Plain English with Derek Thompson - The Housing Recession Is Coming

Episode Date: September 15, 2022

While the broader economy is almost certainly not in a recession, the U.S. housing market is facing a painful reset. As the Federal Reserve raises interest rates to reduce inflation, the most rate-sensitive sector of the economy—which is housing—is taking it on the chin. Today's guest, Mark Zandi, the chief economist of Moody’s Analytics, breaks down the queasy state of the U.S. housing market, the prospect of a correction, what nationwide falling housing prices will mean for the broader economy, the global synchronized decline in housing, and how China's extremely bizarre year is affecting our economy. If you have questions, observations, or ideas for future episodes, email us at [e-mail]. You can find us on TikTok at www.tiktok.com/@plainenglish_ Host: Derek Thompson Guest: Mark Zandi Producer: Devon Manze Learn more about your ad choices. Visit podcastchoices.com/adchoices

I'm Matt Bellany, founding partner of Puck News, and I'm covering the inside conversation about money and power in Hollywood. With my new show, The Town, I'm going to take you inside Hollywood with exclusive insight on what people in show business are actually talking about. Multiple times a week, I'll talk to some of the smartest people I know, journalists, insiders, all of whom can break down the hottest topics in entertainment to tell you what's really going on. Listen now. Today, we check in with the U.S. economy, which contains, continues to baffle and dismay anybody with the chutzpah to predict what's going to happen next. So to understand why the official story of the American economy doesn't really make any sense right now, just look at GDP versus unemployment.

Official GDP estimates say the U.S. economy has been shrinking for at least six months. Official jobs data says the U.S. economy is basically booming, adding an average of about 400,000, jobs per month this year. So I'm not trying to sound conspiratorial, but someone is wrong here. Either we are counting jobs catastrophically wrong or much more likely the initial GDP estimates that we've received and that we've built all of these narratives around. They're going to be revised very soon. And they're going to show that this big, fat economic story, that the U.S. has been shrinking for two consecutive quarters, that we are mired in a recession, that it was just a mirage. Now, adding to the dismay and the confusion this week, we got the latest inflation report.

Many people, many, many, many people were expecting a second consecutive reading of zero month-to-month headline inflation. But we didn't get that. Yes, the government told us, energy prices are down. You already knew that. If you're a driver, gas prices have been falling for something like two months. But core inflation, inflation, which is the price of everything but food and energy, is running hot, largely because of shelter, including rents. And what is happening with shelter in America? While the broader economy is almost certainly not in a recession, the U.S. housing market

is. As the Federal Reserve raises interest rates to help cool off inflation, the most rate-sensitive sector of the economy, which is housing, is taking it right on the chin. home sales are down. Mortgage applications are off 40% from their 2021 peak. For months, housing prices have held up a little bit because the U.S. has such low inventory. We didn't build enough houses in the 2010s. But now, national housing prices really do seem to be turning over. They are falling sharply in some of the hottest markets of the pandemic, places like Boise, Austin, Denver. Now, if you're feeling a little bit lost by my ramshackle summary of what's going on in the economy right now,

I think that's appropriate. I am confused. The economy is sort of a ramshackle mess. GDP is flashing recession. The labor market is saying, no way in hell. Gas prices are down, but inflation is up. And rent inflation is up, but housing prices are down. Like, what the hell is going on?

So today, to help me untangle this knot, we have Mark Zandi. Mark is the chief economist of Moody's Analytics. He is one of my number one go-toes on all things macroeconomic. And today we talk mostly about the state of the U.S. housing market, the prospect of a correction, what falling nationwide housing prices will mean for the broader economy, the global synchronized decline in housing, the state of China. And to get it started, I hope a not too nerdy explanation of a very important economic mystery.

if the housing and rental markets really are turning over, and housing and rental inflation is coming down according to all the websites, apartment list, Zillow, why does the government say inflation is surging mostly because of the rising cost of shelter? I'm Derek Thompson. This is plain English. Mark Sandy, welcome to the podcast.

Derek, good to be with you. Thanks for the opportunity. I suppose we should start with the inflation report this week. And I'll begin here with a confession. I got this totally dead wrong. I was looking at gas prices and assumed that we would get the second consecutive month of headline inflation essentially being zero or just under zero. We did not get that.

Instead, we got core inflation heating up. What was the most concerning thing that you saw in this inflation report? What surprised you? Well, headline inflation was fine. I mean, it was up point one. That's victory, if that's where we're at. And that goes to the lower oil, gas, energy prices. All good there, no problem.

The real problem is core inflation, X energy and food. And economists tend to look at that because that's a very good forecast of future inflation. Because energy, you know, in food prices, as we've seen, go up, they go down, they go all around. But core inflation gives you a better sense of where we're headed. And that was high, uncomfortably high. you know, point six, you know, we were expecting, my guys who do this, you know, for a living, we're expecting 0.3. That doesn't sound like a whole lot, but that's a big difference. That's, you know, annualized, that's the difference between 7% inflation and 4% inflation. So that's a big deal

and certainly moving in the wrong direction. It means that the Federal Reserve's got a lot of work to do in raising interest rates. So obviously, markets didn't like it. Nobody should like it. It's pretty disconcerting. And just to be clear, because this got a couple people in trouble last month. We're reporting here both month to month numbers and annualized numbers. So there was this whole rigmarole a month ago where Joe Biden said inflation is 0% and some people said, no, that's the month to month number. You need to report inflation as an annualized number. So point three is what you were expecting or what your guys at Moody's. We're expecting for the month to month inflation number and it came in at double that for month to month.

Yeah, that's exactly right. Point three, and then to annualize, you know, a poor man's way of doing that is multiply by 12, 12 months. And you can kind of get a sense of what inflation would be for the entire year if it continued to increase at that month to month rate, which if it was point three, it's 4%ish kind of sort of. If it's 0.6, that's 7%ish. So that gives you a sense of the difference between them. The shelter index is a key part of why core inflation continues to rise faster than people like you and I were expecting. It increased 0.7% in August compared to 0.5% in July. The rent index also rose 0.7% in August. Something a little bit confusing that maybe you can help me clear up. If you ask Zillow, if you say, hey, what's happening with rent inflation on Zillow? They'll say, we saw national rent prices peak around February, March. But you call around to a bunch of other sites, a bunch of other sites that are listing,

sort of new rents of apartments that are ready for people to move into. And they'll say, yeah, we saw rent inflation peak around this spring. But now you ask the government, and the government is telling you that rent CPI is still accelerating. Why are we seeing this discrepancy? It's just the way the BLS does this. It surveys renters in groups of one-sixth, So one-sixth of renters one month and then subsequently for six months after that or five months after that.

And so when you get a rent increase in the marketplace, say back in the month of February, it takes about six months for that to translate through into what it means for rent inflation as measured by the Bureau of Labor Statistics. So it's just the methodologically, you know, how the B.L.S. is doing it. And in the case of measuring the cost of housing, you know, there's a lot of, you know, non-intuitive things here that, you know, that go into this. One really important point, interesting point, is for most homeowners, you know, their cost of housing is increased according to the BLLLLLLBLBLBLBLBLBLBLBarr statistics because of this increase in rent.

But that doesn't mean the cash, their shelling out is increasing, right? Because they've got a 30-year fixed-rate mortgage, 15. year fixed rate mortgage, nothing's changing for them. But the bailout says, oh, your inflation rate just rose. So from a, you know, cash perspective, an income perspective, it's not as bad as it sounds. It's bad. I'm not saying that. It's just doesn't mean quite the same thing as if food prices rise 8 tenths of percent because you're actually shelling out more cash to buy those groceries. It just seems to me that shelter inflation, like experientially, it's just very different than energy inflation. When gas prices change, everyone two weeks later sees a higher price at the pump. And when they

have to refill their cars, you have to pay more money for that same amount of gas. But with rent inflation, a lot of people, most people who are renting are in contracts that are already locked in. If they are homeowners, they are paying mortgages that are probably locked in. And so it's a little bit funky how rising shelter inflation should make us think about the fact that everyone's paying higher prices because most people who are paying for shelter are not paying higher and higher and higher prices every single month. That's a very strange situation. Well, that goes back to your Zillow point. In Zillow, that increase in rent is for people who are moving into new apartments or someone who's rent the year came up, their lease came up, and now they're renewing their rent. But as you

point out that's a small part of the population. Most of the population, that doesn't happen for a period of time. So, you know, the Zillow rent increase is not representative of the rent increase that most people are facing, you know, at any given point in time. So that, but there's, broadly speaking, that that's actually good news that Zillow is reporting. Market rents aren't rising as fast. That will ultimately start showing up in the Bureau of Labor Statistics measure of inflation, consumer price inflation. Probably, my guess is very late this year, going into next year, we'll start to see that roll over, which is, you know, we need that because, you know, right now it's adding a lot to overall inflation.

Right. I don't want people's eyes to glaze over with the sort of methodological back and forth, but I think it's important because it cashes out as if Zillow rent inflation peaked this spring, we should expect shelter inflation to maybe come down this winter, which means that a really critical part of core inflation might get a little bit of relief in, let's say, November, December, January. Is that a fair way to summarize this methodological back and forth that we could have good news? You're putting too much way down in Zillow. I'm not sure there's other better, you know, market rent measures that actually show rent growth peaked in the summer.

So that would suggest very late this year, probably more likely early. next year when it really starts to show up in slower increases in rent CPI consumer price index that the Bureau of Labor Statistics actually measuring. Okay, great. I'm glad we did that. I do actually think it's really important that people understand that rent is just an extremely strange. Oh, weird. It's a third of the CPI. One third of the total consumer price index is housing. And, you know, as you can glean, very complex, a lot of moving parts and difficult to measure. Let's move on to the national housing picture. So in the most recent Kay Schiller report on a seasonally adjusted basis, prices are down

in seven of the 20 cities that Kay Schiller looks at. Prices for homes are down in Seattle, San Francisco, San Diego, Portland, Los Angeles, Denver, and Washington, D.C. Do you, Mark, think we are looking at a housing stall in the next year or a more meaningfully, or a more meaningful, I should say, decline in housing? values across the country? Well, I think, Derek, the word I'd use is correction. I think prices are going to decline. Stahl means basically go flat. It feels like they're going to decline. And that goes to the surge in mortgage rates. So we got high inflation. The Federal Reserve is on the warpath,

raising interest rates. Mortgage rates have jumped. The 30-year fixed is going for 6 percent, plus it was half that, less than half that, a year ago. That conflates with the very high house prices, you know, when rates were low, demand was high, rates, prices jumped in many markets. And now you have high house prices, high interest rates. Combine that, it means, you know, the monthly payment that people have to shell out to buy that home is just unaffordable. So many potential first-time homebuyers are now literally locked out of the housing market. So home sales have, here I'll use a strong word, they've cratered. we've seen a very sharp, surprisingly sharp, at least I'm taken aback by how significant the decline in

home sales have been. And that means, you know, if sellers, you know, want to sell homes, they're going to have to start cutting price to move that home. Many cases, sellers are going to take the home off the market because they don't want to sell at a lower price. They have in their going back to Zillow, they saw the last Zillow price. They think that's what their home is worth. They're not going to give up on that fast. So it's going to take a little bit of time. But as they come to the realization, oh, my home is not worth that. And if I need to move, I'm going to have to sell. I'm going to have to cut my price. So we are going to see some price declines. And nationwide, you know, under the assumption we don't go into a recession, I think we get national house

price declines of five, 10 percent peak to trough, something like that. That's, in my nomenclature, that's a correction. Mootis has said that there are more than 200 housing markets that are risk of 15 to 20 percent home price declines. That's a ton. where are those housing markets? Give me an example of a few that you think are at the greatest risk of a more serious ballback. Yeah, those are markets that are overvalued by as much as 20 percent. Looking at the price relative to the incomes in that area, the metropolitan areas, doesn't necessarily mean that price is going to fall by 20 percent. You know, it's like a stock market could be overvalued

by 20 percent. Doesn't mean it's going to fall by 20 percent. But nonetheless, those are risk markets. And most of those markets are places that really got juiced during the pandemic, when rates were really low and you had a lot of remote work, people believing big cities in the northeast, they went into the south. So Carolina's, Georgia, Atlanta, Florida, over into Texas. And then folks on the west coast, they, California, Seattle, they moved into the mountain west, you know, everywhere from Boise down to Phoenix and, again, over to Texas. And then Chicago, also a big urban area, lots, lots of people during the pandemic to remote work. Many of those moved went south and west they went all over the country but the one common denominator is

Texas Texas got folks from all over the place and so some of the most you know like austin texas is kind of one of the poster childs for an overvalued market and i think if you look at the most recent data as a market that is now seeing some correction in price the prices are starting to come in but it's really the south Texas and up into the mountain west that's that's where the prices have risen the most right this sort of a lot of these sort of smile states that people say have been taking in a lot of imports from the Northeast and the Midwest, people wanting to move from, say, New York to North Carolina or California to Austin or Los Angeles up to Boise. And these places got really, really frothy in 2020 and 2021. Really interesting

exception, looking at some of your research and some of your maps, Florida. And Florida's metros seem most resilient or are among, I should say, the metros. that are most resilient to these price declines that you're describing. Why is Florida resilient? I suspect we'll start seeing it showing up in Florida. I'd be pretty surprised if we don't start seeing price declines. It may be the case that more kind of retirees are there, and they're not going to sell, right?

They moved in, paid the price. They're not moving. So you just don't see the transactions yet. But I would be pretty surprised if we had this conversation six months from now. we don't see some meaningful price declines in places like Orlando, Tampa, Jacksonville, you know, South Florida a little bit less so, but, you know, the entire state feels pretty juiced to me, and I think we'll see some corrections as there is also. If I don't ask this question at all, someone's going to get mad at me and scream at me.

So I'll just ask it now. Is this 2007 again when the housing crash helped to wreck the global economy and everything went to shit? Is it 2007 again? And if not, why not? What word did you just use? You're allowed to say that? Yes, you are allowed to say go to shit. Okay, okay, I didn't know that. Okay. I feel liberated somehow. Not that I'm going to say it,

but I feel a little liberated at this point. But, no, I characterize what happened back in 2007, 08, 2009, 2010. It was actually prices peaked in 2006, didn't hit bottom until 2011, five-year period of price declines. That's a crash. Prices were down, depending on the index measure you use. 20, 25, 30 percent. No, because big differences. One is the market is vastly undersupplied today, a lack of homes, vacancy rates are record lows. Back then, surfeit of homes, oversupply, vacancy rates very high. Second, underwriting standards, lending has been very good. Only 30-year, 15-year, plain vanilla mortgages. No wacko, negam, subprime, two-year arm loans. So no problem there.

And the other thing is you've got a lot of investors in markets. And these investors, they've gone to the sidelines. And I think that's one reason why you've seen sales collapse. But they're in for this, the long haul here, these are, this is now a business model to buy and rent homes. You got a lot of institutional money, you know, big, big capital coming in. They're going to come back in, you know, before prices crash and start to, you know, they're opportunistic, but they're going to start, you know, picking up those properties.

And now it'll put a proverbial floor under price. So correction, not a crash. I should say, though, 5, 10%, if there's no recession, if we have a recession, and obviously given the inflation data and what that means from interest rates, you know, we could go into recession. And then the price declines will be 10, 15%. Again, you know, not in the same league as, you know, the financial crisis, but certainly going to feel pretty uncomfortable.

Let's assume for the purpose of this next question only that we are going to into a recession. I think a lot of people tend to think by analogy. I certainly think by analogy. If the spillover effects of the housing crash of 2007, 2008, up until, as you said, 2011, if the spillover effects of that were a global financial calamity, what would be the spillover effects, economically speaking, in the U.S., of a housing correction nationally of 15%? percent. Who would feel that pain? Well, obviously homeowners, you know, I will say, though, you know, the homeowners that are going to suffer the most are the ones that have benefited the greatest in the run-up in price. So take a resident in Phoenix, their house price over the past

year up until recently grew 30 percent. So let's say they give back 15 percent of that, 20 percent of that, 25 percent of that, 30 percent of that. They're still kind of, you even with where they were two years ago. So, you know, no big deal. I mean, if you bought at the exact top of the market, well, you might feel uncomfortable, particularly if you put 5% down or 10% down. Now you're underwater, meaning the value of your home that fell 15, 20% is below your mortgage amount. And then, you know, if you have some disruption to your income in a recession, you lose your job, you lose hours, you get pay cut. Then that's the fodder for, you know, default. People stop paying when that happens.

and can't afford the home, and the property gets foreclosed on, that gets dumped into the market. That kind of scenario, if it was widespread, that would be the fodder for a crisis, a crash. That's what happened back in 2008 and 2009. But that's, you know, very, I just don't see that happening now, you know, just given everything else I said earlier, but something to watch and, you know, certainly on the radar screen, you know, as a risk to the economic outlook. What's on the radar screen for me, in addition to the pain that realtors would clearly feel from, you know, even a stall, they're already feeling, I think, a lot of pain from a stall and might feel from a mild correction. Mortgage lenders are going to feel it as well. Someone looking to sell a house and bank that money for retirement, obviously it's really bad for them.

What about the construction industry? Are you worried that the construction industry could get a little bit of a pinch from a prolete? long to stalemate or mild correction in the national housing market? Yeah, sure. I mean, in fact, the Fed is trying to slow the job market, slow job growth. So if they slow job growth to something less than 100,000 job increase per month, which is kind of their bogey because that's consistent with stable unemployment, and they don't want unemployment to keep falling, given the tight labor market and the wage pressures, that means some sector of the economy has got to be at zero or losing jobs, right? And that would be construction, because that's the most rates sensitive sector part of the economy.

So I would expect some loss of job. Limiting the job loss, though, is the fact that, as I said earlier, there's a shortage of homes, and the multifamily market is doing very well. So people lose their jobs building single family homes because builders stop building because people can't buy the single family home, just can walk across the street, start working on that multifamily project, and there are many of them in communities all across the country. And then you got the infrastructure legislation that got passed last year. that's going to start shelling out money to build out infrastructure in 2023 and 2024,

that should also help support construction jobs. So I expect some declines here. I think that's by design, but I don't know that we'd see big declines because of the factors I just articulated. I want to hold on the issue of housing supply for a second in construction, because there's a few things that are happening right now, and I'd love you to help me sort of disentangle and make sense of it. So housing starts are down. New houses being constructed are down, about more than 20% since April. But I've read your work that seems to indicate that construction cycle time has improved.

So when I put those things together, it tells me that we are starting fewer homes, but there's all these homes that had been started that were stopped when there were all these supply chain gunkups. And now those houses can be completed, and that will add to housing. supply. And housing supply is such an important issue because I think one of the huge problems this country has faced is that in the 2010s, after the crash, as you said, of the housing market and the crash, the construction industry, we built fewer homes per capita in the 2010s than we basically built in any other decade on record, which contributed massively to the price escalation of housing, the difficulty people finding housing. And I really don't want that to happen again,

even in an environment of rising interest rates. So do you see the construction industry right now, the housing supply industry as being healthy because of what's happening in multi-unit residential buildings? Or do you think it's vulnerable to a little bit of a correction if rates continue to rise and the economic growth starts to slip? Well, there's going to be a correction. Single-family construction is going to weaken.

It would take a little bit of time, to your point that there's a lot of homes in the pipeline going to completion that have been kind of bottled up because of supply chain issues around building materials and appliances. And as those supply chains, you iron themselves out, those homes will get completed. So in the near future, the next three, six months, we'll still see a lot of homes going to completion. You won't see the big decline in construction employment. But once that happens, because the new starts, the new building has fallen sharp. then we'll start to see loss of employment in the single-family home-building industry.

Cushinging the blow for construction generally, again, will be continued strong multifamily construction because rents are growing strongly, a lot of demand for rental property because people can't afford a single-family home, they're going to rent, and also the infrastructure jobs that will come, you know, in next year and in the Eiraptor. Turn to the global picture. Home prices aren't just falling in Austin and Seattle and Boise and Charlotte. They're falling in Sydney. They're really falling in Auckland. They're falling in Stockholm. They're finally turning in Toronto. Canada's housing market has been crazy. Why are we seeing this global synchronize decline in housing markets around the world?

Well, what's going on here has gone on in many other parts of the world, particularly a developed world. Rates got very low. Interest rates got low everywhere because of the pandemic. That chooses up demand for housing, the most rate-sensitive sector of the economy. And just because most people need a mortgage to buy a home and, you know, to get that mortgage, you've got to qualify and to qualify, your income's got to be sufficient to cover the mortgage payment, which is impacted, which is related to the interest rate. And also remote work, same kind of dynamics in many markets. You know, people left big cities and went into other parts of their country, juiced up prices in those areas. And also, you've got, you know, a surfeit of housing in many

markets because many markets had the same kind of financial crisis housing collapse we did 10 years ago for lots of different reasons. And so they had the same kind of dynamics here. And so construction has been depressed in many parts of the world. And so, you know, same factors of contributing to what's going on here as is going on overseas. One of the countries with the worst housing market at the moment is China, which just seems to have everything going against it. You've got a real estate, I don't know what noun you would use, craft.

correction. It's crashy correction. Okay, we'll use crashy correction, but it's crash. So you've got a real estate crash. You've got this COVID zero policy, which is just awful for urban economics and supply chains. And you've got a country that appears to be entering a full-blown recession. You know, give me your outlook on the Chinese economy right now, because what's happening there is very confusing and fairly stunning to me. Yeah, well, they got troubles. They got a whole slew of problems. I mean, you mentioned the real estate collapse. They built way too many homes. That's the one place in the world where we got too many homes, not enough homes. You know, they got problems, demographic problems. The working age population is declining.

They got environmental issues. They took on a lot of debt to kind of help them navigate through the pandemic and the financial crisis. So leverage is really very high. You know, most importantly, I get, most significantly, I think they're, you know, pulling back from the rest of the world. they benefited enormously from globalization. That's the integration of the Chinese economy and other emerging economies into the global economy beginning back in 2000. And for 20 years, they feasted on that growth.

But now we're going backwards on that. And the Chinese are pulling back on globalization. If they're not de-globalizing, they've stopped globalizing. And that really makes them vulnerable. So they got a whole set of very significant structural issues. And, you know, they've been able to kind of sort of paper it over with all the savings they built up when times were good and used that fiscal support and the government support to keep things going. And they're still doing that now, but, you know, that's going to run out.

And, of course, I forgot the obvious. They know COVID policy, right? I mean, so if a case shows up somewhere, they shut down cities, big cities, you know, tens of millions of people kind of cities. and that economies get nailed when you do that. We saw that here in the United States when we shut down. They're shutting down continually over there. So, you know, that's another big problem that they face. So a lot of issues. And China's, I think, going to be, it's going to be a slog for them for quite some time.

I'm trying to think about the ways in which the Chinese slowdown is going to affect the U.S. economy. And it's a pretty blurry picture, to be honest, because in the one hand, their supply chain problems, or their COVID-Zero policy is our supply chain problem because we have lots of multinational companies that rely on manufacturing and distribution in China, Apple, for example, in order to get the stuff that we need to American shores.

On the other hand, there's a lot of people in China. They use a lot of gas. When that economy starts to cool off or even starts to shrink, that means there's less demand for gasoline nationwide, which means that energy prices might come down a bit, which reduces headline inflation for the U.S., which means that maybe there's less pressure on the Fed

to jack up interest rates again and again and again, which is good for U.S. growth. So it's confusing to me to try to say, you know, this is overall a good thing for the U.S. economy or a bad thing for the U.S. economy. Do you have a more educated way of thinking about this? No, I think you nailed it. I mean, there's a lot of cross currents here, you know,

some positive, some negative. You know, the net of all of that is, you know, probably it can't be good, you know, for the global economy, the U.S. economy. China is struggling. That just can't be a good thing, you know, on net. But, you know, at the moment, there's, we're taking a lot of solace from the fact that oil prices are down from, you know, old-time highs, or, you know, very high levels. And in terms of gas prices, we were at all-time highs. And in part is because China's flat on its back, no demand for oil, less demand for

oil, and that's keeping oil prices down compared to where they would be otherwise. So in the current context, you know, maybe a net positive, but, you know, broadly speaking, it can't be a good thing if an economy is struggling to the degree that China is at this point. And as you point out, you know, we need supply chains to iron themselves out. You know, we can't have any more shortages because that just exacerbates the inflationary problems we began this discussion with. So, you know, it's important that they get, get things in order and continue to grow and expand and ultimately thrive. I can't let you go without asking you the unfair question of making a prediction about whether or not, we are in or about to be in a recession. I'll ask the question this way. How do you reconcile the GDP

numbers and the unemployment numbers? Because GDP is now officially declined two quarters in a row, which is not the technical definition of a recession, but it's pretty recession-e. On the other hand, unemployment is so low. Monthly employment growth, monthly job growth is on fire. You look at GDP, it says, if we're probably kind of in a recession, you look at the jobs numbers and it's like, there is no way in hell that we're in a recession. How does it cash out to you? Yeah, we're not in a recession. I mean, I do do a lot of forecasts, so it's not an unfair question. And, you know, some forecasts I do, I'm confident in some non-san, not so much. This one, I'm highly confident in. This is not a recession. That GDP number, that probably will be revised higher,

but I'm not going to go down that path unless you want to go down that rabbit hole. We talked about how do we measure rent inflation in the CPI. We can talk about GDP, but it will be revised higher, probably revise away the downturn, certainly in one of those quarters. And more importantly, at the end of the day, you know, a recession is a broad-based, persistent decline in economic activity. If you're creating hundreds of thousands of jobs every single month, layoffs are at a record low, unfilled positions are close to a record high, that's not a recession. And I don't think

anyone, you know, who the official arbors of recession is the business cycle dating committee of the National Bureau of Economic Research, a group of nonpartisan academic economists, there's no way they're going to label this in recession. One quick follow up before I let you go. Don't go all the way down the rabbit hole. I don't think we can do like 30 minutes on it, but maybe go like, you know, a quarter the way down the rabbit hole. How do you think GDP is going to be revised by the BEA, such that it's going to move from negative to flat or positive territory. Well, first of all, it gets revised a lot many times over the years. And many down quarters that we've had in the past have gotten completely revised away in subsequent recession. So this is not uncommon.

It happens. And the reason I feel strongly is gross domestic income, GDI, which is conceptually as GDP, but measured differently, different source data income side of the accounts. That's one quarter of the way down. I'm not going any further than that. One quarter of the way down. That's been uniformly positive since the pandemic hit. It grew in the first half of the year. That may actually get revised a little bit lower. I wouldn't be surprised, but GDP is going to get revised higher. They'll meet somewhere in between, and that's basically economy in terms of GDP that was flat. But in terms of jobs, it was booming, which, you know, to connect all the dots means that productivity growth in the first half of the year was weak. but it was really very strong in the early part of the pandemic, so kind of netted out.

It shows an economy that is still growing, expanding, not in recession. Marks, Andy, thank you very, very much. Yeah, anytime, Derek. Take care now. I'm Derek Thompson. That was Plain English. Thanks very much to our producer, Devin Manzi. If you have any questions, comments, ideas for future episodes, please shoot us an email at plain English at Spotify.com.

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