Subscribe
Share
Share
Embed
Market Pulse is a monthly podcast by Equifax, in partnership with Moody’s Analytics. Equifax hosts bring you interviews with industry experts on the latest economic and credit insights that can help drive better business decisions. Whether you’re in financial, mortgage, auto or another service industry, we help make sense of the latest economic conditions that impact you. This podcast series supplements our Market Pulse webinars, which occur on the first Thursday of each month.
Welcome back to the Market Pulse
podcast from Equifax. I'm your host,
Olivia Voltaggio, senior content
manager. For US Information Solutions.
We focus on helping clients navigate
economic uncertainty while identifying
opportunities for growth in the
consumer and commercial credit space.
I'm thrilled to be joined today by
Shandor Witcher and Economist at Moody's
Analytics,
where he helps track and forecast the
performance of the US economy across key
indicators from GDP growth and inflation
to employment and interest rates,
Shandor brings, data-driven insight,
and clear-eyed analysis to
complex economic trends.
And we're excited to have him break
down things down for us. Shandor,
welcome to the podcast.
Nice to be here.
Let's start with the 30,000 foot view.
When you were our guest
in February of this year,
you had said the economy
was in very solid shape.
How would you describe the current
state of the US economy now?
Yeah, it's, it's pretty notable how
quickly things have shifted. So,
you know, as, as you noted in
February at the start of the year,
we were in great shape, sturdy job
growth. You know, we had that kind of,
not as quick as we wanted, but
a steady disinflation going on,
and it seems to have shifted
quite a bit right now. So,
you know,
you have all this kind of turbulence
in terms of trade policy and that,
you know, that adds quite a
bit of strain. So, you know,
tariffs themselves would act as a
counter to growth all on their own.
But when you have, you know, trade
policy shifting weekly, daily,
monthly, you know, it, it's really
acts as a headwind to decision makers.
You know, I mean, I will
start with us, right?
If it makes it hard for
us to produce a forecast,
I can only imagine what it's like
when you're trying to, you know,
think about how you're going to invest
in a factory or hire a new employee when
you, you don't know what, what the growth
outlook is, you know a year from now,
if not a month from now.
And that's, you know,
we're really seeing that precipitated
drawback in investment plans by
manufacturing firms.
We haven't quite seen it
yet impact job growth,
though it is decelerating, although it's,
it's worth noting some of that's
to script, right? You know, the,
the Fed is keeping interest
rates higher to, you know,
help cool the labor market, and
that's working. The, the concern is,
is that now you introduce
all this uncertainty and
you might see an even bigger
pullback than is really intended.
Absolutely. And on that note,
rising jobless claims and a decline
in imports have raised the chances for
slowing economic growth, and the
Fed is warning against stagflation.
Can you break this down for us, and
what are you seeing in the data?
Yeah, absolutely. So first quarter
GDP data were released last month,
and yeah, we had our first
negative print since 2022. Now,
a lot of this was driven by an increase
in imports, and this was, you know,
largely just firms trying to get ahead
of those tariffs we were talking about.
But this also does point to, you know, a,
a pull forward in demand as firms and
businesses try to get ahead of those
tariffs, right? So that's, you know, that
is a bit of a risk going forward. So,
you know, if you're, you know,
spending something that
would've been spent later,
now you're not gonna spend it
later, that's a headwind to growth.
In terms of the flat fed
stagflationary warning it's just
worth taking a step back to, you know,
note what fair tariffs mean to
the economy directly, right? They,
they are by nature stagflationary,
they slow growth and they put upward
pressure on prices. Now, so far,
the impact on prices had been muted.
This month's CPI will help shed some,
shed some light on the impact
on inflation. So, you know,
mu much of the new tariffs the,
the prices haven't quite been
reflected yet in the CPI data.
So we've still been seeing
the disinflation we want.
Much of that though is, is driven
as much by energy, is by the,
kind of the more durable measures
of inflation. So, you know,
energy prices year over year
are falling pretty swiftly as as
oil production has been increased by opec.
But the more kind of long standing kind of
structural measures of price growth
remains strong, right? So your,
your shelter costs are continuing
to grow at above target,
and that puts a lot of
stress on consumers.
Yes. Along those lines, how might
this impact the US consumer right now?
Are we still seeing strong spending, or
are rising debt levels starting to bite?
Yeah,
so we are still seeing strong growth
in consumer spending year over year.
Real retail spending
growth is near 3% in April.
And that was an acceleration. As
I said earlier, it's, you know,
kind of buy some of that strength
back by saying, you know,
we think some of this is a pull
forward in demand. So, you know,
while it's always encouraging to get more
growth in consumer spending, you know,
there's the risk, right? That that's
kind of, you know, borrowing from,
you know, your may, your
June, your July data.
As far as debt levels I often prefer
to look at a household's debt service
burden rather than just the level of debt.
So this is the share of a household's
income they need to spend purely
to service debt. And this remains near
a historic low. And this, you know,
largely because the, you know, the,
the biggest debt class that
most households have on
their balance sheet is their
homes. And, you know,
most households that own homes have
locked in historically low mortgage rates.
So by that measure, households are
still in good shape by and large. Now,
one area that is worth paying attention
to just 'cause it kind of gets at some
of the segmentation of
households is FHA mortgages.
So we're seeing that class
of mortgage delinquency rates
trending higher, and you know,
that that could be a signal that you're
seeing some of that stress and you,
you're stress, you know, lower
and middle income households.
Yes. Can you dig into
that a little bit for us?
What some of that recent
credit data tells us,
especially among those lower
and middle income groups?
Yeah, so you know, this, this,
this segment of the population's been
under quite a bit of stress lately, right?
You had to, you know, sub
surging inflation, it was
weighing on real incomes.
And if you add to that, just the,
the surge in lending that happened
as the economy reopened out of COVID,
you know, you,
you did see delinquency rates just
climbing across most asset classes.
You know, but many have overshot
their 29, their 2019 levels.
So, you know, except for kind
of the one key, you know, the,
the hundred pound gorilla in the
room you know, mortgages, right?
Which still remain low
is households, you know,
have those mortgage rates locked in and
they're in a good position that way.
There's just generally a stabilization
in delinquency rates. So,
you know, while per performance
is still deteriorating,
I would characterize it more as kind
of a normalization or a stabilization.
So it looks like we're gliding
toward equal equilibrium there.
One kind of wild card in this story is
what's happening with student loans. So,
you know, as these have rolled
on, you're seeing the, the,
the total dollar delinquency rate kind
of surge as these are now reflected in
the data. So, you know,
then the question becomes,
will this have crossover
implications, right.
As households start to feel that pressure,
and they, you know, they start to,
you know collection efforts
are put in place, right?
Do other categories start to
feel that pain due to the,
the as student loans
are, you know, reflected?
Absolutely. That's a question that we've
been covering quite a bit here as well.
Hmm. Shifting gears a bit,
let's talk about small business.
What can you tell us?
Yeah, so small business sentiment is,
it's been trending lower
since about December,
and this really goes back to that
uncertainty in the tariffs. So, you know,
small businesses are, you know, one,
they're anticipating that they're
gonna face higher input costs, right?
So now they're, now they're
in a pinch, right? We've,
we've kind of touched on
some of the pressures the
consumers face. So, you know,
can they pass those
costs onto the consumer?
Are they gonna have to eat
that themselves? Right?
That's a, yeah, that's a,
that's not a great
position for them to be in.
And then kind of circling back to that
uncertainty story, right? They're,
you know, they're not sure if they
should, you know, stock up on inventories.
Now, if they do, will there, you know,
be ample consumption to eat that?
How long are they gonna have to
hold those? So yeah, overall,
the small businesses certainly feeling
the pressure from all this uncertainty
and the rising input costs.
And looking at a more, a broader picture,
how are global trends
affecting the US outlook?
Yeah, this is a, an
interesting area. I mean,
we're seeing some a a bit of an
uncoupling, right? And I guess it's a,
an intentional effect by the
administration, but, you know,
we're seeing a decreased
appetite for US assets.
So, you know, that'll have
the net effect of, you know,
pushing up our interest
rates, right? As you know,
as we don't have this global buyer
for us debt, you know, you're,
you're seeing that pressure start
to show you know, this could,
this could have the effect
of reducing the dollars value
which, you know, that'll
be a tailwind to trade,
but overall higher interest rates,
that's just stands to be a
net drag on growth. Another,
another interesting story we're following
here is just the decreased appetite
for American tourism
services, right? So, you know,
you're looking at historically low
numbers of Canadian tourists coming
to America, right? As you
just kinda have this you know,
boycott America movements abroad.
Shandor,
if you had to name the top two economic
indicators to watch for the second half
of the year, what would they be and why?
Yeah, so we're actually working on a,
a machine learning recession prediction
model right now. Really exciting stuff.
And, you know, one of the fun things
about kind of doing this kind of work is,
you know, it, it,
it gives you a chance to kinda look at
all this economic data we look at in a,
in a different and exciting way. So, you
know, consistent with that, one of the,
one of the top indicators that this
model uses is the conference score,
conference board's leading economic
indicators index. You know,
that, that's just to say this index is
doing exactly what it should be doing.
But you know, I'm, I'm, I've
always been a believer in that one,
but I would continue to tout its merits
after the work we've been doing on the
machine learning front. And then the
other one I would mention is you know,
initial claims for
unemployment. It's just a,
a really high frequency indicator.
It gives you a great snapshot of
the labor market. And, you know,
if we're going to be tipping, that'll
be one of the first places you see it,
right? So if, you know, you see
a sharp uptick in initial claims,
you can anticipate a
pullback in consumption,
and now you have that kind of
reinforcing cycle and a, you know,
a loss of faith in the US economy.
Shandor, so great having
you on the show again.
How can our listeners connect with you?
Yeah, you can connect with me on LinkedIn.
My email's available on Moody's
shandor dot witcher at moody's dot com.
Ask me any questions you'd like.
If you enjoyed today's episode, please
tell your friends about us and subscribe.
If you'd like to send us questions or
suggested topics for future episodes,
email us at Market Pulse
podcast@equifax.com.
And don't forget to register for
our Market Pulse webinar series at
equifax.com/market Pulse.
Our team of experts works hard to provide
relevant economic and credit insights
to arm you with the
tools to innovate boldly,
adapt confidently and lead decisively,
because when you partner with Equifax
success, as always with insight,
thanks for listening, and
please join us next time.