Moody's Talks - Inside Economics - On the Brightside with Michelle Meyer

Episode Date: September 29, 2025

Mastercard Chief Economist Michelle Meyer joins the Inside Economics team to debate the health of the American consumer and the economy’s prospects. The team pushes hard on Michelle’s sanguine perspective, but she holds her ground—and then some. Listen in if you want a preview of the strength of holiday sales and what will power that growth.Guest: Michelle Meyer – Chief Economist, Mastercard(https://www.mastercardservices.com/en/overview/leadership/michelle-meyer)Explore the risks and realities shaping the economy in our new webinar, now streaming for free.U.S. Economic Outlook: Under Unprecedented UncertaintyWatch here: https://events.moodys.com/mc68453-wbn-2025-mau25777-us-macro-outlook-precipice-recession?mkt_tok=OT…Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s AnalyticsFollow Mark Zandi on 'X' and BlueSky @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics, and I'm joined by my two trusty co-host, Chris DeReedy's and Ms. Marissa D. Natali. Hi, guys. Hi, Mark. Hey, Mark. Well, we're back to the technical difficulties again, huh?

You know, I guess the pleasures of remote work. That's right. It's always something. It's always something. Yeah, but here we are. Let's see how this goes. And it feels like we were just at this. Weren't we, didn't we just?

Monday. It was a Monday? That was a good podcast, right, with Heather Long, Navy Federal. Yeah. But we've got another guest, a great guest, Michelle Meyer. Michelle, how are you? I'm doing well. How about you all?

It's more better. I'm very convincing. Not so much when my Internet doesn't work. It's really painful. Do you work at home, Michelle? I'm in the office most of the time. Yeah, it's a little easier. Of course, you're the chief of con I take it for granted everyone. You're the chief of conness of MasterCard. So you are, your office is in like near New York.

So it's in purpose is our headquarters. And we have a great office in New York City and flat iron as well. So I'm between those two locations. Right. And MasterCard, of course, always has great internet, I'm sure. Of course, we never fail. MasterCard could never go down on the internet. That would be a real problem, I would think. Yeah, this is true. There's a lot of backups. A lot of backups. A lot of backups.

A lot of backups. I think we wrote a paper about that, Mark, didn't we? Did we? Payment networks going down as a risk. Yeah, Michelle, we did a scenario where I think we assumed you went down. You and Visa went down. What would be the? the implications. I'll send it to you afterwards. Yeah, you guys like to talk about a lot of

tail risks, I see. Yeah, the tail risk. That was so worried about the tail risk. That was a pretty good study, actually, I thought. But you know, you and I got to know each other a little bit when you were at Bank of America. You were there for, I guess, a number of years. 12 years almost, yeah. Is that right? Wow. And those were the years when Ethan Harris was chief economist. Yeah, Ethan, I worked with Ethan my whole career up until MasterCard. So I started with Ethan at Leibn Brothers. He hired me as an analyst and through Barclays and then to Bank of America. So you were with him all the way through? All the way. And then I left B of A. he retired shortly after I left. And then he briefly worked with me a MasterCard as an advisor,

but that has since ended. So. Right, right. Yeah, he's, he's, I haven't seen him out there quite as much. No, he has a blog series on LinkedIn, which I will publicize for him. It's great. But Ethan is a superb economist and a great person. Yeah, he was just a great guy. Very, what's the word? Even keeled, I thought. He never got really upset or never really excited, but never, I'm sure he was, but he was just very even keeled. Yes. Yeah. Yeah, he was. Very thoughtful. Very thoughtful. Very thoughtful, yeah. So you started your career at Lehman, and then you went, and then you went off to,

after Lehman, were you there when Lehman failed? Yeah, so Lehman to Barclays, because of course, Barclays buying out the U.S. operations, Lehman, and then over to Bank America. Right. And you were the principal U.S. economist, I think, at B of A, weren't you? We had a little bit of different titles. It was called Head U.S. Economist. Head U.S. economist.

Yeah. Yeah, very good. Well, it's good to have you on. Thank you for coming. I was teasing you a little bit before we went on that you're, you're stealing all this talent all over the world. You know, we had, I think podcast listeners would know Katrina L. Katrina was the managed our APEC operations, fabulous economists, very nice person, very articulate and thoughtful for many years. And she's now with you in at MasterCard.

We miss her, but, you know, I'm sure she's doing great with MasterCard. We're very excited to have her on board, and again, I'm sorry about that. You're lost my gain. She has a whole new terrain to explore here at MasterCard. And with the foundation from Moody's, I think she's extremely well-equipped to do so. Yeah, she'll be great. She'll be great for you. Well, enough chit-chat.

Let's get down to business in the economy. And maybe I know at MasterCard, you spend a lot of time focused on the consumer. And, you know, well, I want to come back to that. But before we go to the consumer, let's talk bigger picture. Actually, I've been asking kind of this open end in a question of a lot of the guests that are coming on. Just broadly, how are you feeling about the U.S. economy? How does it feel to you? Well, I mean, it's been plagued by uncertainty and risks throughout the year.

But my general sense is that it's an economy that has met. manage through the uncertainty and through a number of risks and many shocks extraordinarily well. So I'm still pretty positive on the trajectory ahead for the U.S. economy. And I think a lot of that rests on our unique position examining the consumer. And the consumer has been an extraordinarily resilient force in the economy managing through these uncertain times very, very well. So if, you know, the kind of the summary statistic is what is the probability, this is, every economist has asked this question, kind of a litmus test, you know, what is the probability

the U.S. economy would suffer a recession or at least enter into a recession at some point in the next 12 months? What would you say that is? It's a fairly low probability event. And I know that you have quite a robust recession model that moves around actively with the data. We don't have that in our team. We gauge a number of different indicators, and we don't spit out one singular probability. But to me, it's still a fairly low probability event.

I think a continued expansion is most likely, particularly potential re-acceloration into the turn of the year. So when you look at the full-year view, real GDP growth by our estimates is tracking about 1.8% this year. year, which is either at or slightly below potential, we think it'll be a bit higher next year, re-accelerating back to slightly above potential. Yeah. And so doesn't the fact that there's no job growth bother you at all?

I mean, isn't that a matter of, I mean, just we lost jobs in June. We're not creating any jobs. And that's before revision. So, I mean, you sound awfully sanguine in the context of no job growth. Look, I mean, I think the labor market has moderated in terms of job creation. And that's partly a function of a reduction hiring rates when you look at churn measures or chultz data. And a reduction in labor supply. So both labor demand and labor supply came down and therefore the pace of job creation slowed.

So the six-month moving average is somewhere around, called $65,000 to $70,000 a month. It had been running at close to $175,000 a month. That's a decisive shift. But again, the question is, what is the breaking? And what is the normal level of job creation? And you can argue that 175,000 jobs per month wasn't trend. It was driven by a pretty extraordinary time in the economy with first the rehiring post-pandemic, and then this pretty significant surge of labor supply that came in.

So it's a bit of a correction from that. And I don't know that it's necessarily indicative of a labor market that's out of balance. In fact, I would argue the labor market is in balance. If you look at the unemployment rate, it has not increased in a world where job creation has slowed. The unemployment rate is hovering around 4.3%. If you look at the ratio of job openings to unemployed, a lot of economists' favorite stat, that also is quite imbalance. So I think the jury is still out in terms of what the recent labor market numbers mean for the path ahead of the economy, especially in a world where we are, still seeing broader business investment. And we are still seeing a consumer that is engaged in

spending. Yeah, it feels like we can be in a world where, you know, GDP, the valuable things that we produce is, you know, 2%-ish. You said 1.8. So, you know, somewhere in that ballpark. Yeah. And create no jobs, no jobs. We're at zero job creation. And that just doesn't feel like that's a healthy economy. No, and I don't think that's sustainable. and I don't envision that's what we'll be. I mean, that would rely on extraordinary productivity gains that is hard to predict with any degree of confidence. But to me, the bigger question is how much of this moderation job creation

was, A, a reversal from the outsized gains we had. B, a period of high uncertainty where things froze for a moment of time in terms of incremental hiring. And I think looking at not only hiring rates, but also firing rates are important here. And the fact that firing has not picked up, right? Initial jobless claims are stuck at very low levels. That, to me, is also a really important indicator.

If that changes, if we start to see forced attachment from the workforce, then I think you have a more negative storyline. Yeah, but no job growth. Actually, you know, and I would venture. No job growth. We are still adding that job. The past three months, I mean, effectively, you know, barely positive. And then you've got revisions.

And the revisions, we know the benchmark revisions. I know they're not going to necessarily affect the data most recently, but they're all down. And it just feels like, you know, we could have more negative numbers here. And you're right. There's no layoffs. And I think clearly that's the firewall between recession and oversight. We can see layoffs. And, you know, that's a different story.

But we see no hiring. I mean, hiring rates are very low. Hours worked have been cut. It just feels like temp jobs are down. It feels like business has done everything they can to avoid layoffs. But I just, you know, perplexed by, you know, how we can feel comfortable with the economy that is just traveling right on the edge like that. No? There's a lot of perplexing elements of the economy.

Think about where equity markets are right now. Think about corporate earnings. Think about the rhetoric that's coming out from corporate America, which is still quite robust and positive around the trajectory. ahead. And what we are seeing with our own real-time spending data continue to rely on, which is consumer spending that actually accelerated into the end of the summer. So it doesn't all add up. I agree. Mark, there's a lot of predicaments. And when you focus on just one or two indicators, you can leave a story that's very different than if you focus on other two indicators, which is what makes economics, I guess, quite fascinating, but also multi-hand economic.

keeps us employed that's for sure on our toes okay before i move on though let me let me throw you to the wolves which would be marissa and and chris and you guys maybe i'll begin with chris how do you heard michel she seems my words pretty sanguine about how things are playing out uh how how would you push back on that or would you push back on that and how would you? Yeah, I think if you look first or at kind of at the top line numbers, that's true. We got another, we had a GDP report this morning, for example, that showed really strong growth. But what I'm concerned, if you dig a little bit deeper, there's a lot of concentration in all these statistics, right? If we think about hiring, yeah, there's some hiring going all, but it's going on, but it's all in health care or most of it's in health care.

There is spending going on, but it's really in that top 20% of households by income. There is investment going on, but it's all AI. 90% of the CAPEX since 2022 is in AI-related industry. So I'm really concerned that we have such a concentration in all these different areas that it doesn't take much to kind of have the same fall apart, right? Just one knock and there's not a whole lot of diversity to. kind of pick up the pieces here. How do you respond to that? Are you concerned about that concentration at all or do you have a different view? Yeah, I mean, I think with the labor market, there is

certainly that concern when you look at the diffusion index. And that's one indicator that I think is very important to monitor in terms of the breadth of job creation. Follow that, pay attention to where things go in terms of the ability to see broader job growth. You know, I think when you look at some the sectors, it's interesting where you're seeing some of the soft netic manufacturing, for example. on the one hand, it makes sense. Costs have increased because of tariffs, so it's the industry that's getting hit the hardest. But as you look further into the future, can you see that change if there is a desire to bring some of the manufacturing back into the U.S.

to the extent that manufacturers decide to take that path as they're being encouraged to do so. So, yes, a broader, more spread-out economy would, you know, allow itself to be a one that's presumably more sustainable. On the AI front, I think there's still a lot to learn there in terms of how those investments will play out. I agree it's pretty meaningful the degree to which capital is being deployed for new technologies surrounding AI and data mining and integration. But it certainly seems like that could be productivity enhancing if it's not already. So the question is it's a labor capital story, right? And there was a lot of labor expansion coming out of the pandemic as well as capital investment

with a digitalization of the economy. And now as we look ahead, what does that balance look like? Could it be simply that we're entering an environment where there is more capital investment, maybe marginally less labor investment, especially in a world where the labor supply could be constrained? No, it's a good point. I guess for my mind, though, it seems to be priced for perfection, right? if we don't, if the returns aren't as high as the investors are assuming. Market valuations is a whole other story.

Yes, that's a different. Well, but I think that would then translate into certainly a pretty severe pullback in the investments, right? You're going to have a pretty sizable retreat if indeed we don't get the type of numbers that we've penciled in here. But I'll turn over to Marissa. I'm sure she's got it. Chris, that's the best you could do. That's your impersonation of a wolf. That's the best you could do.

He's so, you know, you know, let's get into it. A smile on his face. Okay, now here's the real wolf. Not at all, Michelle. How, what do you think of Michelle's sanguine kind of perspective on things? I mean, I am less sanguine. I, you know, again, I agree that if you look at it right now, right, that certainly like the break-even pace of job. job growth has downshifted mostly because we've taken two million foreign-born workers out of the

labor force over the past year. So you don't need as much job growth to maintain an unemployment rate that's still at full employment by most measurements. My concern is the direction that this is going in. If we were to if we were to kind of stay at the pace that we're at right now, it would be weak, it would be very narrowly focused, and that's not great, but we could muddle through it. My concern is that just given the direction that the revisions have gone and given some of these other indicators in the labor market that show us that the size and the direction of the revisions may indicate, they have always indicated almost without exception that we're on the precipice of a recession, that's what worries me is that I think, I think things are going to probably end up looking more

negative than they even do right now. So to me, like if you're getting 17,000 jobs added, that's basically zero, right? Like the statistical significance on the payroll report, it has to be over 100,000. So whether it's 17 or it's 79 or it's minus six, it's kind of all zero-ish when you average it all out. And it's hard to, it's hard to know, It's hard for me to be optimistic about that. I think the revisions are going to be more negative as we go through. And then we have this prospect of a government shutdown. We know that, first of all, we know that all these people in the federal government

that took the buyouts, right, they're going to come off payrolls this month. And then we have the prospect of the government shutting down and the administration threatening to just fire all these people, right? So that's all federal and it's private sector contracts around federal. But things just seem to be more negatively balanced on the labor market than they are positively balanced. So that's my, you know, I'm a little less optimistic, I would say, on the labor market. You're really embodying this dismal science. Yes.

I mean, home. It's good. Well, the irony here is, I bet if we look at our forecasts, your forecast, you're, And I know you do an explicit forecast. And our forecast is probably not that much different. It's probably pretty close. Yeah. So the listeners are thinking, these guys are really going at it.

They've got a different perspective. And we do. I think it's just the balance of risks. I mean, the actual baseline forecast probably isn't. And we have to live in a world of risks. We wouldn't be doing our job if we weren't. Yeah, exactly. Yeah, exactly.

Well, let's turn to the consumer. Chris brought up an interesting point about the spending by the folks at the top end of the income and wealth distribution kind of driving the train. And I just want to lay out a little bit of a framework about how I think about the consumer and get your reaction to it. And then we can talk about this in more detail. But I kind of divide the consumer, the American consumer, into thirds across the distribution, the bottom third, the middle third, the top third. And I, you know, I'm just roughly speaking, the folks in the bottom third make, you know, 60K or less folks in the in the middle third, 60 to 120.

maybe a little higher than that. And then the top third is above 1, 2130. That's nationwide, obviously. That's not the case in New York. That's not the case where we are in Philly, but that's the case nationwide. And if I look at that spending by those different parts of the distribution, they're kind of driven by different things. And they matter a lot.

So for the bottom third, it's about jobs, obviously, and pay. But it's also about leverage in debt because they, you know, tend to borrow a lot of money and they are more focused on credit card debt and auto and student loan, that kind of thing. And obviously, I'm abstracting here, you know, to a significant degree, but broadly speaking. The middle third, they're, there, it's jobs, it's, you know, wages. They do have leverage. They have a mortgage. They now tend to own the home.

But it's also about asset values. It's about the value of their home to a lesser degree, the value of stocks or anything else they own. And the folks in the top third, and of course, the folks, you know, as you move up the distribution, they don't have any debt. You know, if they have a mortgage, it's because it's a 3%, it's free money. They're making more on their money market account than they're paying in mortgage expense. And they have a job, they have income, they have savings, and they have, they're focused on their portfolios, particularly their stock portfolio like a laser beam. And when the stock market is up,

it feels better like it does now. If you look at consumer spending, it's got a bit of life to it and I think it goes back to the equity market and the wealth effect. Okay, I said a lot. I'm going to stop right there. What do you think of that frame? Is that a reasonable way about thinking about the consumer? Yeah, Matthew, you're describing purchasing power across different income levels and ultimately what drives the ability and propensity to spend.

So, of course, the higher income households are going to have more of a response from wealth effect because they are the ones that have the majority of the wealth, which the Fed or Reserve flow of fund status shows very clearly both certainly real estate and equity of financial assets as you speak about in both housing wealth and financial wealth has appreciated meaningfully in a world where many people have very low levels of interest rates if you were fortunate enough to be able to buy your home a few years ago or at least refinance into these low level of interest rates post-COVID and a zero interest rate world for the Federal Reserve. So, yes, I think you're describing the power of the wealth effect and how it's unequal.

Right. Okay. So do you agree with Chris's statement or perspective that a lot of the spending that we're observing now, what the driving the train here is the folks at the top third of the distribution at the high end of the distribution? Is that, do you think that's roughly what's going on here? I mean, I think there's reasons to believe that that's a driver, given, again, just the fact that household wealth is appreciated so much and who owns the household wealth and where is there for the propensity to spend out of that. But, I mean, if you're relying on the consumer expenditure survey, that's going to be lagged.

So to get real-time credible data on spending my income cohort, I think is a big challenge, even for us. Okay. So you're saying there's not enough data out there in your mind to make that, to draw that conclusion. Well, there's survey data, but I don't think that's sufficient. I'm not sure, Chris, the data that, that you all are referencing for that. Yeah, well, you know, we, we do a fair amount of work with the survey of consumer finance and the financial accounts and back out from that data. It's obviously quarterly data. We just got the Q2 data for 2025. And there's, you know, obviously a lot of assumptions and calculations. But what we're finding in that work is that the spending is very top heavy.

Just to give you one stat, the folks in the top 10% of the income distribution. So now we're talking about people who make 275K and over, they account for almost half the spending. And that share has increased quite substantively. And if you look at their spending, and this is now by income group, the folks that are in the top 20%, certainly the top 10%, that's the only group since the pandemic for which spending has been greater than the rate of inflation. So if you look at the folks in the bottom 80% of the distribution, their spending has kept pace with inflation, but just barely kept pace with inflation. So that's kind of the base. I think, Chris, correct me if I'm wrong. but that's kind of the basis for, you know, that's coming to that conclusion about the consumer.

Does that resonate at all, Michelle? Yeah, I mean, I haven't examined the data myself, but obviously the wealth effect, asset appreciation. Right. It makes sense. Well, let's just take a look at the data that you were well versed in, and that's the MasterCard data. What is that showing with regard to spending? Yeah. So we're looking at what's called our spending pulse data, which is truly the pulse of,

consumer spending, understanding how consumers are spending in real-time, and it's really granular levels. We can look at it across different merchant categorizations, different regions, spending from one country to the other, which gives a good sense of tourism. In the U.S., in particular, which I know is the focus here, we've seen some acceleration in our spending pool set into the end of the summer and early fall, and we're using that data to therefore forecast what we expect to see for this critical holiday season. So our estimate is that we'll see holiday sales up 3.6% this holiday season. The holiday season defined as November 1st through December 24th for retail sales ex-autos.

So last year, our numbers revealed 4.1% growth, a little bit of moderation. Very different composition of spend, and that's important. We can talk through that. But we're tracking close to 3.6. Right. And you mentioned composition. What are you observing there? Yeah.

So I think there's a few things that play. One of the big differences that we see relative to this time last year is the inflationary environment and what that might mean for the choices consumers make of what they buy. And frankly, also when they buy it as well. So this time last year, we were in a disinflationary or even deflationary environment for a lot of goods, particularly discretionary goods. and now we are in a modestly inflationary environment. If you look at the CPI data, prices aren't moving rapidly, but certainly you're seeing that inflection higher

in terms of the rates of inflation for a lot of the discretionary goods. Think about electronics, appliances, even for apparel, starting to turn around from deflation. So last year it was about getting a lot more volume, a lot more quantity, at inexpensive prices at deep discounts.

This year, I think it's going to be a little bit more challenging to do that, which means you may see a little bit of a higher share of overall holiday spend attributable to price increases. But you also have a consumer that is very, very mindful about making sure they do still have the most amount of value for their dollars. So my sense is that it will be even more concentration during the promotion periods, during the periods where there's heavy discounts. We have a sense of that by looking at the July prime period, which, which was this pretty large, broad promotional period in July across the number of retailers, which showed to suggest an acceleration of spend that was quite meaningful in July.

And then I also think the basket of spend can shift, right? Consumers presumably will look for those items where they don't necessarily see as much of a tariff-induced price increase because there's some flexibility in what they purchase and how they gift. And this is a consumer that's been very, very savvy over the last few years. So 3.6% in what's inflation? What's that going to be? I mean, I guess for those... Well, it's a holiday basket.

It's not overall CPI, right? So rent isn't in it. Utilities is not in it. Right. So, yeah, we'll see how that plays out. It depends how you define the holiday basket. Right. We define it probably close to about 2% or so year-over-year inflation.

So we're just trending. So that consumer spending real after inflation? is kind of one and a half to two, kind of where the broader economy is. Yeah. Yeah, I mean, it's pretty close to how things are tracking, frankly, especially after we got the GDP numbers today, which certainly helped with revisions to consumer spending to keep us on that trend. Right, right.

Yeah, they were for Q2, I guess. I didn't see what they did for Q1, but for Q2, just for the listener, we got benchmark revisions. So these are big annual revisions to the GDP numbers. And like most of the economic data were looking, that the revisions are large, up and down. And the jobs has been down. And the GDP, it was up. I mean, you're saying the consumer spending numbers that make up GDP, they were revised up, too, particularly in Q2. That's right. And we'll get another data point. This is Thursday,

late Thursday, September 25th. We're going to get another data point, I guess the monthly data point for the month of. For income and spend and saving. That will be interesting as well to see. if there's some pullback and savings as well heading into this season. Yeah, okay, good. So just kind of a garden variety typical kind of Christmas coming up? Not necessarily. I think it's going to be a holiday season

where consumers are going to, again, try to figure out where that value is and then what they must have, what that priority is, where they're willing to accept higher prices. So we explored two other themes in our holiday report. One was around giving the gift of health. If you look at spending on health-related items,

whether it's the gadgets like I'm wearing right now, rings or some of the AI software. You're wearing gadgets? What gadgets are you? Oh. I am really being tracked in terms of my health. Every minute. I'll know how healthy I am.

Is that healthy to be always? tracking your help? Not for everybody, but I really appreciate the data. I feel like I can change my behavior based off of what I learn every morning from my data. Oh, I'd be a wreck. I would have to say my husband thinks I'm a little bit loony for doing that. He's like, that's, are you sure you really do you need all that information? Right. Right. Well, hopefully it's accurate. Yeah. Yes, my response is I do. It's not revised. Is it? data set that is not revised. That's great. We'll take it. And there's no budget cuts or anything, you know, or anything. The survey responses are not going to do. They're fine. They're good.

Okay. I'm just asking. Yeah. I feel good about it. But I'm not the only one who seems to want to invest in their health and gift for health as well. So one of the exercises we did with our unique data set is to look at spending on health-related new fitness gadgets, right? So all these new innovation, the health space. And there's extraordinary spend growth. It's running about 30% year-of-year-of-year right now. And we think that will accelerate into the holiday season. If you look at seasonality trends historically, that tends to pick up during the holiday period.

So giving the gift of health, I think will be an interesting one that people potentially not as price-sensitive as well if they feel like they're investing in their longevity. It's an investment, not a purchase. Exactly. Yeah. And then we also looked at some of the social media. My wife talks about it. Everything's an investment.

This is going to pay off. You know, I used to say that a lot about housing. It's a consumption good, but it's so, so an investment. So think about both, right? Don't just purchase a home for investment. Purchase it for your consumption, but balance the two priorities. Right, right. What was the other thing?

You said there's another. The other one is social media influencer brands. So particularly for the younger population that purchases, you know, finds all their best purchases online. And it's easy. It's easy to do it, right? You can look on social media and influence to be wearing something you click, shows you exactly where to purchase that. And you can be done with your holiday gifting in five minutes and guaranteed that the person you're gifting to will be satisfied with the purchase.

Wait, wait, I'm not calling. What's this? What's going on here? I think you need to get on social media, Mark, and start preparing for the holiday season. What she's talking about? Do you have any idea what she's talking about? No. I do.

I do. Yeah. The Instagram algorithms getting you to buy things are very powerful. I'm powerless in their wake. Yeah. And can you imagine, I have, my kids are a little bit too young to be inspired by this, but my niece is a pro at finding all of the best new apparel this way. Again, it's sourced well to make sure that it's exactly what she wants.

So if I'm gifting to her, I'm going to take that path. So what's not working? What's not selling? What do you think is? So, I mean, you know, it's, I think there'll be a question around some of the bigger discretionary goods. categories where tariffs could be kicking in. We've generally seen stronger spending and e-commerce than in store of the last few years, so continue to see the move towards online spend, where again, you get a lot more flexibility in your spending and a lot more price discovery as well.

So I think the digital economy has allowed consumers to be resilient. That's part of the story of why consumers have been so resilient. I do think it's because of the digitalization of the economy and the choices that they have. Now, of course, they need to have a supportive labor market. You need to have the purchasing power to do it. But I think it has allowed for a little bit more tolerance of the gyrations and inflation that we've seen in the last few years. You know, I have to say, Michelle, you're really good at taking a downer question and turning it into a positive. Like, I ask, what's not working? You're telling me it's working. Really, that's amazing. Well, I mean, that's, that's consistent with your perspective,

your kind of sanguine view. Regionally, are you noticing, and I know like MasterCard, you've got such great data, real time, you can see down to the bowels of what's going on with spending. Is anything,

you're noticing any patterns regionally? We have. Yeah. So when you look at just in the U.S., the southeast has been significant outperformer. The Carolinas are seeing persistent spending above the national levels.

The mountain states, have been strong over the last few years. Parts of the Midwest have been a little bit softer, parts of the Northeast as well. And it's been persistent to. D.C. like, is D.C. having a problem? You know, we examined D.C. a bit right when the government layoffs occurred. And there were some marginal changes relative to control around the broader area,

but it doesn't look to be particularly persistent. So you're not seeing weakness in the broad D.C. area. That's interesting. Again, right when we saw some of those, the peak of uncertainty, particularly around the government cuts, there was some evidence, but it proved to be somewhat more fleeting. There's definitely a theme in this conversation. I'm looking for the dark side. You're looking for the bright side. Yeah, we really see the world very differently, Mark. I can tell. This is going to be fun. No, no, no. You know, I'm the same set of data. And, you know, we're risk. You know, we're risk. you know, we're really focused on what could go wrong. So, you know, we're just, that's where we're scouring the planet trying to understand.

Yeah. What about globally? Because you're all over the planet. I would argue that it's also about what can go right. And that has been missing in the conversation over the last few years. It's really been an emphasis on at what point does the cycle turn? When are things going to go wrong? When is the recession going to come?

And actually, the big surprise over the last few years is that things have gone right, that we've seen above trend growth, that trend may have indeed been higher. Two point eight percent Roachy-P growth last year. It's been benchmark revised. I don't know. I was the optimist. I was the optimist last year. Okay.

Okay. I know recession from this guy. Okay. All right. All right. I'm not perennially dark. Actually, I've been, correct me if I'm wrong, guys, but I've been accused of being overly optimistic.

Yep. So looking globally, though, any pockets of weakness. Somebody's got to be having a problem somewhere, Michelle. Or strength. No, no. I want the weakness. I want the weakness now.

Somebody's not doing well. I want to know who that is. I'll leave you to talk about the weak story, Mark. It feels like that's what brings you joy. I'm kidding. I think, you know, Europe is an interesting story in terms of some of the divergence of narratives throughout Europe where the manufacturing-centered economies are certainly more challenged in a world where China has weakened and the trade tensions have kicked

in and supply chains have shifted. So manufacturing hubs, I think, are more challenged. You have the fiscal concerns and part of Europe, which is something to monitor. Think about France, for example. And then the peripheral parts of Southern Europe where it's still a services tourism-led economy is doing well, right? Think about Italy and Spain, where the economy has accelerated and exceeded expectations. Who do you think? Which country are you? I would say Canada's got to be a mess. It's economy's negative GDP. I would think the net. Yeah, it's in recession. It's in recession. I mean, it's in recession. I mean, all the other data, maybe the government data is wrong or all the other data. And it stands to reason. The narratives are struggling with. Canada is heavily tied to the

U.S. and the trade tensions create significant challenges. And that's, that's observable for sure. You can see it. You can see in the data. Okay. Okay, very good. All right, so I'll push one more time. If you're wrong, you know, why would you be wrong? What is it that could cause you to be wrong? And then I'm going to ask you, you know, what could turn out to be better than, you know, right now it feels, you know, 2% growth, kind of sort of near potential, maybe a little bit below, as you point out. Unemployment is low, but it's kind of notch in higher. but still 4.3 percent. So at the end of the day, no big deal. So what could, what do you see out there that could derail that? And then I'm going to ask you, what do you see out there that can make this turn out to be better? I mean, I think it's a healthy debate, frankly, right?

Because we are, again, our modal forecast isn't that different. It's around how to think about the risks and how to think about how the economy can shift relative to the modal forecast. And it's a job that we should all be doing and doing carefully. In terms of where the concern is and what I'm monitoring, I think it's Mark what you alluded to and Mercer and Chris as well around the potential for firing to pick up. If there's forced attachment to the workforce, that's obviously a big concern. If there's a further increase in the duration of unemployment, people out of work for longer,

that's a big concern. It can lead to much weaker wage growth as well. If inflation increases suddenly, if all of a sudden this gradual adjustment, from tariffs becomes a sudden and acute adjustment, that would be a shop for the consumer and one that requires real monitoring and observing. You know, just before you move on to the positive, you really want me to stay negative. No, no, no, I just want to, because actually, I agree with you, the key here, at least the way I'm interpreting what you're saying, the key here is layoffs.

I mean, if businesses start laying off, then we're toast. But, you know, I agree with that. but something has to be the catalyst for them to start laying off. Like that's kind of sort of what I'm looking for. You know, what could be the thing? And that probably has to go to demand for their, for their, whatever it is that they're selling, right? I mean, you know, if demand holds up,

if the American consumer continues to do their thing, reasonably so, it doesn't feel like businesses will be in a position where they're going to have to lay off and we're okay. And look how they've tolerated it so far in a period of heightened uncertainty. They fail to, you know, they retain their workforce. They just load new expansion of the workforce. Yeah, I mean, they've taken it right to the edge, right? They've done everything they, you know, as a business person, they've done everything you would do to accept actually layoff workers.

You know, you've cut hiring, you've cut hours, you've cut temp jobs. You know, you've pulled every lever you've got. You try to improve productivity. You've pulled every lever you've got. And you're kind of right there. And if anything else causes, if there's any other little thing that causes demand to weaken, that's when they say, okay, I got no choice here, but to start the way off. And that generates that self-reinforcing cycle.

I also think it's a strong signal that they did not yet reduce the workforce, right? That they chose to retain their workforce, knowing that there's a lot of costs in a turnover and there's a lot of uncertainty. And this could have been, this could be a temporary soft patch and then a bigger expansion in the future. and they want to keep their talent and keep their workforce intact. We also remember facing an easing of monetary and fiscal policy as well. The Fed started cutting interest rates, guiding towards additional cuts, depending on what a Fed official you listen to, potentially a lot more Fed cuts ahead.

Market, of course, pricing that in. So that's an easing of financial conditions, which should be supportive for the economy versus if we were entering a hiking cycle where policy would be constrictive. Okay, okay. And okay, so wind on a happy note, what out there could turn out to be even better than anticipated? And I guess the way I frame that question is,

if we're at pretty close to full employment, 4.3%, for it to be better, at least on a consistent basis, it's got to be something that lifts underlying potential growth, doesn't it? Is that right or not? Well, I'm going to turn the question back to you because I think this is going to be a hard one for you to answer. What do you think gets you to be less worried about a recession? And then I'll answer your question. I could be overly pessimistic about, you know, everything related to artificial intelligence because that's driving. That is the key to the resilience,

both in terms of investment and in my mind, as you can tell, consumer spending. Because it's driving You're a few pessimistic right now. You're not enough of a believer in it. Is that your suggestion? You're saying. I believe in it, but I am skeptical that it, well, look, at the end of the day, our forecasts are the same. But the risks are that it doesn't live up to the kind of, I don't want to use the word

hype, but I'll use it, the hype, that the equity market's overvalued. We get us, someone stumbles somewhere, you know, one of the big tech guys, and we we get a correction in the equity market. In my mind, we're so top-heavy on consumer spending that you see a bit of a pullback. You don't need much of a pullback. You could even just be more cautious high-in consumers because they're key to all of it. That's the hit to demand because businesses are right on the edge. You have no other options.

That you get the layoffs and then you get the recession. But I could be wrong about that. I could be overly pessimistic about that. You know, maybe these companies are real. There's no doubt about it. they're making a lot of money and they're doing amazing things. But maybe I'm just underestimating that in the staying power of the equity market, the staying power of their investment.

And the productivity gains are coming. And it's okay if we have flat job growth because, as you point out, we have no labor force growth, but we're getting all the income and wealth and profitability from the increase in productivity. So I think that's a reasonable scenario. That's an upside scenario. But it is based on, in my mind, artificial intelligence and everything related to it. There's a lot related to it that this ends up being better than I expect. I expect to be good, but it ends up being better than I expect.

I don't know. The other dynamic there is a speed by which it matters. I think that's a big question mark in terms of we know all the investment, the infrastructure, is happening now and the innovation is happening now. but there's a big question mark in terms of how quickly it's impacting the rural economy. And I think an upside risk scenario is that it's here that it's actually already impacting the real economy. And it's just hard for us to gauge in real time. Yeah, right.

Okay. Chris, anything you want to add on the end here? Very different. I'm clearly on the more pessimistic side of things, right? My odds are somewhat higher than Michelle's. But, you know, I can see the potential upside as well. I just feel like it's a big bet, right? putting a huge bet on this AI investment to pay off really quickly.

And if it doesn't pay out, then again, I think that that could certainly be fodder for a pullback. And then if you want to, if you want me to layer on a negative scenario on top of your positive scenario, right? You get the AI gains. It's actually booming and that destroys the labor market. So, vastly off. So you could, you know, there's a lot of tail risk here. Got to throw that needle. Hey, Marissa.

What do you, anything? I'm a labor economist. I don't, so I'm looking at it through the labor lens. The labor lens doesn't look great to me. And I, the other, you know, the other thing we didn't talk about too. I mean, we talked about the wealth effect and equity markets and there's the housing wealth effect, which we all know has been very prominent in recent years too. But the housing market is not doing well either. And that's a huge part of the economy, right? So I just, I guess my concern is the narrowness of all of this, that it's kind of, it's, it's, It's really dependent on high-income earners, and it's really dependent on AI investments paying off in the long run. And I don't see a ton of bright spots outside of that. Well, I have to say, I think we're going to need to invite Michelle back more often to cheer you guys up. I mean, I'm just saying. For sure. And next time, can I bring along two friends? So it's not.

Exactly. Exactly. Fair enough. Who happens to work for me. Fair enough. Fair enough. That absolutely appropriate. Yeah. Okay. Well, hey, Michelle, thanks so much. I know we push back a little hard here. I hope I didn't push too hard. But I think it makes for a very good conversation. And again, at the end of the day, I think our forecasts are probably pretty close. But thank you again for coming on. Really appreciate it. And I hope to have you back on soon. Of course, my pleasure. We live in a world of risk. So it's the right thing. talk about. Absolutely. And with that, dear listener, we're going to call it a podcast, and we will talk to you

next week. Take care now.