this a ranking or an actual measure? It's an actual measure. Okay. Is it a percent?

No, it's an index. It's a factor. It's a factor. Okay. That's a factor, or a ratio, if you will. Ration. That's tough. Can you give us a hint without giving it away?

It came out this week. That doesn't do it for me. No. We're a little rusty. We had last week off. We took a week off. Wait, is this, I think I got it. Okay.

Is it the number of unemployed per job opening? Yes. Oh, nice. Or the inverse. There you go. He scored it. Oh, that is unbelievable. And if you look at it,

on a job openings per unemployed person basis, we like to look at the reverse, easier to understand. You know, that number was 1.2 back in February of 2020. And now it's actually rebounded substantially. So you start to see that number of job openings, number of unemployed persons, pretty much even. Now you would think that, geez, why can't we get all those people that are unemployed

into those jobs that are open? And of course, there's a number of factors behind that, including skills mismatch and those types of things. But yeah, that's a very encouraging sign in terms of potential tightness in the labor market going forward. Absolutely. You know, we've been having a lot of discussions here over the weeks that we've been doing this around why it's been difficult to get folks back into the workforce and to take

all these open job positions. I mean, we're still down, even with the June employment number. I think we're still down what, Ryan, 6.8 million from the pre-pandemic peak in terms of employment. Wayne, I know there's, I'm sure you're going to say there are many reasons for why this is going on, but do you have a perspective on that? I mean, what do you think is the most significant or significant reasons why it's been taking some time to get people back into these jobs? Well, you know, I'm sure comfort factor is a part of it, just not comfortable going back to being concerned

about because of the pandemic. You know, I also think there's another broader issue that needs to be considered also. And this has happened in the past. I mean, it's a long time and coming ever since the age of the Internet, et cetera, is that oftentimes, you know, when people apply for jobs, all of those job applications are now done all electronically. And actually, Mark, you and I talked about this many moons ago. And the problem is there's this ability or inability for a higher,

manager to wade through all of those resumes. And so often it's done electronically. And that can create some challenges in terms of people finding the right match, et cetera. If you're hiring for an administrative assistant, for example, and you get 300 applications, pretty darn hard to go through all 300. And so I think it's difficult to determine how to rise to the top. And obviously, the importance of networking and finding people in your network,

maybe through LinkedIn or some other type of sources is valuable in that regard. And so that you can get that resume to the hiring manager as opposed to just applying through a company portal. But that's been an issue for as long as we've had the ability to be able to send resumes in electronically. Yeah, yeah, makes sense. Okay, I got my statistic. Ready? 43.5 percentage points. 43.5 percentage points.

You don't sound very confident in that. I had to think about it, but it is 43. Yeah, I'm very confident. I'll say it again, 43.5. And you guys, Ryan, I think this isn't quite an overhanded softball, but. Let me think about it. Yeah, think about it. It's apropos. Initially, I was going to go ISM non-man, some one of the components, but I don't think it's that.

It's apropos to the consumer because we're going to talk about the consumer in just a few minutes. Are you going with something in the credit forecast? No, that would be credit forecast is the Equifax credit file these data. No, but that's also that came out this week too. Use car prices. No, no, no, no. It goes to sentiment, confidence, relates to the labor market. It's rally.

It's actually really quite interesting. It came out this week. Are you going conference board? Yeah, the conference board. That was last week. Oh, okay. Well, same difference. That's the labor market differential.

Yeah. That was really good. Unbelievably good, right? That's the percent of respondents to the Consumer Confidence Survey that said jobs are easy to get, less the percent of respondents that said they're hard to get. So, in fact, if you look at it, over half the respondents say that jobs are easy to get, and only 10 percent of respondents say that they're hard to get. The only time in history, and this goes back, I think this goes back,

definitely into the early 90s, maybe into the late 80s, the only time in history it was stronger than this, higher than 43.5, was for a few months around Y2K, remember that labor market, that was like the high watermark for the labor market in the post-World War II period. So that's extraordinary.

That's an extraordinary number. And that number, at least historically, correlates very closely with unemployment. So, you know, is that number, is that differential moves, the unemployment rate moves. And that's why the increase in unemployment, the unemployment rate,

so it was a bit of a surprise, such a surprise, and you expected that to go down. And in my sense is that the reality is that unemployment is going to start coming in pretty quickly here, more consistent with that conference board survey measure. So that's something to watch. One caveat, though, and I think you pointed this out

when you, or whoever was covering the report for us on economic view, the conference board made some changes to the survey. They went online. And I think they also expanded the number of survey respondent. So it may be overstated, but, you know, I think certainly directionally, it's telling the story. The liver market is red hot. And I would expect unemployment to come in, you know, pretty quickly here. We each have three statistics we've been following regularly every week. We'll go through this quickly. Chris, yours is initial UI claims, initial employment insurance

claims. It was 373,000. last week, reported this week. That's higher up 2000 from the week before at 371, so going in the wrong direction. Caviat here is 4th of July. There's a lot of noise around the holidays when it comes to filings for unemployment insurance. Another caveat is expiration of some of the pandemic, the special pandemic, unemployment insurance programs. So the theory is you might have folks who are not getting those benefits anymore.

and they're going over and applying for their state unemployment insurance benefits. So there may be some additional filings going on here. So possible that there's a bit of a noise, but certainly the trend is not as strong, not as strong as I would expect in the downward. It is falling over the last few months, but not as strongly as I would have expected. Right. We're still high. And kind of the stake in the ground for good is 250.

250. So we're still about 100, 120, 125 above. What would be considered good? But we're headed in the right direction. Yeah. It's not as quickly as we might expect. Mine is the copper prices. I just looked.

It's $4.35 a pound. That's still very high. Anything over $4 is consistent with a ripmore and global economy with significant price pressures. It had come down a little bit a couple weeks ago, but now right back up again. And so, you know, that would indicate that those price spikes that we're experiencing across lots of commodities, industrial goods continues to be the case, hasn't, hasn't abated yet. So Dr. Copper is saying still very strong growth and inflationary pressures are still

quite intense. Ryan, you have this, you, the statistic you've been following really, really interesting. I regret picking this one. No, this is a good one. No, it's a good one, but it's, it's, it's, so I pick the 10-year treasure. yield and it's at 1.36%. So just, I mean, last week or the week before, we were north of 1.5%. So it's come down quite a bit. And I have a few theories of why. I think most of it is technical factors. So the Treasury is drawing down there cash account at the Federal Reserve, using that to

pay for stimulus rather than issuing new treasury bonds. Another technical factor is, I think people were betting on higher rates, so they're closing out, they're losing positions. So a lot of like shorts on the on the tenure treasury yield. And then there's some fundamental things like the reflation trade is losing steam. I think people are realizing that, you know, it really is a transitory acceleration and inflation. This isn't something new. I think the only person buying into that is you, Mark. But I think you brought up a good point.

That was a dig. I missed it somehow. I go right over my head that day, that dig. And I think you brought a good point when you're emailing about this is that I think markets are getting concerned about the delta variant of COVID. And on top of that, you know, the tenure really dropped after the ISM non-manufacturing survey, which showed, you know, the breadth of improvement in non-manufacturing is narrowing. I mean, it's still really strong. It's north of 60. So, but I think they're now realizing, you know, the strongest growth of this expansion is likely behind us now.

Now we have the, so we look at the 10-year yield because there's a good, of kind of a clear barometer on how investors are viewing the economy and its prospects. And obviously, if interest rates are rising, they're thinking growth is strong and improving the Fed's going to start normalizing policy. Inflation is normalizing. 1.35% is below where it was. It was 1.5. I think it got as high as 1-6 a couple months ago. That's going in the other direction. And you're saying that's mostly technical. Don't pay too much attention to it, it has nothing, it's not reflective of sort of investor views of where the economy has had. Maybe on the margin, you talked about the margin. Yeah, I think you've seen inflation

expectations come down a little bit, but, you know, the other, you know, fundamentals for the 10 years. So we have, we maintain like this model driven estimate of what the economic fair value of the 10 year yield, treasury yield is. And, you know, that would say it's closer to 1-6. So I think we have a lot of technical issues going on that's driving the tenure lower. So I think we're probably near the bottom right now. And I think we'll just gradually increase through the rest of the year. Okay. To our baseline script.

I didn't say that. Okay. Oh, really? Okay. So what's your end of year? Yeah. What's your end of year? 1.7.

1.7 for times. Oh, really? So you would bring down the forecast then because I think we're at 1.9 in the forecast. Yeah. So we're not too. far away apart. I mean, there's a lot of wild cards. You've got the dead ceiling

coming up. You have a possible taper tantrum, and then you have all the news around the fiscal stimulus. Hey, Wayne, do you have a view on the 10-year-year-old what's going on there? Yeah, I think most of what Ryan it's had, our end-of-year number is 157 right now.

I think some of the interesting changes of late have just been concerns of this delta variant. And now all of a sudden, with the United States being a little stronger vaccinated, other investors looking at investing in the United States versus other countries. So along with the factors that Ryan had mentioned. But no, we think it as well 157 by the year.

Okay. All right. Wayne, you can come on anytime. Hey, Ryan. Is that banging one of your kids? Is that? Yeah. I hear the bang.

Is he Bam Bam? Is that Bam Bam? No, it's my youngest. It's Reagan. Yeah, she's trying to get in. Oh, she? Why don't you let her in? Just let her in.

It'd be so much. No, no, no, no. No, really? Okay. No, she's going to go play with her brothers. Okay, very, very good. Okay, so let's move to the big topic, and that's the American consumer. And, and Wayne, I think today was a big day for you guys, wasn't it?

Did you put out a press release? with regard to a new index, a new measure of consumer spending momentum. And we're glad to have you on so that you can talk about that. Do you want to fill us in? What's the index about and what's it then? Sure. This is actually our second release. So we started last month.

But it's an index that we developed to really help to better understand and to provide a more timely gauge on the health of consumer spending. So what is it? And in its simplicity, what we do is we look at the, vast reaches of the data that we have available with Visa, given that Visa in the United States, as an example, represents about 25% of all spending is put on a Visa card. We leverage those large data sets, of course, on a depersonalized, de-identified basis, and go through a series of algorithms to really come up with a core economic indicator of that health of consumer spending.

So how is it measured? We look at an account, again, depersonalized, etc. But we look at an account and see if the spending on that account this month versus last year is more, the same or less. If it's more, we score them 200. And if it's the same, if it's 100, and if they spend less than they did for that month last year, we score them zero. So a classic diffusion index, if you will. The interesting part of this is it's very strongly correlated with retail sales. about 0.87 with PCE because we have spending on visa cards that include services, not just goods, has a correlation of about 0.82. So very strong levels of correlation with outside indicators. But what we really are measuring is the momentum of consumer spending. And so why is that important? We did some work previously with some Stanford University economists, their economics team there. And through some extensive data analysis of some of our past data, we found that roughly if you look at the amount of spending that happens, almost 80% of it happens based on the number of people that are participating and 20% of it is then left to people spending more.

So Mark, if you spend a whole lot of money in the area of your home, you may throw off the retail sales overall figures, but it's really this concept of momentum or the number of people are participating that we find is even more valuable and more interesting. And I'll give you some examples of that later, but it really is, if people are starting to participate in spending more of them, that is very positive for the economy, if the numbers above 100 is certainly is what it's indicating. So our latest release, which came out today for the month. Can I ask me, just to make sure everyone understands. So if the index is 100, what that is saying is that there as many people, more people coming in spending as there are people leaving spending.

Or it's not coming in or leaving, but it's those that are the number of people that are spending more or zero less. So, and we did see numbers back in, obviously, last year, around this time on a year-over-year basis where that index was like 95, 97, that kind of a number. So it was less people than participating versus 2019. at that time. Looking at the current figure in June versus June of last year was 11.7. So we have more people participating. Now, we are able to dig under the covers a little bit to provide a perspective in addition to just that index. And for June, relative to last year, we had 53%

of the consumers that had increased their spending. So translating that 111 to the number of consumers. It was about 53% were spending more than they did last year. So it really shows that the impact there. Now, we also did this on kind of a year over for two year basis. Go ahead. Can I ask if it's 53% of more people increase their spending, does that mean that to get to 11% percentage point diffusion index, you had 42% that lowered their spending compared to? Well, yeah, I mean, you're going to have the combination of those that spent the same or spent less. So it's a combination. So 47% is either spent the same or spent less. Yes. Because we're just talking about those that increased. Got it. You know, obviously last year was an anomaly year in terms

of what it happened. So we looked at it also on a skip year basis. So what is the SMI relative to 2019 for June? And that number was 108.4. Now that's pretty telling because that says as take out the impacts of the pandemic working at 2019. That index is still very, positive on the percentage of consumers participating was 51% versus last year being 53%. So we still have relative to a good year of 2019, full employment conditions, everybody's spending, everybody working. It's actually rising even a little faster in June of this year relative to two years ago. So that you characterize that as being very good, excellent.

I think it's, yeah, it's certainly positive. I mean, again, I think looking at the index from two years ago, it was 108.4. So, yes, definitely. We're seeing that momentum of spending and that happening around the United States. Got it, got it. And I know you also look at this regionally across different markets. Is it up everywhere? Interestingly, it is not up up everywhere.

Certainly, it's above 100, I believe, for most regions of the United States. it is. One of the, in fact, we looked at 87% I think of the CBSAs or small versions of metro areas were greater than 102. You know, and so this has been kind of a continuation that we've been seeing in terms of geographies that were impacted by COVID in 2020. One of the interesting trends that we saw during the last year or so was that normally in a recovery period, so if we'll start talking of June of last year, for example, when we started the recovery, normally larger cities rebound faster. Larger cities are the first to rebound, in fact, looking at past recessions. And why is that? Well, we have foreign tourism that can often come into the larger cities, you know,

the job gains that can happen within larger cities. There's this momentum that can happen there. But that was not the case this time. Early on, really from June all the way through most of all of last year, the larger cities really did indeed lack, and they did not rebound. And it was the smaller areas, those that may have not had strict lockdown restrictions that rebounded faster, those that had more activities or jobs that were considered essential. Think home construction, the military areas with military bases, things that were considered essential that had to keep operating or were allowed to operate. You know, home building was, not considered essential in every single metro area. Some areas says, no, you can't do that.

So those smaller areas were some of the early gainers. And one of those, frankly, was Boise, Idaho and Utah, for example, all of the reasons that I talked about and some of the strong levels of growth that we've seen overall in those areas. So, but now what's happening, if we look at the latest data, those larger cities are indeed rebounding even faster. And I think a lot of this has to do, of course, with the more rapid rollout of vaccines in the larger cities. You know, you can set up a mass vaccination site in a large city and get a tremendous number of people vaccinated because they generally are closer by or live closer by. And so now we're starting to see those larger cities with higher SMI values, which starts to, again, indicate or provide some

intelligence with regards to the rebound. And that's important for our financial institution clients. It's important for our merchants, you know, to think about inventories and marketing opportunities and those types of things in terms of that cut of the data. Sure. So the swing from a lot of the strength in smaller cities to bigger cities, that's, I guess, also in part relate for many, there's many obvious reasons, but one of the factors must be kind of the work from anywhere dynamic. So we had all these folks kind of leaving the big cities going out to Boise, Idaho that helped juice things up. And now we're seeing some unwinding of that as the pandemic starts to abate and people go back back to work. We actually, based on the Equifax credit file data, we get a 10% sample of all the files every month at an account level, a consumer level. And we can look at address changes.

So we can see on a month-to-month basis where who's moving and where they're moving to. And here's an interesting factoid in the 15 months since the pandemic hit. This is from March of 2020 through May of 2021. We don't have the June data yet. A quarter million more people left urban cores for suburbs, ex-surbs, and rural areas than they did in the 15 months prior to the pandemic. So about a quarter million people. And of that quarter million people, New York City accounted for about 100K of that.

And then L.A., Washington, D.C., Miami, Boston, Dallas, Philly, our hometown, the most amount of migration as well. And they are going to the places like Boise, like Salt Lake, like Tampa, those areas, Orlando, you know, those kinds of areas. So very consistent with what you're observing. It sounds like. It's interesting. We did a piece recently on de-urbanization, myth or reality,

and really kind of looked at those types of structural shifts. And we use the SMI as one use case to help us better understand that movement. And similar types of things, I think it was more, it was less of a de-urbanization and really more of a great reshuffle. So, yes, a lot of people did move out of the larger space. cities like New York, like L.A., like you had mentioned, when some of those will come back when reopenings actually start to occur. But we also had this reshuffling of people moving to really the next city over,

you know, moving out of the larger cities, moving to something that would be a little bit more attuned to people by being able to buy a home, raise a family, etc. And those are obviously permanent moves. That starts to change the dynamics of the spending that will occur now in those new suburb areas because they're going to need more appliances, you know, to furnish their homes, furniture and those types of things. We've seen initial changes in some of that data in the national data from the government. But those are fundamental shifts that I think that are, many of which will probably stay

afterwards. So we can look forward to seeing the SMI on a monthly basis then. You're going to release this into the public domain every month. Every month. Starting next month, we will add some discretionary and non-discretionary spending splits. So now we're talking about taking it down to regional areas and are looking at some of those gains. So think about a concept of looking at discretionary spending, things that are nice to have versus non-discretionary. And what areas of the country are showing stronger growth is really in the discretionary category,

which obviously leads itself to higher confidence of consumers. I think one of the key metrics there is the consumer from the conference board is the percentage of consumers that feel that their incomes will rise over the next six months. You know, that's a pretty tall-tale indicator for discretionary related kind of spending. And there's a number of applications. I did want to mention one that we looked at, for example, where we looked at four different states, three states including the District of Columbia, so four areas, and looked at the retail sales numbers that were coming from the government on a year. over your basis for the month of April of 2020, as an example. And in all cases, all of them had their retail sales were down over 20%. We then looked at the SMI number, again, this momentum concept in those same four areas.

And one of them ended up having a, they were still all below 100, of course, because of the timeframe we were looking at. But one of them ended up being showing momentum at higher than the other three areas, and that was in Connecticut and it had a score. We then followed the retail sales growth over the next eight months for those four areas as an example. And the SMI was pretty predictive in terms of what retail sales growth would be, you know, eight months prior. So there is some predictive nature to this that I think will be valuable in better understanding or providing another access to another tool to help in that economic indicator and the timeliness of that information

relative to the health of consumer spending. Excellent. Well, what was going on in Connecticut? Why was that hanging out? You know, again, I think it could very much likely related to the lockdown restrictions, income gains, those types of things, possibly people moving back from New York, moving out of New York back to Connecticut could also be a factor here. But, you know, of the four that I mentioned, their retail sales gain,

eight months, average retail sales growth over the next eight months was like four and a half percent where in the District of Columbia was down three percent, which again, looking at one set of data retail sales numbers, giving you a very common view, but that's not enough. You've got to look at the number of people that are participating in this 80 percent factor that I think is quite telling in terms of the insights that it can provide. Very interesting. Hey, guys, what do you think of this new index? That sounds really interesting. I'd be curious to see the trends.

I did have a question. One question, though, I was wondering if credit card adoption or permanent shift as a result of the pandemic to more credit card usage, could influence the numbers at all? You might be seeing an increase in credit card usage just because, you know, I used to pay my check with cash in 2019, and now I use a credit card to get food delivered. Yeah. So one of the things that we've done is to try to remove all the assets. aspects of the card business, just leveraging the data. And so it goes through a number of filters. And one of those filters, frankly, is looking at you over your spending.

So if there wasn't a card there a year ago, then you can't see, you know, a movement from additional cards as being a factor in driving this data. It's really, you know, again, we've gone through a pretty, and so if you have additional merchants, for example, a merchant decides to open a storefront or didn't have a presence a year ago or today, those things are also controlled for it. So it is intended to give much more of a economic view. as opposed to a card-centered view, despite the fact that obviously that's the starting point for this particular index. Interesting.

Are you actually seeing that trend I described? Are people sticking to their credit cards? You know, I think there was a tremendous amount of drop in, you know, from a number of data sources that provides this that show that, you know, credit card spending definitely went through a very significant withdrawal during that period of time. in part because people didn't have any place to spend their money. And it's not uncommon that when we get into economic cycles that we see the rise of debit cards, people using their ready funds, funds out of their checking accounts, for example, to spend on goods and services. I think at some of our recent releases, we've shown that, you know,

we're starting to see that tied change, obviously, with the opening up and people being able to spend more readily. It's not back to where it would be fully, but, you know, we don't have our international borders open yet either. So there are categories of spending that are still lagging in that regard. Hey, so one of the more perplexing or more difficult things to get a grip on with regard to the now looking forward, looking to the outlook is how much of the, well, how much pent-up demand is there out there because of all the shows are in place during the pandemic? And how much of the excess savings that was accumulated during this period, people couldn't go out and buy, they couldn't travel, they couldn't do the things they typically

do when they were sheltering in place. So they saved much more. How much of this pent-up demand and excess saving is going to be translating into consumer spending going forward? In our outlook, our forecast for the economy, which is a pretty optimistic one, we're assuming, for example, that about one-third of the excess saving, and just to give you a number, we're estimating that there's about two and a half trillion dollars worth of excess savings out there. In the United States.

In the United States, above what, that's, again, above which would have occurred if there had been no pandemic, will actually be spent between now and the end of 2022, so over the next 18 months. But that's, you know, that's, that's an assumption. I don't know. Is it going to be more than that, less than that, or even know how to think about it? But I'm really curious in your perspective on that. But let me ask you this. Do you think there is a lot of pent up demand out there among American consumers that is built up during the pandemic and the sheltering in place?

Well, I think there's a lot of pent up demand for travel, that's for sure. And certainly we've experienced some of that domestically, which a lot of people are traveling. domestically in that regard. I think what's different this time is that, you know, it's not uncommon that savings rates go up during different recession periods. But, you know, shortly thereafter, they start to recover back to levels that we'd seen previously. This one was very different, though, partly because we couldn't spend, partly because there was available stimulus to various consumers. And so we did some research to kind of look at, you know, which groups are saving more this time. and looked at it kind of in a grid of different age groups coupled with different income groups.

You know, it's not uncommon that in tough times, wealthier individuals would save more. But we saw this pretty diverse across all age groups and all income groups this time. It was quite revealing and not something that we necessarily would have expected. And part of that, I'm sure, is because of the concerns of the outlook. while the recession was over, we'll have to wait the two years for the official callers of the recession to do so when it actually ended. I already called it.

There was certainly. I already called it. There was certainly a lot. Yeah, there was certainly, like, did you? Okay. The official callers, there you go. So we'll have to see what that means in terms of the timing associated with that

because people are still very concerned or have been up to recently, very concerned about the pandemic. And so I think that created some levels. Now, on the other hand, there's been obviously some shifts, people that didn't travel domestically or internationally previously. It's not like they held back on their spending. In many cases, we're seeing it in the data, the national, the government data that, you know, furniture sales up dramatically and home improvement and appliances and these types of categories. So they're not going to have that excuse. You know, they've replaced that couch already, that their spouse was telling them to replace. You're not going to need another couch anytime soon necessarily. And so we,

you know, there may be pent up demands in other categories. And I think we'll likely see this shift that happens over time in terms of that, the types of things that people borrow as they feel more comfortable. Hey, Ryan, do you got any pen up demand? What didn't you do during the pandemic that you want to do now? I know you want to go to baseball games, be my guess. No? No? I can't hear you. We lost you somehow. No? Let's say, try again.

Come on. You're on mute. Go ahead. Say something. We lost them. What about you, Chris? Do you have any pen-up demand? Travel, certainly.

Yeah. Just as Wayne said. Yeah. You want to go visit Italy? I want to go visit some family? Yeah. Go visit family here and also within the U.S. So, yeah. Any other things that you didn't do during the pandemic that you want to do now other than, I guess, restaurants maybe or anything else?

Not a big restaurant guy, but yeah. The gym was a big one. The closing of the gyms was one. Yeah. Yeah. Will you get you back, Ryan? I'm back. Okay. Sorry about that. No, no, no worries. You know, I know you're busy with stuff over there, you know. So, you know, you've got to do what you got to do. But any pent up demand? Travel, just like Wayne said. So we went to the shore for the beach for two weeks this time.

Most years we just go down for one week. But we didn't go last year. So we decided to go for two weeks this year. I mean, to Wayne's point, I think we have a lot of spendup demand on the good side. Right. And a lot of pen up demand on. on the services side. And that's kind of like what's in our forecast,

what's going to be driving consumer spending second half of this year, next year is services. Yeah, right. And I know, Wayne, you had some pen-up demand. You go to Hawaii. You told me you've been there 100 times or something, and you missed it a year, and yet you went back recently, right?

Yeah, so, I mean, 39 years of marriage, actually starting tomorrow is our 39th wedding anniversary. So we've been, yeah, thank you, thank you. We have gone every year at Thanksgiving. It's been kind of a tradition for our family, but not able to travel internationally. We went to Hawaii back in June and quite the experience, you know, with being able to have to get additional tests to be able to travel inner island. And probably one of the more interesting one was if you didn't make a reservation for dinner, you weren't going to eat. And I'm not talking about making it tonight.

I'm talking about in many cases, we booked them weeks. in advance. And in fact, when we were there, I tried to leave a couple of days open so that we could enjoy being a little bit more spontaneous as opposed to, honey, it's dinner at 630. He says, well, I'm not ready to go to dinner at 630. Well, if we don't go now, we're not eating. So we left a few days open. And all of those days we left open, many of them, we had to do takeout, which was completely foreign in terms of doing takeout on a vacation. But that's the, clearly a lot of pent up demand for people to go to restaurants because it was definitely showing up in some of the Hawaiian data. Well, I know takeout for you is pretty tough, Wayne.

Because Wayne is a connoisseur. He knows where to go for the best meals. The other trip I had I had when Wayne was in Nevada, but Vegas, we were in Vegas. And you took me out to dinner. I remember that dinner. That was a fabulous dinner. So Wayne knows exactly where to go. travel with Wayne. So is your pen-up demand satiated now, Wayne, or are you got more things to do?

Oh, obviously more things to do. Yes, absolutely. We'd love to do more travel specifically. That would certainly be high on the list. You know, one interesting story, just to bring it back to payments for just a second, an experience that happened in Hawaii that I thought was quite reviewing. You know, it's pretty much known now that when you do go to a restaurant, that you're going to scan a QR code to get the menu. This is another way for restaurants to be more efficient as they've eliminated the menus. But what we also experienced at one particular restaurant was when the bill came, there was a QR code on the bill and you scanned this QR code and then you basically

completed the transaction, including the tip, et cetera, using your phone. And I think this may be more of the future because it takes out that extra step. So I had to ask the waitress so she didn't get a chance to just walk. walking away and never seen me again. I says, how do you know that I paid the bill? Well, they've installed a screen behind the past where they come out to deliver the food to the diners. And there's a screen of all the tables and it has a green dot on there. She said that it shows that person is paid. So people don't just say, well, no, I thought I paid. But so they're going to work through the different challenges of that. But I mean, just think about the efficiency related

to that. And, you know, just trying to take out more friction out of the system. And this may be a trend that we start to see even more widespread in the future for when you go to a restaurant. Yeah, it makes sense. How about you, Mark? Any pet demand for you? You know what? It's weird. No.

I was born for sheltering in place. You don't need another power washer? Oh, that's spendup demand. I mean, I have everything you ever want at plus two for my back deck. No problem. Did you get the outdoor heat? I got three outdoor heaters. There you are.

There you go. I literally have three outdoor heaters. I'm proud of you. And a small one for my feet. I've got one now for my feet too. I need a pit. That's all I need is a pit. I stayed outside on my back deck in suburban Philly almost till second week of December.

I'm not kidding. I'm not kidding. I was able to do that. Of course, I was burning a boatload of my carbon footprint was pretty high. I admit it. You know, I was burning a lot of. A lot of propane, you know, during the period. But no, it's weird.

And here, this is interesting because it leads me to the period after World War II. You know, during World War II, there was a lot of forced savings, right? People couldn't do a lot of things because we were fighting a war. And you couldn't travel. There was rationing, all kinds of things. So Pennup demand was developing in the early 40s during that period. and a lot of excess savings accumulated. People got paid who were working in the factories,

but they didn't have anything to spend it on, right? So they had a lot of accumulated savings. And actually very interesting, if you go back to like 1944-45, and you look at the press accounts during that period, there were economists saying, look out, we're going to see all this pent-up demand unleashed. It's going to be boom times,

and we're going to have raging inflation because demand is going to outstrip supply and inflation is going to be a big problem. Never happened. You look at the savings. It never was spent. It just stayed in people's checking or wherever, you know, in their savings, checkings, equity, whatever they put their money in.

It never really got spent to a significant degree. So that worries me. I don't think the American consumer today is the same as the American consumer back in the late 40s and early 50s. I don't think that's the case. That's why we're assuming about a third of this gets spent. But I think a fair share of this never gets spent. I think it just, you know,

goes into stocks and bonds and housing and stays in checking accounts and people just don't spend it. So you guys know that new banging is not Reagan, it's not my daughter. No, who is? I don't think I'm ignoring her. That's not her. Oh, okay. Well, that begs the question. Who is it?

Not the dog, right? You don't know. You don't know who it is. No, I have no idea. It's a mystery. It's a mystery. It's a mystery. I'm afraid to find out what it is.

All right. We'll leave it alone. No worries. We'll leave it alone. Hey, one other thing that I'm wondering about when it comes to the consumer is there's a lot of government support has been put into place to support the consumer to navigate through the pandemic. A lot of it is around, you know, mortgage forbearance. You know, if you have a Fannie Freddie loan or an FHA loan. loan and you have trouble making your payment, you can get forbearance. Student loan debt payments

have been foreborn, and I think that remains in place until today. There's a lot of, there's moratoriums on foreclosure, again, for government-backed loans. There's moratoriums on rental eviction. All these supports, they're coming off. I think the, I think the, the moratorium on foreclosure and eviction, they end at the end of this month, unless the Biden administration changes something again, but they are currently slated to expire at the end of July. And I think the forbearance, that comes to an end, I believe, at the end of September. So this is all coming to an end. And this is known as the sort of the foreclosure cliff. Question on the table is, how big a deal is this? Do you think this is going to be a problem? Are we going to see it

in delinquencies, defaults, foreclosures, consumer spending, or is this not a big deal at all? I'm just really curious what people think. Wayne, do you have a view on this? You know, I think if you looked at the Census Bureau's household poll survey when they asked this question back in March, I guess it was, prior to the American Rescue Plan being initiated and passed, there was a large number in different states that people felt that they would likely face eviction or foreclosure in the next few months. I mean, some states as high as 50 percent, according to that survey. So, you know, that's significant. Now, during this period of time, since that period of time, you know, the plan was passed, American Rescue Plan, the stimulus checks went out, additional monies available for renters, landlords, et cetera.

Here in California, that eviction moratorium was extended, I believe, into September now. So we're seeing a number of states and really providing more time to get out those monies to the landlords and to the renters. The process has been slow. I mean, both the landlord and the renter have to both apply for those monies to be distributed, et cetera. So hopefully during this period of time, more and more people will be prevented from being evicted because of this additional support, if you will. But it does beg the question if those timelines don't get extended, if the monies don't roll out as efficiently as possible. You know, you have a number of people that may fall into those categories, which could provide some additional challenges.

and risk, you know, certainly in terms of various loan products, et cetera. Yeah. But you're not, are you, is this in your forecast? I mean, do you think it will be something of a headwind to consumer spending as the supports come off, or is it pretty much on the margin? I think it's, it's on the margin to slightly negative if it were to occur. I mean, that's the big assumption, like not knowing how fast savings is going to be spent. It's if our, will these programs get extended further?

And obviously with, you know, the large number of jobs that are still being created, those people could go back to, to work and earn some more money, et cetera. So there may be some delayed factors related to paying back some of those loans. And hopefully lenders will be, you know, enable that. But it could be a challenge if when those programs, and we've been talking about that for quite some time in terms of that policy or fiscal policy cliff. you know, it's going to take a few months for that to work out. And if there is no extension, you could see rises and delinquencies and potentially losses in the future.

Yeah, what do you think, Chris? Do you think it's not that big a big problem? Yeah, I would say on an economy-wide perspective, I don't think it's a really big deal. Take the foreclosure moratorium as one or the forbearance, right? homeowners, home have, are in a different trajectory than renters, right? So even those that have had some trouble who have, who are getting some forbearance, if they still can't pay at the end of their program, you know, that 15% rise in house prices is going to be a major support, allow them to get out of their debts. So from a broad economy perspective, I don't see this as

being a significant hit, but I think there will be significant distributional factors here. So depending on which households we're talking about, which group. we're talking about, there certainly are going to be some that, you know, once those student loan bills come due again, they're going to struggle to make payments, much as they did, perhaps, before the pandemic. So I do think you'll see delinquencies rise. You are going to see more defaults out there, but I don't think it rises to crisis levels. I don't think this tips off another recession. Yeah, and I think it's also important to point out that delinquency rates are now quite low, aren't that?

Yeah, exactly. Well, on student loans, they're practically zero right there. Yeah, right. Almost everyone's getting deferred, right? Almost everyone's getting deferred, except private loans, right? Yeah, private loans. Yeah, right. Okay. Ryan, any perspective on this particular question? No, I agree with everything you guys are saying. All right. Hey, you know, it feels like we're optimistic, right, about the consumer. The jobs, a lot of jobs, unemployment's coming in, a lot of pen up demand, a lot of excess savings. Confidence is very improved high. We've got very high stock prices. We've got very high housing value,

so wealth is up. Is there anything out there that you think could derail the American consumer contributing significantly to growth over the next, I don't know, 12, 18, 24 months? Anything at all? I think near term, I think some of the challenges would be related to, you know, what happens with the Delta variant. Yeah. You know, and I talked about travel earlier, you know, getting a vaccine for many people in terms of travel was really only stage one or phase one. Phase two is, do you feel comfortable and where you're going to be going, comfortable in terms of the vaccine, but also comfortable in terms of the potential restrictions? Do I have to play the lottery to get a museum ticket on wherever I end up going domestically or internationally.

And, you know, will I be able to get a restaurant seating? It's not considered normal through the process of what we've seen of late. And if the Delta variant does expand, that could create some challenges. I think that's certainly a risk that exists out there. Makes sense. Yeah, that makes sense. It's almost unimaginable to think that that's going to come back and, and cause us to shut down again.

But, of course, the pandemic itself was unimaginable. So we've got to imagine it, I guess, unfortunately. Any other threats or risks out there that you guys see to the consumer? I mean, there's always a risk of a stock market correction. Yeah. But even that. About inflation. You mean it's high and persistent and undermines real income?

I suppose. It would have to be very persistent. persistent yeah yeah it may not be immediate threat as well that might build more like a corrosive it's not like it's not like a cliff event that's more like a corrosive on spending okay okay uh you know it's hard to believe it we've been at this for an hour it went by pretty quickly anything else folks want to weigh in on before i kind of sum it up many other issues you want to bring up no okay well wayne i want to thank you for participating and you know i you know we've been at this for a long time, you and I. I keep reminding people that I've been a professional

economist now for almost 30 years, going back to 1990. And it's interesting, up until the recent period, the one thing I could kind of count on in terms of forecasting was that the American consumer was going to spend pretty much whatever they made. If they earned it, they were going to spend it. And then some. There was, you know, obviously periods in that last 30 years when people were out borrowing a lot of money and spending beyond their incomes. I think saving rates, if I recall, got pretty close to zero. I mean, there's been revisions to the data over time. At one point, they were actually negative, meaning people went out and borrowed money and that plus

their income was, that drove spending that was above their income. But that got revised away, but it's still, you know, generally very low rates of saving. So I could always count on the American consumer to pretty much spend what they earn. I think the way I would characterize it is never underestimate the hedonism of the American consumer. I'm not so sure we can do that anymore. This is different. Things have changed. They feel like they've shifted that saving rates are now much higher.

I mean, even pre-pandemic, they were around 7%, which is pretty, high for the American household. And, you know, since the pandemic hit, it's averaged about doubled, about 10 percentage points higher than that, closer to 16, 17 percent. And that's going to come down. I don't think we stay there, but it feels like we're in a kind of a different sort of world and that consumers are going to spend, they're going to do their part, they're going to drive growth, but they're not going to let loose, I don't think. I don't, I think we're in a different world. You know, it may be demographic. It may be that, you know, a big chunk of, you know, a big chunk of, the American consumer is folks like Wayne and I, you know, we're boomers and, you know, we're

just not going to spend as much as we used to. I mean, you know, we've done the big spending and now we're, you know, preparing for retirement and saving for, you know, for maybe our kids' college education. So we're not going to be spending nearly as much. And maybe attitudes have shifted a little bit here in terms of spending. So I don't know that we can count on the American consumer, you know, driving the train. to the same degree that they have historically. But I think they'll just do their part. And if they do that, then we should be in pretty good shape over the next 12 to 18 months.

So with that, we're going to call it a podcast. We'll be back next week. And I think, as I said earlier, next week will be our first video podcast. So video and audio. So Chris, I don't know. You got to do something about those. I mean, I don't know what to say, but, you know, Ryan, can you help him out somehow? You know.

Got this nice yellow shirt on today just for you. Oh, is that yellow? That's your Gomer Pyle shirt. Oh, wow. Milk toast last week, Gomer Piled this. All right. Well, very good. We got to get Chris.

We got to get Chris on the working from home comfort attire. Oh, I know. You're right. Like, you and I have got it down. We're like the fashionistas. Look at Wayne. Wayne looks like he could be on a, look at that. He's so comfortable.

He looks so comfortable. He could be in Hawaii. Maybe he is in Hawaii. Maybe he is in Hawaii. I don't know. You never know these days. They never know these days. Anyway, it was a pleasure. Thanks, Wayne.

Really appreciate it for coming on. Take care, everyone. Talk to you next week.