Moody's Talks - Inside Economics - CPI and Census

Episode Date: May 14, 2021

Adam Kamins, Director of Regional Economics at Moody's Analytics, joins Mark Zandi and the Moody's Analytics team to discuss the recent inflation data and 2020 Census. 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 colleagues. Ryan, Ryan Sweet, head of real-time economics. Ryan, how is your week? Busy, really busy. A lot of important data came out. I know. We're going to talk about that in just a few minutes.

So buckle in. You're a – someone told me you're a Yankees fan? No. Oh, the most offensive thing in the world. Oh, I'm a huge red Sox. I'm sorry. I'm sorry, Red Sox fan. Red Sox.

Is that right? Yeah. That is correct. And you take great pleasure when the Phillies aren't doing so well. I do. I do. Yeah, I think they had a tough week. Because, I mean, as a Red Sox fan, I mean, the last, you know, 10, 15 years have been the best years in their franchise history.

So it's been a good time. I'm sure you have a lot to do with that. No. Your fandom. No. Okay. I am pretty superstitious, though. You're superstitious?

You're a very superstitious guy. Yeah, I play baseball throughout college. So, you know, it's just in my nature to be superstitious. Oh, so just let us, like, give me, I have a couple superstitions myself, really bizarre ones. I'm not even going to talk about them, but can you give us one of yours? When it comes to economic data, like when retail sales came out this morning, I have a superstious. I can't listen to like the numbers come out on the radio or on the TV. I have to go to the source site and I got to click it right.

at 8.30. And I have my, usually I cross my fingers and, you know, it's weird. I'm not kidding. My wife thinks I'm nuts. You are under such pressure, my friend. Oh, my goodness. We're going to have to somehow help you out with that. I don't know. That sounds pretty, pretty difficult. Oh, goodness. Hey, Chris. Chris, Chris, uh, deputy chief economist. Hey, Chris. Uh, what do you mark? Mark. Do you have what, oh, I know you're a, you're a, what's that Italian game, Bachi, Bochi, Bucci? Baching? Yeah.

You play that? I have played it yet. You have played it? You have played it? Clearly, but yeah. Yeah. You didn't play that in college then? I did not. I did not get a Bachi scholarship.

No. No Bachi scholarship. Right. Are you a baseball fan? Not really. Not really. Not really. I grew up near Detroit.

So, yeah, tigers, I guess. But, yeah. I couldn't tell you how they're doing. So do you have superstitions too? Like Ryan just described? I think we all have superstitions. I can't think of any right now. Yeah.

Okay. All right. Okay. Well, that's good. You don't have the same kind of pressure as demons that Ryan seems to have. And we have Adam Kamens. Adam is head of our regional economics. And Adam, welcome.

Thanks, Mark. How was your week, Adam? It's pretty good. Didn't we, we were on a conversation. Oh, we were answering questions from a webinar, right? We started the week together. We're ending the week together. We're ending the week together.

Do you want to know my superstition? It's like weird. It's a little weird. But maybe I shouldn't tell you. I think you got to talk to. You have to. All right. So every, when I'm not traveling, I have blueberries.

every morning, you know, with, you know, oatmeal and the banana. But I have to wash the bananas. Excuse me, not the bananas. The blueberries at least 10 times. If I don't wash the blueberries, you know, wash the blueberries 10 times, it's not going to be a good day. That's, that's weird, right? That's a little. That's much weird than mine. Is that, uh, is that superstition or OCD or something? I don't know. That's weird. But anyway, I should, have said that, but now you know a lot about me. Okay, so three parts to the conversation. Actually, maybe four parts. We just had the first part, but the next part is the data, the statistics, and, you know, we're going to talk about inflation because that's top of mind for everybody.

Got consumer price inflation this week, so we'll dig into that in just a minute. And then the big topic, this week, I thought we talked about demographic trends. I mean, you know, people might think, oh, that sounds a little boring, but actually, demography is destiny, and we'll talk about that. And Adam is going to give us a sense of what the, because we just got the results from the census 2020, and we want to get Adam to brief us on that. And then I'll, at the end, tie it all together and give you a sense of where we landed on things.

So the data, let's talk about the data. So I think we should talk about the CPI, the consumer. or price index, right? I mean, it seemed like the natural place to start. It was a surprise, right, right? It was. So the CPI rose 0.8%. The consensus was 4.2%. Yeah. It's one of the biggest misses that I can remember going back several years with the CPI. Usually the CPI comes in within, you know, one or one tenth of the consensus. So this was a big, big miss. Yeah, and what was behind the this. Two things.

The semiconductor shortage, which drove up prices of new cars. But since we have this shortage of vehicle production, people are getting pushed into the new vehicle market and used car prices. We're up 10% in April. Hold it. I mean, the chips, I know chips are in short supply. They can't produce as many cars. The automakers are pulling back on their vehicles.

So they actually raised prices on the new vehicles? They did. They did. Okay. And I thought used vehicles were up a lot, but that goes to the lack of new vehicle sales. Correct. During the pandemic, which means fewer off lease vehicles now. And that drives up the price.

Yeah, they could be part of it. But then you hear these anecdotes where their new car inventories liens. So people are going into the used car market. And that's driving up prices there. So when you look at it's demand too. It's demand. So when you look at new and used cars prices, that added three tenths of a percentage point to the April CPI.

And then you have the reopening effect. So if you look at lodging away from home, which is hotels, motels, rental cars, those prices spiked. When you add up all the reopening components, that added another two-tenths of a percentage point. So vehicles reopening, roughly 60% of the CPI, accounted for the. a increase in the CPI in April. So again, I think you were forecasting three-tenths and we got eight-tenths.

You're saying the miss there really is that the these kind of one-off feels like kind of one-off effects, which I'm sure you anticipated to some degree. They just all came at once, it sounds like. Yeah, I thought vehicle use car prices were a big wild car because, you know, one of the inputs into the CPI for vehicles as the Mannheim index. And that, you know, just was off the charts, but I didn't anticipate it to like fully catch up and it pretty much did. And then these reopening effects. I mean, we had some in March, like lodging away from home, rental car prices. And I didn't think that it was going to be persistent for another month. I thought we'd get a little bit of

payback. But that didn't come to fruition. So do you think we're done? Do you think the, that the, the rental car companies, the hotels, the airlines have normalized prices, and we've pretty much passed or passed all this. I think we have several more months of this. Several more months of this. Yeah. Okay. But you view this as a Fed official would say, this is transitory.

It's temporary. Yeah, exactly. Because, I mean, you only reopen the economy once. So, you know, after we get through this, you know, probably by the next school year, you're going to start to see, you know, things, inflationary pressures begin to moderate. Right. Hopefully. Chris, are you as sanguine as he is on these inflation numbers?

That this is temporary. And, you know, once we're on the other side, the next few months, the inflation will, will abate. Yeah, I'd agree. I think we're going to have the summer of spending here. Everyone's out there once demand's going to come roaring back here, or is already roaring back. And we have these supply chain issues. But once we work through these, we'd,

get on the other side of summer, labor market's going to be more normalized by then, schools opening up, or more labor supply coming into the market. I think things work themselves out. But that's not to say, it's still my number two risk, right? Right after COVID. Yeah. Risk meaning that inflation might end up being more higher, more persistent than anticipated. Yeah, there's the psychological component, right? The expectations get embedded. And then you're, that's hard. to fight, right? Exactly. So we actually got to read on that, didn't we?

With the University of Michigan survey consumer sentiment index, they asked respondents about their one year ahead inflation expectations, and I think it's the three year ahead, isn't it? Three year or five year ahead? Five to ten. Oh, is it five to ten? Okay. And they were both up a lot, right?

Gas per cent. You think it's simply just consumers are focused. on the fact that the gallon of regular unlead is over three bucks. Of course, the Colonial Pipeline Act didn't help. I mean, the survey overlap that almost perfectly. So you know, you hear all the anecdotes of supply shortages for gasoline. And prices jumped in, you know, I think in the south and parts of the Northeast. So really people's short-term inflation expectations are based on gasoline. And then if you look at the relationship or the correlation between long-term and short-term inflation expectations, what people think inflation today gets embedded in what they think it's going to be five, ten years from now. So I don't think this is going to be very sticky.

I think it's going to come back down once we get gasoline prices to normalize a little bit. Okay. So you had to jump in food prices too, right? Correct. That's certainly something consumers are tuned into. Yeah. I did notice, though, did you see the... Philadelphia Fed survey, senior of professional economists.

By the way, we participate in that survey. Do you watch that survey at all? You guys look at that survey at all? You do. Did you notice that because there's long run inflation expectations, they asked the professional economists, what is your expectation for both CPI inflation and core consumer expenditure,

deflater inflation, which is that PCE is what the Federal Reserve uses for benchmarking monetary policy of a 2% target through the business cycle. And they have, they've risen quite a bit that on CPI, I think 10-year expectations are now 2.4, 2.5%, something like that. And core PCE is kind of 2.2, something like that over the next 10 years. So I, for me, of all the measures of inflation expectations, that's the one I put the most weight on. Maybe because that's my expectations. I'm one of the contributors. We're one of the contributors, but I find that to be the most stable in a measure of inflation expectations.

It doesn't move around a lot like the University of Michigan based on current data. And so if it moves, that's, that's a big deal. And it has moved to a significant degree. Do you think it's just, worry about that at all? Do you think it's some economists just taking the Fed at its word and that they're going to aim for slightly above 2% inflation? So that's what they're going to pencil into their long-term forecast.

So they find the Fed credible. They're saying the Fed wants it. The Fed's going to get it. One way or the other, they're going to get it. Yeah. Right. I'm sure there's some of that. Yeah, absolutely.

Yeah. But you're not, now if that started to tick up, from 22 to 23, to 4 on core PCE, then you would get a little nervous about this, but... Yeah, I would. You would? Yeah. Okay. You too, Chris? Yeah, for sure. Yeah. Yeah, so we've got to watch that.

That's a very good indicator. Any other measures of inflation expectations we should be watching? I know you, Ryan, put together a inflation expectations. What do you call it? A tracker, I think, don't you? Which is a compilation. Well, Evan Carson. one of our colleagues helped create this inflation pulse index. So it takes a lot of the market-based and survey-based measures of inflation expectations. It includes a fully Fed survey and basically combines them into one metric.

And we, you know, adjust it to be on a CPI basis because, you know, market-based measures are, you know, five-year, five-year-fours are based on the CPI. So we keep it that way. And then we adjust it to put it on a PCE basis, you know, because that's what the Fed, you know, pays close attention to. So that's weekly, and we updated it on our website, Economic View. And in the latest week, it was 1.98%, the long-term PCA adjusted inflation expectation. So it seems like they're anchored. Oh, that is fascinating. And what was the low? Do you recall?

I don't off the time of my head. Yeah, I'll love you get it. Okay. So, okay, so the CPI jump was transitory, as the Fed would say, later this fall end of year, that'll start to come out of the inflation statistics. You would worry if inflation expectations started to pick up, but that hasn't happened yet to any meaningful degree, although it has risen, but that's to script so far, more a feature than a bug, I guess. What about wages? So, It feels like that could be the other way that this turns out to be more than just transitory, that this becomes a more fundamental upward shift in inflation. Because if wage growth has accelerated, that's such a labor is such a key input into so many

business activities that businesses will be under pressure, raise prices in a more consistent way. And that would be an issue for longer term inflation. Any concern there on the wage side? Yeah, you know, if you look at the average hourly earrings that came out last week or the employment cost index, I think that also came out last week. Any sense there? I mean, you're hearing stories of signing bonuses and other wage pressures related to, you know, the reopenings in the different industries. Any concern about that, Chris or Ryan? Again, I view those as largely temporary. The labor supply is an issue, right? UI benefits, maybe part of the story, but child care and pandemic are also having an impact here. So until we work those things out, there is going to be more limited supply of labor,

but I'm expecting that to fade throughout the summer and therefore those pressures fade as well. Yeah. Okay. Actually, there's two other data points I think kind of give me some solos around inflation, longer run, that the acceleration that we're experiencing, experiencing as to script, it's a feature, not a bug. One is productivity growth. That remains strong.

I don't know if you caught the Q1 data, but that was quite robust. And I don't know if people have been keeping track, but productivity growth in recent years, really almost the past five years has accelerated and it's very close to its long-run trend. So non-farm business productivity for much of the post-World War II period has been about 2%, give or take. It was very low in the years following the financial crisis. But in the last five years, it's almost back to that long-term trend, 2%, which is encouraging. And even more recently, stronger. And of course, productivity growth will tick up coming out of recessions.

Output coming out of recessions picks up faster than employment. So you get this pop to productivity that's. turns out to be generally temporary, but it feels like it's lasting longer than that. Do you guys concur with that sentiment? Yeah. Okay. Yeah, and I think if you look at business investment in intellectual property, particularly R&D, that leads productivity, and that's been really strong over the last, you know, a year or so.

So I think, you know, productivity growth could, you know, continue to come in better than what people are anticipating post-pandemic. No, is that right? I had not noticed that. So if you look at the growth in investment and intellectual property, that tends to lead measure productivity growth. The lags are long. It's, I think, 13 or 14 quarters. But this suggests that, you know, maybe this expansion will see stronger productivity growth that we saw, you know, after the Great Recession.

Right. I got a cool curve. It's a cool. Yeah, I'd like to see that. And the other data point that gives me some solos here is the, or it's not a data point, but just a trend is the work from anywhere dynamic that we talked about last week. That may be, you're seeing people move from higher cost areas and moving to lower cost areas. and that may also dampen wage pressures and inflationary pressures if that dynamic continues. I know, Adam, you've been looking at that trend, right?

Work from Anywhere dynamic. Yeah, that's right. Interesting, actually, if you look at the employment cost index regionally, you can see the southeast is way ahead of the rest of the U.S. The mountain west is pretty high, too. And so those are the types of places people are going to as part of this work from anywhere trend. So you are starting to see wage pressures pick up. more significantly in some of those regions that people have been migrating to when they have this

increased flexibility built in. Oh, interesting. Interesting. Okay. Anything else on the day? Oh, Adam was telling me you have a data quiz for the group around, I think you said it's around Census 2020. So that might be a good segue into the next part of this conversation. What do you think of retail sales? Oh, you tell me, what should I think about it, Ryan, before we go to the quiz that Adam's going to give us. But yeah, what do you think? They're flat. It's not a huge surprise.

I mean, you got weather payback. You got some fading support from the fiscal stimulus. We weren't going to be able to grow 10% plus in retail sales month and month out. But I do think a word of caution for the next. several months, maybe through the rest of the year, retail sales are going to be weak, most likely, because if you look at the level of retail sales, it's roughly $620 billion.

If that pre-pendemic trend remained, but it should be closer to $550 billion. So we basically brought forward three, four years of retail spending, and now with the economy reopening, people are going to shift back towards consumer services, all that pent of demand at the expense of retail sales. Yeah, but what about the two points? $3 trillion in excess saving this out there.

That's the saving above which would have occurred without the pandemic. That's 10% of GDP. A lot of that's sitting in people's bank accounts, they're going to be spending that, sure, on restaurants and travel and haircuts, but you don't think they're going to continue to buy cars and stuff. No, I think they will. I just don't think retail sales are going to be growing as quickly as they have recently.

Right. You're not going to buy more exercise equipment? Yeah. There's only so many Peloton bikes you can fit in a house. How many Peloton bikes do you have? You only have one. You got a one? Oh, you got one.

You got a Peloton? Oh, that's, yeah. Adam, do you have a Peloton? No, but we had two spin bikes in my house for most of the past year. My wife is a spin instructor. Oh, she is. Oh, I didn't know that. Yeah.

And do you have a Peloton, Chris? I do not. Yeah. I highly recommend it. I do. I have one. I got one early on in the pandemic, and it really has been kind of a lifesaver during the pandemic, particularly in the wintertime. Yeah.

Now I can, I'm going back to the Y, right? So, you know. Have you gone back yet? I have. I have. Oh, okay. Yeah. It's nice.

Yeah, I'm going to go back to the gym soon, too, as well. So retail sales, it was flat. You think that presages are relatively soft. retailing numbers going forward. I don't shift their spending back to services. Yeah, because markets pay a lot. I quite very close attention to retail sales. First kind of solid barometer of spending every month.

Yeah. But I think the service numbers that come out, you know, towards the end of the month are going to be much more important going forward. The only, the only thing I'd say would be an exception to that is cars, vehicles, right? Because vehicle, there are a lot of pent demand for new vehicles. And that may be, we got a big number, I think it was in April, 18.5 million. Yeah, that was the biggest April sales month in history. And it might be a little depressed going back to your point about chips

and the inability of the automakers to produce enough cars. So that might push the satisfaction in this pen up demand later in the year into next. So that might be one exception with regard to retail sales. Yeah. Okay. Okay. So, Adam, fire away. What's your quiz?

All right. I know you guys have these numbers you throw at each other. This has got to be reasonably doable. You know, you just can't. Okay. So if I just gave this number out of the blue, this would not be doable. But you know what I'm here to talk about. All right.

So the number is 18.4% or 1.7% annualized. It has to do with the data I'm here to talk about. The census 2020. Yes. And it's, you said 18.7. 18.4%. 18. Oh, I think I can take a guess.

Unless someone else wants to go first. Do you want me go? All right, I'll go first. That's the percent of the population that moved in 2020. That's a good guess, but now. Is it a state's population growth? There you go. What?

Utah. No way. Wow. Yes. I just was going for the fastest growing states, population growth. I was really curious. You nailed it.

Wow. Wait. Oh, he's a champ. Hold on. Hold on. How did you do that? You're telling me Utah's population grew up, grew 18.4% last year?

Over the past 10 years. Oh, okay. All right. 1.7. I would have gotten that too if I knew it was over the last 10 years. I said one point seven. I was. I was going to say the census was wrong.

No way that. I know Utah is growing fast. but not 18.4% fast. Well, okay, well, how many, what's the percent of the population that moved last year, Adam? You don't know. I don't know that.

It might be. We'll just say it is. I will just say it is. All right, is it? I always love these quizzes. Does anyone else have a quiz? One more quiz before we move on to the census 2020. You got any quizzes, Ryan?

I was going to use vehicle CPI, but we already took that one. Chris, do you have one? Uh, 473. $4703,000, thank you. Yeah. And Ryan, I think you know this one. 473,000.

Yeah. Oh, is that? I don't know. Yeah. Is that initial claims? Yes. Oh, there you go. Yeah.

Weekly initial claims, yeah. First time below $500,000 since the pandemic began. Yeah. Because of the revision. Right. Because of the revision. Still very high. Hey, let me ask you one more question before we move on to census.

We may never get to the census because there's just too much to talk about. But the one thing that I've heard over and over again in the media, actually from clients and other folks that I talk to, is that the supplemental unemployment insurance, $300 a week supplemental UI that was included as part of the American Rescue Plan. And under current law will be provided by the federal law. government through September is having a very significant impact on the willingness of unemployed workers to go to work.

This is one of the major impediments to labor supply that we're observing. And one reason why the UI, the employment numbers last week were on the soft side, what do you think of that? What do you guys think of that argument? Do you have a view on that, the perspective on that? I think there's some credence to that. certainly it's providing some disincentive to search for work as aggressive or take the first job opportunity that you find. So, you know, depending on your read of that, that's either

positive or a negative, right? It could be a positive if it means we're getting better quality matches. People don't have to take the first job that's offered. But in the short term, it could be limiting supply. But I don't think that that's the major effect. I think it's still the pandemic, the risks of contracting COVID to yourself or to your family, and childcare, I think, is really a significant factor in terms of folks not offering as much labor as we might expect. Yeah. Something that this would be right up Adams Alley is, I think it's 13 states. I might be off of the number of states are ending the expanded UI benefits next month.

So it would be good to track how labor force participation performs there versus the states that maintained it. Not to give you more work at them, but. No, but we have a natural experiment now. Yeah. I think it's 19 states now. Okay. We're doing it. Yeah.

Did you see? I think you wrote that. That's the only reason I know it. You wrote it, Ryan. For some reason, I have 13 stuck in my head. Did you see what Arizona is doing? Yeah, pretty smart. I like that.

Yeah. Go ahead. tell everyone. So what Arizona is doing is they're going to end the expanded UI benefits, but they're going to turn that into a rehiring bonus, meaning that if you go out and get a job, you get the benefits that you would have already received, which I think is a very creative way to address this, and hopefully more states adopt this because the federal government was going to pay these UI benefits, you know, for the most part. So why not just turn it into a rehiring bonus? Right. Okay. Let's turn to demographics, which is under-referral.

appreciated, I think, by people. You know, demographic trends, population growth, household growth, aging of the population, the race, ethnicity of the population, all these things may not matter a whole lot. Immigration policy may not matter a whole lot in a given month, given quarter, but over several years and certainly over several decades, it's a big deal. It drives a lot of what's going on economically and the outlook, the economic outlook. So what I thought we do, and thus I thought it would be important, it's important to talk about. What I thought we do, though, is that each of us would identify, because there's so many things to talk about when it comes to demographics,

one key demographic trend that they think is important for us to focus on, particularly in the context of what it means. for the economy and the economic outlook. And I've, you know, Adam, we asked you on, because we already picked it for you, Census 2020. That seems like a pretty big deal. So, but we'll go around after we talk about Census 2020, talk about some of these other trends that we each think are important. So, so Adam, fill us in.

What did, what did you learn from Census 2020? Sure. And just to maybe give a little bit of background, Census 2020 as well. So if people don't know that the state numbers were released in late April, which is actually behind schedule, it's typically released in December. We won't get more detail in terms of ethnic racial breakdowns, county level data until the fall, I believe. So there's a lot more to be learned. But a couple of things that really stood out, I think kind of from a macro perspective, we had the second lowest population growth ever, right, kind of continuing a downward trend there. but came very close to the lowest of all time,

but we were just slightly ahead of the 1930s. So little better than the Great Depression, not really where you want to be. But a few reasons for that. I think one is just international migration came down pretty sharply in the second half of the decade in particular, a lot to do with some of the policies from the Trump administration.

And birth rates are consistently moving lower as people have children later in life. And that's a long-term secular trend that we're seeing in the demographic data as well. Of course, as a regional economist, right, I'm most focused on some of the regional. Can I ask you on that? You didn't mention the obvious there was a lot of COVID deaths. Did that contribute or was that small in the grand scheme of things?

It was pretty small in the grand scheme of things. In the one-year estimates, 2019 to 2020, there's some, you know, that shows up a little bit. But even then, it doesn't really move the needle. It did. Okay. All right. And what about if you expanded out, not just direct COVID deaths, but, you know, increased deaths because of suicide or drug overdose and that kind of thing?

That might partially be related to COVID. It might a little bit more. Yeah. I mean, that number is so hard to quantify that it's hard to say what that would do. But if you ultimately, there might be a number of COVID deaths, right? There's been a lot of talk that maybe the number of COVID deaths actually. undercounted in many ways. So all told, you're right, if you kind of put all that together, I think the one year rate, you see some evidence of that. I still think of the 10-year rate.

It's hard to see much evidence of a COVID effect. Okay. Sorry to stop you. Go ahead. So regionally, the reason I mentioned that Utah growth rate at the top there is that so 18.4% was the highest growth rate of any state. It was usually. Utah this past year. The previous census, 2010, Nevada was the highest growing, fastest growing state, and it had almost twice the growth rate. It was about 35%. Ten years before that, it was Nevada again, it was almost 70%. So the top performing states are much less impressive as a group in terms of their population growth rate than they were decades ago. And I think that's actually part of this of a broader trend that we saw when we looked at the data of much more

convergence across states. So the slowest growing states are, you know, there's a couple that declined West Virginia, Illinois, I think Mississippi. But, you know, the bottom of the range is pretty similar, but the top of the range is just much lower than it was. And I think that has a lot to do with the fact that just people aren't moving as much, right? So if you look at the mover rate over time, which I guess gets the question you asked me before, which I think is something actually like 7, 8 percent or something of the population. But it's been consistently declining over time. And I think you're really starting to see that show up in some of the interstate move

data now as well. And so a lot of states in the Northeast, New York, New Jersey, Massachusetts actually did better in 2020 in terms of their growth rate than they did in 2010. And some of that might just be there's less migration overall, which means less. out migration. Some of it, though, is just kind of weirdness in the data, too. Yeah. I mean, that sounds all pretty standard and fair. If you ask me, what would the Census 2020 show that I'd say that sounds pretty consistent with it. Is there anything in the data that go, oh, that's odd. I didn't expect that. Was there anything that's yeah. Yeah. So

the last thing about the Northeast jumped out. So if you actually look to the census, they produce annual estimates, mid-year estimates each year of population. And so one state, for example, that stands out in the decennial census was New Jersey. So if you follow those yearly estimates, New Jersey was kind of growing, modestly, and really kind of leveled off over the last five years. And to me, that's pretty consistent with the New Jersey narrative. It's doing fine. It's not losing residents, but it's not really growing at a significant clip.

The decennial census actually showed New Jersey growing pretty significantly, which was really surprising. I think, and maybe part of it is that their mid-year estimates are missing. Couldn't that be New York residents from Manhattan moving over into New Jersey? Maybe, but New York was also really strong. Really? So, yeah, New York was surprisingly strong. Massachusetts was surprisingly strong.

So we've actually started bugging some people over at the census period to see if we can get a better idea for why this mismatch. I thought New York was strong just because. there had been an effort there to count more vigorously. Well, that is one of the theories from what happened. And actually, we saw right to the flip side of that as the sunbelt looked very weak. So Arizona, right, the main reason kind of for this initial statewide release in the numbers is to delegate house seats. Right. So people who were kind of following this and predicting it expected Arizona was going to gain a seat.

And that New York might lose two seats. And ultimately, Arizona did not gain a seat. New York lost one and barely lost one. And I think to your point, I think part of that may be that there were significant efforts in the Northeast. Minnesota is another one that invested really heavily in getting word out about the census. They ended up not losing a seat when there was a lot of thought that would lose one. So I think you're right. I think the other question that's sort of out there is was there an undercount of Latinos?

and that is not entirely clear yet. We've started to dig into the data. We're going to really need to see more detailed demographic, you know, ethnic data and county data to get a better sense of that. But that is another kind of theory that's out there. Yeah, got it. Hey, also, as you said, the census is key to representation. When you look at it, R versus D, were there any significant changes here?

generally it is more favorable to red states right that the sunbelt or Texas Florida adding seats losing a seat in New York losing a seat in California for the first time ever generally that that is a more favorable story for for the Republicans now that the kind of a longer term picture there's a little bit more complicated because a lot of these states that are that are adding seats are states that are states that are trending more democratic, right? So Texas, who knows if or when that will ever happen, but it has been trending a little bit bluer each cycle. And so eventually that could even out. But short term, it's more favorable for the Republicans. And could it be like in the case of

Texas that the population growth is the Hispanic population that would be more D than R or is that am I stretching it too far? Well, I think it is more D than R. And I think part of it is Hispanic population growth. I think another big part of it is young tech workers coming to cities like Austin or Dallas. They also are more D than R. So eventually those people that are coming in are tilting the balance. They're just not tilting it as rapidly as a lot of the Democrats would like. Right. Got it. Okay. Good. Thank you for that. That was a good, good summary. Ryan, Chris, any other questions for Adam regarding the census 2020 before we move on? don't need any just curious okay all right so chris uh what's your demographic trend

what what are you focused on you want to guess oh geez uh no i don't okay i get it Ryan might because he gets everything that you know that's right it's got to be tied to the housing market of course he's so good he's so well oh I know what it is I know what it is I know what it is Thank you, Ryan. Household formation? No? Not exactly. Related. Related? Okay. Far away. I think a key demographic that we should keep an eye on that kind of flies under the radar is multi-generational housing or multi-generational households. That's a rising trend that I think few people are keyed into. And it has real implications in terms of household formations and housing developments and housing developments.

going forward. And from my perspective, it's the increase in multiple generational housing is going to limit the amount of new housing we may ultimately need. Not that we don't have a shortage today, but we might not need as much in the future. How big a deal is it? I mean, do you have any numbers? There's a, yeah, according to Pew, there are 64 million people living in multi-generational households, about 20% of the population.

And it's been growing. kind of bottom out in the 60s and then it's been steadily growing since then. And what's driving that dynamic? What's going on? So part of it is just the composition of immigrants, right? So if you look at this by race or ethnicity, Asian and Hispanic headed households tend to be more multigenerational and we do have those trends increasing. So that might be part of it. And I think just the economic circumstances, Certainly, if you think about COVID, younger generation not able to go out, buy a home,

start their own household, right? Either they're constrained or in some cases, certainly by choice now. People prefer if they're able to work remotely, right? Maybe I don't want to take on that big expense. And I think what happens is, in some cases, certainly, that younger generation doesn't break out. They're at home.

Maybe the parents are providing, their parents are providing child care as well. And I think these social relationships get cemented, and therefore you don't feel the need to form your own household in the future. And I think that's a trend we'll see continue. So I can't quite remember, but there's, I want to say, six, seven million people, young people that are, that are still living with their parents

that typically would have struck out on their own at this point in their life cycle. So this is a lot of boomers. And the median age of a boomer is in the low 30s now, I think. Millennial. Oh, excuse me, the millennial. I wish you were the boomers. Yeah.

I'm the boomer. I'm the boomer. I don't think any of you guys are millennials, though, are you? are you, none of your millennials, right? You're, your exors, I think, aren't you? When's the first, when's the first millennial? It's 1981.

Yeah. I think Ryan is. Right? No, you just missed it, right? Yeah. Yeah, I would have been the Papa Smurf. Yeah. Of the millennial generation.

Yeah. So, but there's six, seven, eight million of these folks that typically would have struck out on their own. are still living with parents. That's what you're saying that many of those folks won't, won't strike out. They'll stay with the rest of their family in these multi-generational households. So we're not going to see everyone like me who expected those households to form

and they haven't, and you're saying they probably won't, or in many cases they are. Some portion, right, obviously. Some portion of it. Yeah. Say half, right? Yeah.

It would be significant already in terms of. of our look. Yeah, it's like $7 million. That's a lot of households that aren't going to form. Yeah, right. Yeah, that makes a lot of sense. So, you know, I think our household formation, we're expecting something like what, 1.25, 1.3 million per annum over the next decade.

Are you saying that, does that feel right to you, or do you think we might be on the high side because of the multi-generational effects? I think it might be a bit high. A bit high. Okay. Yeah. All right. And of course, one interesting factoid, this is based on CPS data, current population

survey data. The number of households actually were down on a year-over-year basis in the second quarter, third quarter of last year, on a year-over-year basis. They actually declined. And that goes back to the pandemic. That was the first decline in the households over a period, over a year. I think since, I don't know, ever, or maybe you have to go back to the Depression, you know, to find something like that. That kind of a decline.

So it has bounced right back up. So what you saw when the pandemic hit is a lot of young people went back to live with their parents or doubled up with, you know, friends. And so the number of households declined. But it's now kind of come right back to life again as the pandemic is starting to fade. So interesting factoid. Okay, that's a good one. That's a good one, Chris. Ryan, what's your demographic trend?

I don't know if you're not going to like it as much as Chris's, but I'm watching the birth rate or a number of births. It's fallen for six consecutive years. And we're now below like the replacement rate. So more people are dying every day than are being born. And this is all data from the CDC, so the center of disease control. So I think that's going to have not economic implications next year,

you have to put longer term, you know, as the millennial generation moves on and then the back generations, it doesn't seem like population growth is going to be as strong as I would have thought a few years ago. Yeah, the pandemic really did a number on burst, didn't it? Yeah, I mean, I remember. Go ahead. I remember when the pandemic started, we were just debating, you know, is it going to be a baby boom, a divorce boom? And I don't think we have, I think it turns out it was a baby bust. Yeah. I mean, because in other kind of quasi disasters, you saw a baby boom, right? Because people were stuck in home. And I mean, I think there was this one famous event where I guess power went out in New York or something, you know, for a while. And there was actually a baby boom nine months later. I mean, exactly nine months later. But that did not happen. Just the opposite. This spooked people, you know, to a significant degree. Do we have any data on divorces yet?

I haven't seen any. I haven't seen anything. I've been looking also. I don't think we have anything yet. We don't have anything yet. Yeah. So do you think bursts will pick back right up again as the pandemic fades away? People will get right back to, or do you think this is going to have longer, the pandemic

is going to have longer lasting effects on the birth rate? It might have longer lasting effects. I mean, the number of births have fallen for six consecutive years. So, I mean, the pandemic is only one of those years. It seems like there's like a structural change going on. Yeah. Yeah, that would be a problem. I don't have any good theories behind it.

I mean, and my wife threw out one the other day, she's like, I think younger people are worried about climate change. And they're like, you know, should we have children when, you know, it seems like the end of the world is coming. Whoa, honestly. Is that right? That's our theory. Contributes negatively to shadow. Yeah. Yeah.

Yeah. Wow. Boy, that would be something. Yeah. It's also a terrible movie. Yeah, right. Yeah. Okay.

Do you want to hear mine? Yeah. Anyone interested? For sure, of course. I actually, there's two key trends. I'm not sure which one I should talk about. One is around immigration. I think we might have mentioned that.

Obviously, immigration is way down. And that's a big deal if that doesn't normalize, you know, before President Trump, immigration, you know, bounces around a lot in any given year. But it was, it was about one million per annum. That's both legal and undocumented. And that fell sharply during the Trump administration. And Adam mentioned the policy. That clearly played a role. And then the pandemic, you know, obviously played a role.

And I think we're estimating immigration last year at about 250K. So that's a big come down. And that's a big deal in terms of everything. You know, labor force growth, long-term labor force growth, thus economic growth, household formation and housing activity, just general demand. We are, I do expect it to rebound with the pandemic winding down. And, you know, with the Biden administration, I suspect they'll reverse Trump's anti-immigration policies and we'll start getting that back up.

But that's something to watch. That's a game changer if that doesn't pick up in a big, in a significant way. Not only in terms of people, but there's a strong evidence that immigrants are key to productivity growth as well. They're generally, by definition, risk takers. And they start companies at a more prodigious rate than domestic residents. And that's key to, obviously, innovation and change in productivity gains. But that's not the one I want to talk about. I do want to talk about something that came up in our conversation, our podcast last week with Adam

Mozemeck around aging and productivity growth. And we alluded to it. I'll mention it. And I think it's very important to the outlook. And that is that there is a very strong relationship between the aging of the population and the slowing and productivity growth. In fact, we, in the work that we did, Adam, Dante, I, there was someone else that contributed to that study. I can't quite remember who that was. We found that one of the most significant reasons for the slowdown and productivity growth in the post-financial crisis period, the last decade compared to previous decades, was the aging of the boomers into their 50s and 60s.

And, you know, we demonstrated this by looking at Adam, you'll appreciate it. Adam, you appreciate this, looking at state-level data and cross-country data. And, you know, it's a pretty definitive kind of relationship. And the key statistic is the share of the workforce that's over the age of 65. So, you know, if that rises, then that puts downward pressure on productivity. A couple things about that. But we did investigate why. So what's the intuition behind that result?

Why would aging slow down productivity gains? And we had two key theories. One theory, which I was hoping for, we called the wise man theory. The wise man theory is that what happens is when older workers leave the workforce, they take a lot of institutional knowledge with them. So when I leave Moody's, you guys are doomed because, yeah, there you go, because, you know, I'm the glue that keeps it all together for you guys. You guys, it's just going to be, you know, Lord of the Rings when I'm, or not Lord of the

flies when I'm gone, you guys. So, but I take a lot of institutional knowledge with me. And the competing theory, just the opposite, the Albatross theory, that is, I'm keeping you guys down, right? Because you guys have invested in new technologies, you've got other ideas, you have more energy, but, you know, because I'm not leaving and Chris can't become chief economist until I leave, I'm holding you guys down. So I'm going to ask you guys, which of those two theories do you think it is that we found? You better, go ahead. When are the performance reviews?

I think we did them. I think they're done. Feel free. Go away. Fire away. Yeah, well, yeah, as listeners, probably figured out, it's the albatross theory. That is quite definitive. It's not the wise man theory.

So guys like me, you know, are keeping the younger guys from realizing their potential and taking advantage of all the new technologies that have been put in place. One other final point. The drag on productivity growth from the aging of the population has peaked. That peaked about a year or two ago. It's still a bit of a drag, but the drag is diminishing now because, you know, boomers are now aging well into their 60s and are leaving the workforce and it's becoming less of a deal.

And if you look out towards the end of this decade, it will no longer be a drag. So this aging headwind to productivity growth should start to wind down as we make our way through another reason to be a bit optimistic about you know productivity gains going forward so I thought you'd find that interesting um so uh so you you knew it was the albatross not the not the wise man yeah I figured you did no I think it's the wise man you think it's the wise you got problems in the data okay um okay uh any other uh last minute demographic trends you want to point out or we kind of exhausted I mean there's many but any others want to point out quickly?

No? Adam, any other good ones? Okay, already. Okay, we're going to call it quick. I do want to bring it all together there for you. I often joke that I should be the subject of a reality TV show because I am soon to be 62 years old. 62 is the, I think it's the peak year of the baby boom generation. So if you, you know, if it's not 62, it's like 61 or 602, you don't want to guess.

And that used to be the largest single year age group in the country. But apparently, you know, when you get into your 60s, you know, people start to, you know, leave us. So that's starting to get, be a bit smaller. But it's still a very large single year age cohort. And then you want to guess what the second largest kind of single year age cohort is, you know, what that is, what year that is. This you should figure out. So if I'm 62 and I'm the largest single year age group, and abstracting from the 61 and 60 year olds, what's the second largest single year age group? Do you want to guess?

This is, this is, you should deduce this. See, this is why it's the wise man. It's not the albatross theory. What do you think? 32, exactly. You've heard me say this before, right? No. Very good.

Excellent. Exactly. 32. My first born, the firstborn of the boomer is 32 years old. And that's the teeth of the millennial generation. So I'm 62. My son isn't quite 32. He'll get a little bit more than that.

He's a little younger than that. But he's pretty close. So whatever I'm doing in my family's doing, the, you know, a big chunk of the population is doing. And, you know, we're a pretty good read on, on demographic trends. And demography is a destiny. And here's something that's a little counterintuitive for people. When we talk about economic forecasting in terms of accuracy, we are actually, as economists, not very good. at forecasting what's going to happen, except for Ryan, you know, next week or next month or

next quarter. But because, you know, that's subject to so many kind of random events and things that, you know, weather and seasonal adjustment issues and events and cyber attacks and pandemics and, you know, political events, Georgia's Senate races. I mean, all kinds of things that, you know, literally you can't, you just can't predict. I mean, these are random events. But we are actually quite good at forecasting, you know, three, five, seven years out. And that's, I think, largely because of the demographic trends.

I mean, the demographic trends, three, five, seven years from now are already kind of in the data now. because we know, you know, how many people are going to be around three, five, seven years from now with a reasonable degree of certainty, you know, where they're going to live, you know, what their ethnicity is going to be, what their income distribution is going to be. And those things, those are the things that, you know, ultimately how many households are going to form, how many people are going to be in the workforce, you know, what's their educational attainment. Those things are already, you can take what's happening today and have a very good sense of what they're going to look like. certainly three, five, seven years down the road. So we're pretty good at, and these random events that mess up the forecast, they kind of iron themselves out, you know, three, five, seven years from now. So we're pretty good at forecasting out three, five, seven years.

I will say, though, if you look out much farther than that, certainly ten years and beyond, then it gets tricky again because at that point, the technology shift and change and there are broader forces at work that can, you know, change the trajectory of an economy quite significantly. So I think the sweet spot for us as economic forecasters is actually three, five, seven years out. And a lot of that goes back to we pay a very, very close attention to those demographic trends and, you know, what they imply about the future. And, you know, there's a lot of moving parts here on demography. But I will say that I do think, that our economic outlook, three, five, seven years from now should be pretty good,

particularly if we get the kind of normalization and immigration policy that I'm anticipating. And just given the aging of the population and the boomers leaving that workforce, we should see productivity gains start to improve again. So my sense is that the economy's underlying growth rates, certainly five years, seven years from now, will be higher than they are today. And I think we can trace that right back to the demographic trends that are becoming evident today. So with that, we'll call it a podcast.

Hopefully you found it of some interest and value. And again, if you like what you're heard, please rate us. Those ratings are very important to us to go to Inside Economics and give us a rating. and one other thing. We haven't turned to your questions yet, but we will. We're just collecting them. So please fire away. If you have any questions you'd like us to answer,

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