Moody's Talks - Inside Economics - LNG and Long Tail (It's a Groundhog, not a Chipmunk)

Episode Date: October 1, 2021

Mark, Ryan, and Cris discuss unemployment insurance benefits, Delta variant, and what happened this week in Washington, DC. The main topic is the long-term economic consequences of the pandemic. Also, Mark reveals his favorite movie.Full episode transcript can be found here. 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 my two colleagues, per tradition. I've got Ryan Sweet, Director of Real Time Economics, and Chris DeReedys, the Deputy Chief Economist. Hey, guys, we have no guests this week, a little unusual for us. We're going solo, I guess. How do you feel about that?

Mix it up a little? This reminds me of the first couple podcasts we did, right? I mean, I don't think we had guests on the first one or two or three. A little bit of nostalgia here. Yeah. It's good to have guests, but I think it's good to, you know, go it alone here. I think we'll, this will be very productive. Now we're on.

It probably won't be an hour and a half podcast. So, listener, you'll be off the hook. Well, I don't know. Ryan's pretty long-winded, so it could be. Well, now I don't have to be on my best behavior because it's you and Chris. Oh, that's true. Oh, that's good. Yeah.

Unleashed. Unleased, Ryan Unleased. Yeah. So how was your week? How did it go this week? Anything unusual? No? No.

Like Groundhog Day? Yeah. By the way, that's my favorite movie of all time. Did you guys see Groundhog Day? Oh, yeah. Multiple times. Bill Murray. Yeah, Bill Murray.

And what was the actress's name? She was good. Shoot, just slipped my mind. But it was a great movie. Fantastic movie. Yeah. That's felt like Groundhog Day for me since the pandemic began. I know.

But, you know, it changed up for me this week. You know where I was? D.C. I spoke at a, yeah, I was in Miami. I spoke at a commercial real estate conference, NAOP, which is the National Association of Office and Industrial. Hmm. I don't know what the P stands for.

I'll be mad at me. We sponsor, apparently Moody sponsored. I didn't know that. But it was good to be in front of an audience. I had forgotten how energizing that is to speak before an audience. Before you move on, your favorite movie of all movies is Groundhog Day. Yes, indeed it is. Indeed it is.

I have seen that movie, you know, maybe a dozen times. Yeah, I love that movie. All right, Chris, what's your favorite movie? You don't know why? But, I mean, that's such a, to me, that's life right there. You know, you do every single day. You do basically the same thing. You know, sometimes you mix it up a little bit.

It's a good movie. Yeah, basically, and it's all about perfecting, I think, that day, you know, making sure that, you know, you do the, each day is a little bit better than the next day. And, you know, it's not a straight line, obviously. Bill Murray didn't have a straight line. And it's, and the other thing is, it's funny. It's a funny movie. Remember the scene with the chip monk in the truck? That was hilarious.

I still laughing. I've seen it a dozen times and I still laugh every time I think about it. Anyway, well, we're going to get off this topic, but next week I'm going to, Ryan, I'm going to ask you what your favorite movie is because I would like to know. You'll be surprised. True insight. This is true. And Chris, you too. And it's not, and it can't be some Italian 1945.

Yeah, that's where he's going. Yeah, I know he's going to do that. Some artsy movie director, you know, Rudolph Valentino kind of thing going on. Anyway. Well, what's that? More of a Federico Fellini fan. Okay. Well, this podcast, we got a lot to talk about.

Obviously, the data, the statistics, and what we've learned about how the economy is performing. It's Marino's soft patch here. Delta has done some damage, but we'll talk about that. And then a lot going on in Washington, D.C. We've been doing a lot of work, research, writing, and talking about that. So I want to address that. And then the big topic is the longer term consequences of the pandemic. We've been so focused on the here and now and kind of just, you know, what's going on this week, last week,

what's going to happen next month, next quarter. But we want to take just a step back and think about, you know, what are the longer term implications of the pandemic? What's the long tail of the pandemic? And we've been, each of us been thinking about that and we'll focus on a few of the longer term consequences. Okay. So let's dive right in with the statistics. And here, let me frame this a little bit. We play this, we play the game, obviously, where we each spout off the statistic and the rest of the group, but tries to figure out what that statistic. is, but I'm hopeful that this week we can pick statistics that provide insight into the question, you know, how is the economy doing? You know, really things have slowed down here in the third

quarter, the just ended third quarter. Is this October 1st today? Yeah, just ended third quarter. And just how significant is the slowdown? And do we have any insight from the data on? where we're headed here. Will Q4 be better? Will we pick right back up and kick into gear? And which is key to our forecast, we remain optimistic. So with that as a frame, let's go to you, Ryan. What's your statistic for the week or statistics? I got one. So I'm going to 73.4. 73.4. And this is a statistic that came out this week. It did. Came out today.

Confidence. Oh, it came out today. So we, University of Michigan? It's not. No. It's around there, though. I mean, actually.

It's, it's not buried in the report, so you guys are going to give me a ton of grief out this number, but it's, oh, I know what it is. I think I know what it is. I haven't,

to be, to be blunt, I mean, or to be perfectly honest, I haven't had a chance to look at today's data very carefully. This has got to be the ISM manufacturing survey.

It's within the ISM. Yeah. Yeah. And it's probably has to do with supplier deliveries. Very good. You're your answer continues. Wow. This deductive reasoning is working.

Well, you did give me a big hint. I said. Today's statistics. Yeah. But I did a pretty good job without even looking at the data. Yeah. That's bordering on clairvoyant, I would say. Let's not go that far.

No, you know what it is. It's just I know you. I know you well. I know you well. It's getting to the point where we can forecast each other's indicators, not necessarily pick the number. That sounds weird somehow. You can predict my indicator I'm going to...

That sounds like that's just not good. You know me too well. Yeah. All right, well, tell us about the 73.4. What does it mean? What is it and what does it mean? So supplier delivery, so it's the fusion index. Anything greater than 50 indicates...

slower deliveries, which is, you know, getting tied back to the pandemic, global supply chain issues. This is making it difficult for manufacturers to source materials and to rebuild their inventory. So when we're talking about implications for near-term growth, inventories are making up the bulk of GDP growth in the third quarter and should make up the bulk of growth in the final three months of the year. But if there, these supply disruptions continue and linger, we might be kicking GDP further into next year, and the second half this year could come in later than what we think. I may have missed it.

Did you say 73.4? Is that a new high? It's not a new high. So the recent high was 78.8. But if you take that out, the 73.4 we got in August is among the highest since the early 1970s. Okay. And I know you and Dante, one of our other colleagues, because we were, mailing about this last night, have developed or in the process of developing a, what do you call it, a

supplier delivery, no, supply chain stress index. Correct. Right. Great name, by the way. You got to give Matt Collier, our colleague, all the credit on that one. Yeah, that's a pretty good one. So what is that, what is that index? And are you going to cover that on economic view, by the way? We will. We'll put it up there. Okay. What is it in what is it saying? So we got a lot of client interest about, you know, they're asking, is there one metric that can kind of highlight, you know, whether or not supply chain issues are getting better, staying the same, or getting worse. So what we did is we went through all the high frequency data that we have, pulled out all the data that would be relevant to gauging stress in supply chains, and then using, you know,

basically mashing them all up together, creating an index. And it does show that things have gotten a little bit worse over the last couple months. So what do you take away from this in a broader context? I mean, does this make you more nervous about the outlook, less nervous about the same? Is this what you expected? Any insight from the number that bears on the outlook? It makes me a little bit more nervous. Just getting back to the composition of GDP growth is going to be very heavy.

in inventories. And if you look at the ISM survey, and it's got a lot of great anecdotes in there, all the purchasing manufacturers are grumbling about the availability of commodities and the number of commodities that are listed as in short supply, that list is very, very long. So I'm a little concerned that we're not gonna get

as much boost to manufacturing over the next few months and what's pencils in our baseline, and that inventories won't add as much to GDP growth. And if you strip out inventories, we barely grew in the third quarter. And the fourth quarter is likely going to be the same. Yeah, right. And I think this goes right back to the pandemic, right, in the Delta. Because the Delta has disrupted supply chains.

I mean, particularly Asia, Southeast Asia, more specifically got creamed by Delta. And that's the beginning of a lot of these supply chains. A lot of the manufacturing facilities are sitting in Southeast Asia at the start of the supply change, like chip production, which we've talked about in the past. Yeah, delivery times are increasing, and the number of ships off ports in the U.S. continues to climb. So we just got these bottlenecks all through the supply chain, and unfortunately you're not going to get resolved overnight,

so it's going to take a few months. So your supply chain stress index, which is a compilation of all these measures of what's going on in the supply chain globally, that's at a sitting at a record high. Is that right? Close to. You had the great suggestion going further back, we only went back to what we do, 2012,

so we're going to extend it back further. But I would imagine, unless we go back into the 70s, I think it's going to be the highest in the past 30 years. Right, okay. And the last data point is for the month of August? We got the ISM today, so we'll run it for August soon. Oh, okay. Yeah, I'm very curious.

So we have the September ISM, but then we're missing a few inventory-to-sales ratios that we'll get next week, so we'll have the August data point then. But I think it's kind of, going to get worse. And the other thing, why we wanted to create this index is now we can kind of quantify the impact on, you know, employment, GDP from supply stress. Great. Yeah, great. That'll be very interesting to see, see what kind of impact it's had. Okay. Okay, very good.

Chris, you're up. What's your statistic? All right. It was $6. At least it was $6 yesterday. This is going to give it away. Six dollars yesterday, $5.60 right now. That's a pretty volatile movement. And this is a price for, got to be some kind of commodity because it's trading daily. Yep. We know it's not copper, because copper is sitting just north of $4 per pound.

We know it's not gold. Gold is, I think, it's $1,750 an ounce. Yeah, that's not close to $6. No, I'm just trying to show you that I know these numbers pretty well. this better not be something like a bushel of wheat or something. No, no. Okay, no wheat. The only one I can think of close to $6 is natural gas.

Oh, that's it. You're right. Excellent. Way to go, Ryan. Yeah, $6. So it's $5.70 per million BTU. Correct, right now. Okay.

All right. That's a really good one, actually. Yeah. So give us context. So where's it been? Why is it here? what's going on? So it's up big, up 140% plus, well, again, volatile, so 130, 10040% over the last year.

So that's a huge increase. And I'm particularly worried about it, mostly because of Europe. Natural gas is really important to the European economy. Italy, of course, when I was there, lots of people concerned about their electric bills, gas bills going up. So I worry that this rise in natural gas prices. due to some of the supply chain bottlenecks, you mentioned, Ryan, is going to crimp consumer spending, right? People are going to have to pay utility bills, you know, who knows what the winner holds here. And that could take some of the steam out of the expected consumer spending over the holiday season next few months.

So natural gas in the United States, natural gas prices, it seems like forever, have been sitting somewhere between $2.50 and $3 per million BTU. And now all of a sudden they've basically doubled. Yeah. And in Europe, am I wrong, Chris? But I think I heard $25 per million BTU. Is that right? Did I hear that right?

And maybe it was in the UK. Is that $25 per million BTU? Is that right? It is a regional market, right? Yeah, it is. There is liquid natural gas that trades to some extent, but largely regional. So that very well could be the case. I haven't seen that, but I can take a closer look.

So what's going on? Why are prices up all of a sudden? Well, you've got a number of different factors, right? Everything from tension between Germany and Russia or Europe more broadly in Russia, right? So that's clearly playing a role. Because Russia provides the bulk of natural gas to the rest of Europe. Yeah. Correct. Correct. And at the same time, you know, there's related to this is the climate change issues in Europe migrating or away from coal and looking for alternative fuels, but those might not be ready yet. So you have this crunch time there. You just have the restarting of the economy itself more broadly. Right. So during the pandemic, we cut back on on some of the exploration and fracking that was going on. Now we have to restart that. So clearly that could be an issue in some markets as well. So you just have the. confluence of all these different factors playing a role here in terms of the price increase.

And then suddenly you have more demand coming up. Could it also be the case, and I'm just throwing this out, is it that because prices are, you said these are regional markets, but they are connected to some degree through liquefied natural gas, LNG. So could it be the case that prices are so high in Europe? It makes sense for natural gas producers here in the U.S. to put it, liquefy it, put it on a ship, been sent it over to Europe and contributing to higher prices here? Is that possible? Certainly possible. Also Asia, of course, as they're restarting their factories during the recovery period

here, also demanding more. So, yeah, that is certainly a factor here in terms of how these, how the distribution of this liquefied natural gas. Hey, I got a good story for you on natural gas in Europe. This might have been, I don't know, 15 years ago or something. And I don't know why I was invited to this event, but you know that the pickle, the building, the pickle in London, it looks like a pickle. I think they call it the pickle. It's a beautiful building, and at the top of the pickle, they have, you know, an area for events. So I was invited to come for an event that was being sponsored by gas prom. Gas prom is, or at least it was, I guess it still is, the Russian gas company.

and they had just inked a deal to ship natural gas to Europe. And this was like a congratulatory event, you know, everyone saying nice things about everybody else. I remember the CEO of Gasprom, oh, and by the way, we all got party gifts, and the party gift was a natural gas light, a lighter for a pilot. You know, those pilot lights, I don't know if people still use them, but a pilot light, if your pilot light goes out,

you can use this thing to turn it back on, right? You like a little lighter. So I think I have it somewhere. But anyway, the CEO gas prom is this, you know, large guy, Russian. And all I remember him is, and he's up on this stage looking down at all the rest of us. And I can remember him saying, you will buy my gas. You will buy my gas. He said it like three times.

It's scared the hell out of me, actually. But now the Europeans may be ruring the day that. they ink that deal because, you know, that's a pretty difficult position to be in. Anyway, that's a really good one. So, geez, how does that bear on the outlook? I guess that makes you a little less optimistic, huh? Absolutely. It's a negative, right?

Well, the one thing I will say, though, we got a lot of fracking capacity here, right? And it feels like at least so far, the natural gas frackers have not really kicked into gear. I don't think they've really ramped up production. So they've been very, quote, unquote, disciplined about raising production. I don't know how long that can last, you know, at these prices, because they can make a lot of money, I think. So I'd be surprised if we don't see fracking kick into a higher gear. Although, as you point out, maybe because of the climate change issues and other regulation, it might be a little bit more difficult to do that this go around.

I don't know. Yeah, I've heard the frackers have some. some, like everyone else, labor problems right there. Ah. They're having trouble finding workers as well. So that's also contributing to some of the supply constraints. Good point. You guys are bringing me down.

Geez, Louise. All right. I'm going to try to. What about excess savings? Shouldn't that help cushion the blow from higher energy prices? We have two and a half trillion dollars in excess savings. Yeah. For sure.

Yeah, actually, we got another data point this week on that, right? We got the Fed's finite. I think we got the Fed's financial accounts this week or last week, and we used that. That's the Fed every quarter releases data on balance sheets of household balance sheets, assets side, liability side, and for corporations, businesses. And you can take a look at that and construct estimates of saving based on changes in the value of assets and liabilities. If you think about it for a second, you can connect those dots. Anyway, we use that data to calculate excess saving.

and in Q2, 2021, the excess saving is about $2.5 trillion. Excess means that amount above which we would have expected if there had not been any pandemic and people had not sheltered in place and had not stayed at home and not spent. So $2.5 trillion, that's a lot of savings, right? That's about, what is that? That's probably 12, 13% of GDP, something like that. So of course, a lot of that sits with high, very high,

income households so who aren't going to be affected by these natural gas prices but the lower income households will have less excess saving but they have some yeah okay all right I'm gonna try to cheer you up with my statistic and this is gonna be I'm just gonna say it see if you can get it but I won't make you know so remain in pain for very long I'll give you a hint point five point five this is a monthly No, okay, I'll give you the hint. It came out on Monday. This is a monthly statistic.

It comes out every month. It's key to the GDP numbers. We follow it pretty carefully. What else can I say to make this easier? The top line... It's got to be durable goods. Something in durable goods. Exactly.

Yeah, you got it. Durable goods. Durable goods is the spending by businesses on, well, durable goods. And that point five is the increase, the percent increase in new orders for non-defense capital goods X transportation spending. I know that sounds like a mouthful, but what that is is a very good window into business investment. Point five. And shipments were up. Point five is new orders.

Shipments were up, unfilled orders. they were up, and they're all very high, I mean, record highs, I mean, by orders of magnitude high. So businesses are investing very aggressively. A lot of its machinery, primary metals, a little bit on computer equipment, although it's, you know, it's up relative to where it's been in the last decade or so, but still well below it was back in the 90s and early 2000s. but I'd say broad-based improvement and investment. Doesn't that, to me, gives me, you know, businesses are expanding, right? We've got a record number of open job positions, almost 11 million.

Typically, in a really good economy, we have six and a half, seven million open positions, so a lot of open positions, and they're investing very aggressively. So to me, that's more fundamental, right? It feels like underneath all the things that are going on in the economy, including the fallout from the Delta variant, that businesses remain inherently upbeat, optimistic, willing to expand, able to expand, profits are strong, gives me a good vibe about where the economy's headed. How do you guys feel about that? Is that consistent with your view? Yeah, overall, still positive. How much of that do you think is substitution away from labor, invest? investments in automation machinery. Do you think that's the major factor here?

Is this more general investment into existing processes? I think it's shifting. Well, obviously during at the start of the pandemic, I think it was work from home, right? So people, business had to invest in new equipment, new software to get their employees up and running in a work from home environment. And, you know, each of us did that, right? We got most Moody's employees got some kind of stipend. I think we all did. I'm not sure for going out and buying whatever we needed to be able to do what we're doing now.

And that's working from home, which by the way, is one of the consequences, long-term consequences of the pandemic we'll come back to. So I think early on there was a surge in investment related to remote work. But that's now shifting. Now, because businesses are having difficulty finding labor, you know, they're raising. wages, but the other way to address the labor shortage is to invest in labor saving technology, right? And that's what they're doing. In fact, the other interesting thing that's happening is because, you know, if you go back,

you know, five, ten years ago, there was a shift in investment spending the business investment dollars towards energy investment, you know, into the fracking field, kind of took away from investment in labor saving technology. But now that investment has been made where businesses aren't investing nearly as much, a lot less capital is flowing into the energy sector. And it feels like that's freeing it up for kind of labor-saving technology. And maybe that's one reason why underlying productivity growth has improved. Yeah, I think so. I think so. Yeah. So before we move on, I just want to remind you of the grief you gave me when I picked durable goods a few podcasts ago saying,

really? Oh, you gave me a ton of grief. You're like, no one paid attention to durable goods. I said that? Yeah. Ben's got the tape. Well, that's the beauty of this podcast. It's that we'll rewind it and it's on record. I picked core capital goods. You pick core capital of goods? You probably picked it when no one was watching it. Right. What can I say?

All right. No, no, no. You're right. It's kind of an unsung statistic, I think, right? I mean, a lot of people, many people don't watch it, but it's a really good window, yeah, into business investment, which is a good window into business expansion decisions, which is key to economic growth. So to me, go ahead.

I was going to mention that that's one indicator. There's a couple that can really move the needle in our daily high-frequency GDP model, which takes all the source data that feeds into the Bureau of Economic Analysis estimate of GDP. That one can really move the needle a lot. I don't think you said it in this podcast,

but where are we sitting on that on Q3 GDP? Is it a 3-9? Is it still 3.5%? It's running right now. Because we got personal income and spending this morning. I mean, the spending and the prices are the most important.

But my guess is it's going to come down. Maybe to 3.5%. So the 3.9 is our estimate of third quarter GDP growth based on the monthly statistics, including things like durable goods that we've gotten. And 3.9, and as you pointed out

just a few minutes ago, a lot of that is just inventories. just the, just the rebuilding of some inventory or the, maybe even just simply the less reduction in inventory, which would be an ad. So three percentage points of GDP. Three percentage points. Okay. So if it comes in at three nine in inventories are three, that you're saying the rest of the economy

added only point nine. Correct. Tough quarter. Yeah. Yeah, it was a rough one. And remember, we started off north of seven. So the data has soured pretty quickly. Now, my, I'm taking, this is in my mind's eye, that the bulk of the weakness was in July, going into August, and September feels a little bit better to me.

And given the winding down of infections, the Delta, if you take a look at a graph of infections, it feels like that has rolled over and starting a decline. That suggests that Q4 should be better, that growth should revive. And that's in our forecast. So are we, are you going to, do you think that's still a pretty good forecast? First of all, it's my characterization of the data correct. July being bad, August, not quite as bad, September feeling better. Do you agree with that? And what do you think that implies for Q4 going into 2022?

Chris looks skeptical. Oh, really? My, my recollection is August was pretty bad too. Yeah. China. Well, the employment number was. bad in August, but that lags the GDP, right? July was bad output, GDP. You got a bad spending, right? Yeah. Or sales weren't they down in August? Retail sales? Yeah. Oh, so you're growing more pessimistic about Q4. But then, no, no, for Q4. But I agree with you in terms of the infections in COVID seems to be, you know, moving in the right direction. I think that's going to set us up for some strength in Q4. I'd be curious for Ryan's high frequency indicator for Q4. It is October 1st, right? So. Hey, Chris, come on.

Oh, that's really pushing a poor guy, you know. I can get it to you for the next podcast because we get, do we get, no, no, no, we're going to wait. Vehicle sales is the trigger for. I think we get that today, Ryan. We did. Is that September or October? September. It's got to be September.

Oh, September. Yeah, I need the October number and then I can run it. Oh, so we're a month away. Okay. All right. I know he's got a number, though. I haven't. I always got a number.

I got a number for everything. By the way, talking about numbers, next Friday is the September employment report. What's that going to be? Not good. Relative to expectations. So the early consensus, and I haven't, you know, all the economists, we have to submit our forecasts on Fridays. So towards the late end of the day, we'll have like a more solid consensus number, but right now it's $500,000 for total non-farm payrolls, the net change. and I'm taking the under.

So less than 500K, at this point... Don't ask me why. Okay, I want to give away the recipe. Secret sauce. UI claims. Which we can get a UI claims. Which we need to talk about. Let's talk about it now.

So UI claims, unemployment insurance claims, they feel like they're pushing up a little bit, right? Yeah, moving in the wrong direction, 362,000 last week. that was up 11,000. Yeah. And it's, since it was declining, and then since when has it been

basically flat to up? Really, in the last month or six weeks? So it's longer than that? Three weeks, I believe, right? Three weeks. Yeah, you're right. Yeah.

Okay. The first time it's been rising since last year, April. How was that? Yeah. Are you, what do you take away from that? It's just a reflection

of the soft patch that we're in. Yeah, I think it's COVID. It was California. California, Texas, and Michigan saw the biggest increases. I think it's COVID-related. And now that infections are coming back down, I'm hopeful that things start moving in the right direction. And Michigan's partly autos.

Yeah. So the great thing about the claims data is that states can comment about what drove either the increase or the decrease in claims. And that's why you can identify hurricane effects. And Michigan and other auto-heavy states have mentioned lightoffs in the automobile industry. Hmm. Okay. All right.

Well, that, I mean, this is an indicator we should be watching to gauge whether our outlook for Q4, a Q4 bounce, recovery in Q4 is, is going to come to pass or not. And right now, coming into September, you don't feel, it's not there yet. Okay. Yeah, we'd just be careful claims because California has really driven the increase in the last two weeks. Oh.

And California announced recently that people that have had, or, still unemployed or either have their hours cut can file for regular state unemployment insurance benefits. So we might be having a lot of refilers. So it might not be basically not newly unemployed workers, people just refiling again. Because claims count the number of people that file, not necessarily receive unemployment insurance benefits. Got it. So you're saying it's, well, it's not great that UI claims are drifting higher here. That can't be good. No. But it's probably overstating the case. Yeah, recall that California's UI benefit system was a disaster during the pandemic.

So they had a lot of fraud issues and, you know, so kind of kind of need to take these numbers of a little grain of salt. Yeah. Okay. Okay. And then a statistic that, you know, we've been following regularly that seems to be signaling something else. Just the opposite of a weakening economy. It's a kind of, you know, although it's being equal signals a strengthening economy, I guess, well, I want to hear your view is the rise in the 10-year treasury yield.

So for context, we got as low as, I believe, 1.2, 1.25% on the 10-year treasury yield back, I'd say in May, maybe in June, maybe I think more closely to June. And then in the last week or so, it's really the bond market, sold off, interest rates have risen, were back last I looked at 1.5% on the 10-year, which is obviously still very low by any historical standard. Back in the spring of this year, we were at 175. So, you know, it's still low, but it has moved up. At the same time that we've been getting these weakening economic statistics for Q3, that seems incongruous. So how do you square that circle, Ryan? I know you follow that 10-year yield very closely.

I also know you're not buying into my explanation. Yeah. Well, let's hear your explanation and I may push back. Let's see if Chris buys into it. Okay. Because this is what's happening. So when you decompose the 10-year treasure yield into its three main parts, one being in long-term inflation expectations,

they haven't budged. So that doesn't explain any of the wiggle in a 10-year treasure yield. The expected path of the real Fed Fund rate has risen. since the FOMC meeting, when the dot plot showed, you know, the Fed was kind of divided 22, 2022, 23, but they also raised the amount of tightening in the cycle. And markets responded to that. Market expectations for the expected path of the Fed fund rate rose, you know, since the end of the last FOMC meeting.

So that explains some of it. And then the Fed also announced tapering, or didn't announce tapering. They kind of sent a signal that tapering is coming. And Powell said it's going to be an eight-month tapering process, which means that's $15 billion per month. So they're going to go from $120 billion down to zero in the course of eight months. And market consensus, and you can get this from the Fed's survey of primary dealers, which they do right before any FOMC meeting.

They were expecting $15 billion per FOMC meeting. So shorter tapering window and a little bit more aggressive, that pushed up the term premium or the extra compensation investors need to hold long-term rates versus short-term rates. So the combination between a higher term premium and a higher path for the Fed Fund rate has nudged the 10-year treasury yield higher. Okay. Okay. So inflation expectates, so 10-year yield equals inflation expectations plus real short-term interest rates,

plus term premium, which is the yield compensation, the extra yield that investors demand for buying a long-term bond versus short-term security. And you're saying inflation expectations, no change there, which is actually good, you know, so bond investors don't think inflation's a problem. They think it's the spike in inflation we've experienced as temporary, transitories, if I would say. real short-term interest rates have risen. And so that means bond investors are thinking the Fed's going to be a little bit more aggressive in raising short-term interest rates. In fact, in the dot plot that we got, which shows the forecasts of the FOMC members,

the folks on the Fed that make policy, they pulled forward when they are going to actually begin raising short-term rates into late 2022 as opposed to early 23, so that makes sense. And then you're saying because of this somewhat more aggressive, at least compared to expectations, bond market expectations, aggressive winding down of quantitative easing, QE bond buying, that is lifted to term premium. Correct. And it's really those higher real short rates and higher term premium. And you don't think the debate, discussion over the debt limit is playing any role here.

Not at the long end of the yield curve. Short end of the yield curve, very clear evidence that people are getting worried. You got that normal kink in the treasury bill curve. So bills that are maturing right around the drop dead date, which Yellen puts at October 18th, are trading to a premium relative to bills on either side. So we've seen that 2013, 2011, when we had nasty death ceiling fight to get this kink in the treasury bill curve. but if you also look at the auction results for four-week treasury bills, very little demand. And that's another tell-tale sign that investors are starting to think more about the debt ceiling. Okay, so don't you think that also is impacting the term premium then? I mean, you don't think. Maybe a little, I mean, on the more, I think tape ring is much more.

I mean, I think you're right. Maybe the debt ceiling is having a little bit, I mean, but maybe. How can it not? I mean, if it's affecting short yield, it's got to have some impact. I guess it's not. I think we're still too far away. I think coming up, that will play a larger role. But right now, just given the relative distance to the debt ceiling drop dead date

date versus market still digesting the Fed, I think the Fed's driving rates up. It's not a taper tantrum, like 2013. It's still pretty orderly. Oh, yeah. Right. Okay. Very interesting. So do you think the run up in the 10-year yield has more to run here?

Or is it going to – I mean, our forecast is for the 10-year yield to end the year. I'm, you know, roughly speaking, 1-7-5. So that's up 25 basis points. And then to keep rising next year as the economy continues to improve and approaches full employment, we're sticking to that. We're good with that. Chris? That's the Moody's Analytics, for it.

I think Ryan. You guys still don't think that's going to happen. We're 25 bases. Whoa. Whoa. Whoa. Don't throw me under the bus on this one. We, Maverick.

We. Fair enough. Fair enough. Although I think we had a bet. We have to go back to the tapes here. I think you're on the lower end, right? He's on the lower end, right? Yeah.

Yeah. I think I was on the high end. But are you, are you saying what you don't think 175 makes, you're uncomfortable with that? At this point, you're uncomfortable with 175. It feels a little high. Ten year yield, end of year. 25 basis points away.

A little high. A little high. Chris? A little high. Really? Goodness gracious. We rose 25 base points in one week. Maybe 10 days.

We can go down 25 basis points in. And why would that happen exactly? Don't answer that question. I don't care. You're wrong. Taboring doesn't actually kick in. Right. Right. Or Congress completely falls apart and we don't get an infrastructure bill that has been priced into the bond market.

Well, let's go there. That's a good place to go. That was where I wanted to go next because, you know, this has been a busy week in D.C. I guess the good news is that Congress and the administration came to terms on the short-term funding bill to keep the government open as of today, the start of the new federal fiscal year, October 1. It's a short-term funding bill, continuing resolution through early December, I believe. So that's good news. Dodge that. I guess that was, you know, a modest bullet, right? Until December. Just kicking the cans. Yeah, yeah.

Right. But, you know, that gets us to the infrastructure package and the reconciliation bill for, you know, spending and tax credits for social, very social programs and climate change. change. Because if that's passed, then there is no funding issue. You know, that resolves the funding issue, you know, for the remainder, because that's the budget going forward. So, right now, we are assuming, and I think the bond market and other investors are roughly assuming the same thing, that the infrastructure package gets passed, right? That Democrats, right now the Democratic House is embroiled and the Democrats are,

trying to figure out how to thread the needle here politically and get moderate Democrats and progressive Democrats together and sign on the dotted line. We're assuming that that happens, you know, maybe not today, but in the near future. So that would be, you know, an additional 550, 575 billion over 10 years on public infrastructure. And then we're also assuming that this reconciliation bill, which just requires all Democratic votes in the, Senate is not going to be $3.5 trillion over 10. That's kind of what's on the table right now. But it ultimately ends up being $2.5 trillion.

And it kind of splitting the difference between the $3.5 trillion on the table and the $1.5 trillion that Joe Manchin, the centrist Democrat from West Virginia, has said that he would be comfortable for. So my take is he said $1.5, $3.5.3 on the table. the compromise is two and a half. And of that two and a half, roughly a trillion and a half is maybe a little bit more is paid for with tax increases. So you get a budget deficit over the next 10 years. It's about a trillion higher than otherwise would have been without the legislation. That's what we're assuming. Ryan, let me ask you this. Do you think, and I know it's impossible

know, but is your sense that that's what investors are discounting? Yeah, I think so. I think that's close. Close. They're definitely not pricing in $3.5 trillion. And they're not pricing in nothing. They're right. So I think splitting the difference is appropriate.

Right. So if they don't pass that, if they can't get the reconciliation bill through and they can't get the infrastructure bill through, what happens in the, markets. You see the 10-year drop? You think the 10-year-year-year-old drop? Not a lot, but it will come back down. They'll come back down.

Because less growth. Correct. Right. That would be my inclination as well. My thought as well. Chris, same perspective? Yeah, I don't think it's a lot, though. I don't think that's the major factor.

We might go back down to one in a quarter or one-three. All this run-up we saw in the last 10 days will kind of get wiped out. Right. Of course, then my forecast for the end of year will be wrong and more likely be wrong. And yours is more likely to be right. Okay. Okay. So let me ask you this.

What probability, and again, this is our baseline assumption around fiscal policy, but what is your own subjective probability of that baseline coming to pass? We get that infrastructure bill. We get that $2.5 trillion reconciliation bill. What do you think, Ryan? What probability you put on that? 40%. Oh, so you don't think it's going to happen?

I'm getting increasingly pessimistic. Both bills, both infrastructure and reconciliation? No, I think infrastructure is a done deal. Oh, you do? Okay. Yeah, I think it's a done deal. They'll figure that one out. I'm concerned that they're not going to be able to pass the reconciliation one.

Oh, okay. At $2.5 trillion. Yeah. Okay. You think it could be something smart? than that? Are you saying... Two trillion could be a ceiling. I think so. Oh, you're saying we'll probably get a bill, but it's not going to be two and a half

trillion. Yeah, that's not going to be two and a half. So what's the probability of a $1.5 trillion bill, reconciliation bill? 70, 70%. Oh, okay, fine. Okay, I hear you. I got it. Now I understand. Okay. Have you been to D.C.? Pardon me? Have you been called down to D.C. recently? You need to give them a pep talk. Well, no, I physically haven't been down there. A lot of Zoom calls, you know, a lot going on. Bernard Yaros and I have been doing a lot of work.

And obviously on the debt limit, we have a paper out that folks haven't read. I can find on the economic view or if you can just Google, which I think has had some impact on the debate and discussion around the debt limit. And we've done a lot of analysis of these various elements of the fiscal package of the reconciliation and the infrastructure plan. So I've been doing a lot of work around that. Chris, what is your probability assessment of this? It's pretty close to Ryan. I think the infrastructure will go through. I'm more pessimistic, though, on even, you know, $2 trillion or even $1.5 trillion.

Really? Yeah, I think the negotiations are just going to break down here. So Ryan puts a 70% probability on $1.5 trillion, 40% probability on $2.5 trillion. What are your... 50 50 on each. Typical Chris. That's a typical Chris response. Oh, jeez.

I know. I know. I know. That's what he does. Yeah. You can't pin him down. Chris, 49 or 51, which is it? Which one?

Yeah. Yeah. Yeah, I know. That's okay. No, that's fair. 50-50. Basically, you're saying you're not, you just really don't have a good,

you don't have a strong view one way or the other. Yeah, I think it's really to placate. mansion, you're going to lose the progressive, right? So I don't see how this. So probably I'm putting even more weight on nothing, right? There's such a stalemate. Yeah. We just kick the can, we continue to revise a bill and it's kicked into next year. Got it. Well, I say 75% probability on the infrastructure and two-thirds probability on some form of reconciliation bill. Ryan, I hear you. It could definitely be less than $2.5 trillion. Somewhere between one and a half and two and a half.

I'd say two-thirds probability. I just think, you know, the Democrats understand, well, first of all, I think this is good economics, and they understand the politics of it. If they don't get something through, then it means, I think, in the mind of the, kind of much of the electorate that they can't govern. You know, they couldn't get it together. And that's not good, you know, for the midterm election. which are already going to be pretty rough, just given history for the incumbent party,

the midterms are always tough. So I think that wins the day, and they come to terms one way or the other. And, you know, what's going on now, I know this may be Pollyannish, but my view is this is a good thing that they're debating, discussing, going back and forth, if it's not fun to watch, but I actually think it makes for a lot better legislation. You know, they really, you know, hone in. on what their top priorities are and what's going to be most cost effective and important to them and we get a better piece of legislation out of it.

So I view it as a kind of a positive process. The legislative process, you know, people, the analogy is sausage making. And I think it is kind of like sausage making, but, you know, I think it makes for a better sausage, you know, at the end of the day. So would you and Chris sign on if it's just one and a half trillion? Well, Chris, I know wouldn't still. You mean, if that's my only, one and a half, choice is one and a hit, one point five or nothing? Yeah. Yeah, I'd sign on.

What's in that one point five? Good stuff. What are you, what are you prioritizing? Yeah, I know you like the, I think you're, you're, you're partial to the child tax credit, I believe, aren't you? I do child tax credit and the EITC, the earned income tax credit. it. Yeah. I think there's a lot of good things in there that we need to pursue. Yeah. Anyway, that's a topic for we've had in previous podcasts and future podcasts. This is, you know, we've got to move on. Let's go to the big topic and the longer term consequences of the pandemic.

And I think there are potentially many, but I think the way we'll do this is we'll each identify a consequence we think. is particularly important and kind of just lay that out and we'll have a little bit of a discussion around that. And I will say, just to preface it, that one of the long-term consequences that I was fearful of happening as a result of the pandemic is not going to, and that's scarring, the so-called concept of scarring that you go through a wrenching kind of downturn or shock like a pandemic, and that creates all kinds of bankruptcies and failures and just really scrambles the economy to such a degree that its long-term prospects are impaired. So if we had seen a lot of business failure, it would have been much more difficult for the economy to recover,

kick back into gear and to get back its groove. But that did not happen. And it's very fortuitous. And I think a lot of that goes to the policy response. aggressive that both on the monetary side and on the fiscal side that allow the economy to avoid those scarring effects. In fact, to some degree, I don't know if you've been following, but we did get an LA level of failure, but it was business failure, but it was pretty modest compared to my fears.

And countervailing that, something that I did not expect at all, but is evident, is a surge in business formation, you know, at least judging by the number of businesses, new businesses that are filing for taxpayer identification numbers with really cool data. And that has surge. I mean, amazing. And it's across almost every industry. I think every industry is up a lot across every part of the country. So it feels like this pandemic has unleashed a certain amount of entrepreneurism.

And so no scarring effects. And I think that's a very positive thing. And one reason why to be optimistic that the economy can, you know, get back all at lost. back to full employment here pretty quickly, at least compared to past recession, certainly compared to the expansion after the financial crisis when there was a lot of scarring that we had to kind of work through to get back to full swing. Well, we just had a series of technical difficulties. First, Ryan, Zoom crashed, and he's now back up and running, but then I got kicked out,

so now I'm back, so, you know, sorry about that, but let's kick back in here. I'm just letting you know this, listener, because I might sound a little bit different now, but we're all together again. So let's pick up the conversation with long-term consequences of the pandemic. And Ryan, I would just turning to you, what's at the top of your list of long-term consequences of the pandemic? What would you like to highlight? I think something that's going to be with us for an extended period of time is the large amounts of sovereign debt. So in response to the pandemic, you know, various countries, I mean, they did the right thing.

They were very aggressive with fiscal stimulus, fiscal support. But, you know, that caused the debt to GDP ratio in a number of countries to skyrocket. And eventually, you know, that's not on a sustainable pace. We're going to have to get, you know, even in the U.S., our fiscal house in order. And I'm a little concerned how other countries are going to address this, given, you know, varying degree of economic recovery and when interest rates begin to normalize. Because right now, everything's fine. Interest payments are still very, very low because rates are rock bottom. But in a rising interest rate environment, I think we're going to start to see some warts emerge.

Yeah, that's a bold statement. And you're thinking that a couple three years down the road, this is what? How does it manifest itself? This issue. We could have a repeat of the sovereign debt crisis. It doesn't have to necessarily be in Europe. It could be somewhere else. But I think just given the amount of debt that was accumulated over the last 12, 18 months,

we're not going to get out of this without at least a couple hiccups. Because, I mean, remember, the bond market, debt doesn't matter until the bond market says it matters. And you just can't predict when they're going to say it matters for some of these. countries. Right. And do you have any countries in mind or I mean, you're not saying the United States, or are you? No, no, not the U.S. I mean, we have to get our fiscal house in order. And I think we will, but, you know, not next year or not the year after that. No, I'm not worried about the, I mean, I'm losing a little bit of sleep about the debt ceiling, but you take that out. No, I'm not worried about the debt to GDP ratio in the U.S. I'll make a bold statement, but I'm not going to

pinpoint a country. And that's going, that's like a perfect crystal ball, which I don't have. Right. Okay. And I guess the concern is predicated on rising interest rates, that interest rates rise. Are you saying they simply have to normalize, go back to what pre-pandemic levels in this? This will be a problem? Or do you think they have to go even higher than this to be, for this to be an issue? They probably have to go higher. And again, I mean, a lot of conditions have to fall in place. But, you know, the assumption that we're going to get out of this gracefully, I think, is a little bit of a stretch. You know some central banks are going to overdo it.

They'll tighten too much. And that could cause, you know, some problems down the road for, you know, countries that have a lot of sovereign debt. And you also mentioned corporate debt. Same kind of. I guess the ever grand, the Chinese real estate company that has now defaulted on it, that is symptomatic of your concern around corporate debt globally. Correct. I see.

And do you think that's as big a deal here in the United States as it is in other parts of the world, or just this is a big deal here in the U.S. as well? I think it's the biggest deal in China. In the U.S., I'm not that concerned. Because when we had the hiccup or the heightened angst around Evergrand, if you look at corporate bond spreads in the U.S., they remained very, very tight. I mean, they widened a little bit, but they're still historically low. And even looking at credit spreads up and down the credit ladder, you know, from your investment grade all the way down to your very low grade corporate debt, they didn't, you know, really respond. And, you know, businesses, corporate profits, as you mentioned before, very, very strong.

you know, profit margins are still pretty wide. Businesses are flush with cash. So I'm not too concerned about any issues on the U.S. corporate side, even the high yield corporate bond market. I mean, demand for that issuance is still really, really strong. It's on fire this year. So that will wane. That will soften.

But, you know, I'm not too concerned about the corporate side. All right. Chris, what do you think of Ryan's consequence? Do you share his level of concern? Perhaps not broad-based. I think there will be certainly some countries on the periphery that are exposed. And as rates rise, they will have problems. So I think we are due for some of those signals.

But I don't see yet the conditions for that spilling over to broader, certainly global or even regional crises at this. point. But Ryan, you're saying there's a reasonably high probability that two, three, maybe four years down the road, as rates rise, we're going to see some kind of event, if not a crisis, some kind of event, particularly in the sovereign debt market, but I guess in corporate debt markets as well, overseas outside of the U.S., that will be a long-term consequence of this pandemic, something that we still have to work through. Yeah, and I don't think it's going to be a crisis.

It's not going to be, when I say a repeat of the sovereign debt crisis on a much smaller scale. So before it was the Portugal's, Italy, Spain, Greece's, Greece's, maybe, like Chris said, another country on the periphery that, you know, where we see this issue. And at the time, we'll be able to look back and say that was pandemic related. So I think it's going to be more like that, you know, here and there sprinkled across the regions. I don't think it's going to be a global debt crisis. What about, sorry, what about zombie corporations, all right? There's a lot of talk about some corporations that are limping along here, benefiting from the low rates.

It actually would be perhaps even therapeutic to go through some reorganization here. Do you see that on the horizon? Yeah, it's probably on the, I mean, the U.S. will experience some of this, but not until, you know, 2024 when the Fed starts to, once rates get high enough where they start to bite into the economy. So it's still a little ways off. Well, I'm sympathetic to this concern. In fact, I think it will be difficult for policymakers to actually become more fiscally disciplined without interest rates rising to a significant degree in putting pressure

on economy so that they can connect the dots for, the electorate, that, you know, here's why we have to be more fiscally disciplined. Because, you know, if rates don't rise, then what do policymakers say to people? Why are we raising taxes? Why are we cutting spending or restraining spending growth? Because why? I mean, what's the logic behind that, right? So there's got to be something that policymakers can point to to say, hey, this is the reason why. In fact, the last time in the, I think, in the U.S., that policymakers showed any kind of fiscal discipline was in the early mid-1990s under Clinton, President Clinton, and then Treasury Secretary Rubin. And that was the period of so-called bond market vigilantees.

So the bond market investors would drive interest rates up, and they were driving them up because of the fiscal situation. The nation's federal government interest payments share of GDP was at a record high. We're spending more on interest than we were on the military budget. And so the bond market was kind of losing it, interest arising. Secretary Rubin could say to President Clinton, hey, look, this is why we have to do it. President Clinton was able then to articulate the economic logic behind why we need to be fiscally disciplined to the population. and we got legislation, he backed away from his fiscal support packages, and, you know, we, by the end of the decade, many reasons for it, but at the end of the decade, we had a surplus.

I think in fiscal year 2000, we had a surplus, believe it or not. That was last surplus of the federal government ever ran. So it's almost, I think you're right, Ryan. I think it's almost, unless interest rates just remain low for so long, for much longer, for reasons that, you know, we're not accounting for, not constantly. contemplating, we need this higher rates to actually get the discipline. We need that kind of event. We need that pressure to get the political will to actually address the fiscal situation.

I don't know how you feel about that argument. No, I think you and I are an agreement. Yeah. Okay. Okay, that's a good one. I think you're right. I mean, I think that's kind of a dark tail of the pandemic. something that we're going to have to work through down the road.

Chris, what's the top of your list? I knew Mark was going to pick something, you know, rosy that came out of the pandemic, so I had to pick something dark to kind of offset it. Yeah, well, no, no. It might wait, you know. We'll see. Yeah, we'll see. Yeah, we'll see.

Chris, what is your, what's the top of your list of long-term consequences? Yeah, lots of consequences, but I would actually grouped many of them under the demographic impact, right? So I look at the pandemic. Lots of the demographic changes were accelerated. Birth rates, just one example, right? Birth rates collapsed back in 2020 and they've started to come up a bit, but I suspect given a lack of housing as well, and household formations were also suppressed, that we won't get back up to the birth rates that we had prior to the pandemic and which were already on the down, the downtrend. So I think we've kind of accelerated that trend.

And that has all sorts of consequences in terms of labor market supply of workers in the future, has implications for the housing market in terms of new household formation, say 10, 20 years from now. So looking further out, I think we will continue to see the impacts of the pandemic making their way throughout the economy, really just accelerating, though, some of the trends that we're already in place in terms of the demographic slowly. down. And I see that globally as well. It's not just the U.S. where we see this downtrend in terms of fertility, but across the globe, developed as well as less developed countries, you're seeing those population rate, or those birth rates to decline. And I expect that we will see population leveling out sooner than what we would have projected prior to the pandemic.

Yeah, I know. That's a good point. And so it's fertility rates. I guess death rates are up, but just by definition, because of the pandemic. And immigration is significantly impaired, has been significantly impaired. And I don't see that changing for a while either. Even before the pandemic, obviously, it was on a lot of pressure politically. But, you know, in the pandemic world we're in, I think immigration patterns will be significantly curtailed. So that's a good one. That has all kinds of long-term implications for the economy, for sure.

Did you mention the retirement, the retirement of the baby boomers in the pandemic? That certainly – I did not mention that, but that certainly feeds into the demographic effects here as well. It highlights just the aging of the population overall, and you do have a number of baby boomers who, you know, affected by the pandemic, perhaps approaching the retirement years, and perhaps taking advantage of some asset price appreciation on their retirement portfolios or house prices to take early retirement. So that, I certainly expect to see that. I think those labor force participation rates are not going back up. I think they're going to remain suppressed. So that's, in terms of the near-term effect, I think that's going to be substantial and it's going to

contribute to lack of labor supply. So, yeah. For that reason, I think we'll have automation speeding up. All right. So some of the durable goods spending statistics we talked about earlier, I think we'll continue to see that pushed because we just don't have enough workers to grow around. And we'll probably wake up too late to immigration policies, meaning when we decide that, you know, we need to let more people into the country. It just won't be there, right?

Because there's a shortage of workers globally that may be difficult to. attract more and more people. Right. So a long-term consequence of the pandemic, a lot of demographic effects, but one of the more significant in terms of the economic consequences is the impact on labor supply. It'll be more impaired. I think we're going to have labor supply issues. Yeah.

Regardless. Even without the pandemic, right? I just think we accelerated it, right? We accelerated it. And I think you're right. I think we actually exacerbated it, right? I mean, I think that, you know, the immigration, the foreign immigration effects are going to be long-lasting,

and that significantly affects labor supply, and that's going to be a big deal going forward. Okay, that's a really good one as well, although that's also pretty dark, right? I mean, not very optimistic. Okay. So another kind of dark tale. of the pandemic. All right, well, I'm going to pick one that I think has positive and negatives.

And I would argue this may be the single most important consequence of the pandemic, at least in terms of, again, it's economic implications, and that's remote work. You know, we've talked about this in the past on the podcast and still a fair amount of debate about it. But, you know, I think increasingly less so. You know, if you go back six, 12 months, certainly 12 months ago, six months ago, I think there was a fair amount of debate whether remote work was here to stay. And I think that debate is fading away. I think it's pretty clear that some form of remote work is going to be with us going forward.

You know, I think most companies are kind of adopting kind of a hybrid, you know, if you work from home more often, come into the office two, three days a week. But increasingly, I think companies are saying, hey, you can live anywhere you want. You don't necessarily need to come into the office. And as technology continues to improve, that'll be empowered. And given that tight labor market that we just talked about, I think workers have the upper hand here. And it feels like not all workers, maybe not younger workers, but most, I think, really like working from home. They're not really sure about going back to the office.

I mean, I kind of feel that way. I mean, I really like working, although given the technical difficulties we just had, you know, it's a little frustrating. But we'll overcome those, and I think the technology will improve. And I think remote workers here to stay. And the implications are massive, right? I mean, one is just where people live and the impact on regional economies. I mean, we collect this data based on credit files from Ecclifax, get a 10% sample of all the credit files in the country every month.

And it's anonymized, but we can see addresses, and so we can track address changes. And here's a statistic. Prior to the pandemic, say in the year through February, of 2020, roughly 275,000 more people left urban cores of U.S. metropolitan areas. There's lower 400 metropolitan areas across the country, then came to them. So 275,000 more people left urban areas for suburbs, ex-erbs, and rural areas, then came from those areas into the urban core. In August of this year, that's the last, last data point we have, it was close to 600,000. 600,000 more people left those urban cores.

And it feels like it's topping out, but it doesn't feel like it's rolling over. It doesn't feel like it's coming in at all. And, you know, I think that just goes to, you know, this dynamic, this remote work dynamic. And, you know, if you look, the top 10 cities that are losing people on net, you know, mostly in the Northeast corridor, Boston, New York, Philly, D.C. Also in California, no surprise, Bay Area,

L.A., Seattle, Miami, also losing a lot of people. And they're going to, people in the northeast are going to Atlanta and Charlotte and Charleston and Jacksonville, Florida, Tampa, Austin, Texas, and the people leaving California and Seattle are moving

to Boise and Salt Lake and Denver and Phoenix and Tucson and Vegas. And that has so many implications for those economies, as implications for real estate markets, housing markets, commercial real estate markets, has implications for fiscal situations of state and local governments. I mean, you know, I can go on and on and on. I mean, it's a big deal.

And I just don't see that going back. Backwards, I think that's that. And by the way, Chris, you mentioned that, you know, demographics I had pandemic just reinforced trends that were already in place. I'm not sure that trend. This trend was in place. I think it's a new trend. This is kind of an inflection point.

You know, but this is like, you know, something I don't, you know, maybe it would eventually happen, but, you know,

the pandemic really changed, you know, caused a big shift here all at once. So I think it's a big deal. Not necessarily negative. I don't think that. Just an adjustment. And ultimately,

you know, perhaps even a positive because, it, you know, I think ultimately this works because it, you know, improves productivity. You know, people are able to be more effective in their workers are working where they want to work. And I think that's a good thing. I don't know. What do you guys think about all this? Do you have a different perspective on this, a different view?

Are you in agreement? I would generally agree that, you know, you get better matching, right? Certainly that's one immediate effect. However, I wouldn't want to overstate it either. There are lots of jobs still, the majority of jobs that don't lend themselves to remote work. So, yeah, just a little bit of a caution there. Yeah, it's for the upper income, upper educated population, sure, big game changer. Other parts of the distribution, maybe not so much, right?

You still need to be in person and, you know, those jobs may not have shifted as much as we think, right? A good point. Good point. Ryan, any comments on this? Any insight? No, I agree with Chris. I think he made a great point. But I have nothing else.

I mean, a personal anecdote, like I thought during the pandemic that, you know, I teach at a local university and I thought online education was just going to, you know, that's the new way, that's where we're going back in person now. So, and there's an indication that they want to, you know, move back online. They want in class teaching and everything. Yeah, yeah. Yeah, I'm sure, yeah, that's a good point. Well, just tying it all back to where we started when I was down in Miami,

speaking to that Real Estate Group organization, NAOP, which includes office developers and owners. As you can imagine, they weren't too thrilled with this. I talked about remote work and the impact on real estate markets in office markets in particular, and they weren't particularly, they weren't buying in to the same degree you guys are. In fact, they argued, and they argued via questions, a lot of people posed questions about the mental health

consequences of remote work for workers, particularly younger workers, who use workplaces as, you know, use workplaces as a, you know, a form of socialization. It's also important to be at work to develop relationships, mentorships, and that kind of thing. And their view was, again, via their questioning, it appeared they were not so sure that remote work was going to be quite as prevalent as, at least I was arguing. But we'll see. See about that.

In fact, I think this topic of long-term consequences would make for a good book. What do you guys think? I think we should write a book. I think there's many, many more consequences, and I think people would find that interesting. I don't know. What do you guys think? Would that be a good book? I'd read it.

Would you write it? That's a question. You read it? I need someone to help write it. I don't know. I think we should do that. Yeah, we each take a couple chapters. Yeah.

I think that's what I think. Yeah, we all get together, you know, whoever wants to participate, and we each write a chapter two or three, and I think people would find that interesting, don't you? Absolutely. Maybe it has some bets in there along the way. Yeah, a few bets. Yeah, I wouldn't count on making any money, but, you know, I think it'll be interesting to do.

Okay. All right. Well, this has been a little. odd podcast. We've had so many technical difficulties. Hopefully hasn't been too disruptive for the listener, but we're glad that you was stuck with us. And next week is the jobs number. So that'll be, I think, a very interesting podcast. And then we have a number of guests coming on after that talk about different topics, including climate change and ESG and lots of other things

coming up. So looking forward to that. So till next week, thank you very much. We'll see you soon. Take care now.