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Welcome back to the Market Pulse
podcast from Equifax. I'm your host,

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Olivia Voltaggio, senior content
manager. For US Information Solutions.

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We focus on helping clients navigate
economic uncertainty while identifying

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opportunities for growth in the
consumer and commercial credit space.

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I'm thrilled to be joined today by
Shandor Witcher and Economist at Moody's

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Analytics,

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where he helps track and forecast the
performance of the US economy across key

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indicators from GDP growth and inflation
to employment and interest rates,

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Shandor brings, data-driven insight,

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and clear-eyed analysis to
complex economic trends.

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And we're excited to have him break
down things down for us. Shandor,

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welcome to the podcast.

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Nice to be here.

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Let's start with the 30,000 foot view.

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When you were our guest
in February of this year,

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you had said the economy
was in very solid shape.

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How would you describe the current
state of the US economy now?

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Yeah, it's, it's pretty notable how
quickly things have shifted. So,

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you know, as, as you noted in
February at the start of the year,

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we were in great shape, sturdy job
growth. You know, we had that kind of,

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not as quick as we wanted, but
a steady disinflation going on,

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and it seems to have shifted
quite a bit right now. So,

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you know,

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you have all this kind of turbulence
in terms of trade policy and that,

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you know, that adds quite a
bit of strain. So, you know,

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tariffs themselves would act as a
counter to growth all on their own.

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But when you have, you know, trade
policy shifting weekly, daily,

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monthly, you know, it, it's really
acts as a headwind to decision makers.

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You know, I mean, I will
start with us, right?

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If it makes it hard for
us to produce a forecast,

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I can only imagine what it's like
when you're trying to, you know,

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think about how you're going to invest
in a factory or hire a new employee when

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you, you don't know what, what the growth
outlook is, you know a year from now,

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if not a month from now.
And that's, you know,

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we're really seeing that precipitated
drawback in investment plans by

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manufacturing firms.

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We haven't quite seen it
yet impact job growth,

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though it is decelerating, although it's,

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it's worth noting some of that's
to script, right? You know, the,

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the Fed is keeping interest
rates higher to, you know,

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help cool the labor market, and
that's working. The, the concern is,

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is that now you introduce
all this uncertainty and
you might see an even bigger

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pullback than is really intended.

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Absolutely. And on that note,

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rising jobless claims and a decline
in imports have raised the chances for

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slowing economic growth, and the
Fed is warning against stagflation.

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Can you break this down for us, and
what are you seeing in the data?

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Yeah, absolutely. So first quarter
GDP data were released last month,

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and yeah, we had our first
negative print since 2022. Now,

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a lot of this was driven by an increase
in imports, and this was, you know,

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largely just firms trying to get ahead
of those tariffs we were talking about.

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But this also does point to, you know, a,

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a pull forward in demand as firms and
businesses try to get ahead of those

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tariffs, right? So that's, you know, that
is a bit of a risk going forward. So,

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you know, if you're, you know,

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spending something that
would've been spent later,

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now you're not gonna spend it
later, that's a headwind to growth.

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In terms of the flat fed
stagflationary warning it's just

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worth taking a step back to, you know,

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note what fair tariffs mean to
the economy directly, right? They,

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they are by nature stagflationary,

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they slow growth and they put upward
pressure on prices. Now, so far,

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the impact on prices had been muted.

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This month's CPI will help shed some,

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shed some light on the impact
on inflation. So, you know,

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mu much of the new tariffs the,

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the prices haven't quite been
reflected yet in the CPI data.

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So we've still been seeing
the disinflation we want.

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Much of that though is, is driven
as much by energy, is by the,

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kind of the more durable measures
of inflation. So, you know,

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energy prices year over year
are falling pretty swiftly as as

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oil production has been increased by opec.

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But the more kind of long standing kind of

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structural measures of price growth
remains strong, right? So your,

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your shelter costs are continuing
to grow at above target,

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and that puts a lot of
stress on consumers.

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Yes. Along those lines, how might
this impact the US consumer right now?

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Are we still seeing strong spending, or
are rising debt levels starting to bite?

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Yeah,

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so we are still seeing strong growth
in consumer spending year over year.

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Real retail spending
growth is near 3% in April.

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And that was an acceleration. As
I said earlier, it's, you know,

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kind of buy some of that strength
back by saying, you know,

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we think some of this is a pull
forward in demand. So, you know,

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while it's always encouraging to get more
growth in consumer spending, you know,

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there's the risk, right? That that's
kind of, you know, borrowing from,

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you know, your may, your
June, your July data.

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As far as debt levels I often prefer
to look at a household's debt service

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burden rather than just the level of debt.

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So this is the share of a household's
income they need to spend purely

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to service debt. And this remains near
a historic low. And this, you know,

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largely because the, you know, the,

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the biggest debt class that
most households have on
their balance sheet is their

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homes. And, you know,

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most households that own homes have
locked in historically low mortgage rates.

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So by that measure, households are
still in good shape by and large. Now,

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one area that is worth paying attention
to just 'cause it kind of gets at some

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of the segmentation of
households is FHA mortgages.

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So we're seeing that class
of mortgage delinquency rates

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trending higher, and you know,

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that that could be a signal that you're
seeing some of that stress and you,

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you're stress, you know, lower
and middle income households.

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Yes. Can you dig into
that a little bit for us?

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What some of that recent
credit data tells us,

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especially among those lower
and middle income groups?

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Yeah, so you know, this, this,

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this segment of the population's been
under quite a bit of stress lately, right?

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You had to, you know, sub
surging inflation, it was
weighing on real incomes.

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And if you add to that, just the,

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the surge in lending that happened
as the economy reopened out of COVID,

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you know, you,

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you did see delinquency rates just
climbing across most asset classes.

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You know, but many have overshot
their 29, their 2019 levels.

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So, you know, except for kind
of the one key, you know, the,

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the hundred pound gorilla in the
room you know, mortgages, right?

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Which still remain low
is households, you know,

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have those mortgage rates locked in and
they're in a good position that way.

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There's just generally a stabilization
in delinquency rates. So,

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you know, while per performance
is still deteriorating,

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I would characterize it more as kind
of a normalization or a stabilization.

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So it looks like we're gliding
toward equal equilibrium there.

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One kind of wild card in this story is
what's happening with student loans. So,

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you know, as these have rolled
on, you're seeing the, the,

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the total dollar delinquency rate kind
of surge as these are now reflected in

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the data. So, you know,
then the question becomes,

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will this have crossover
implications, right.

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As households start to feel that pressure,
and they, you know, they start to,

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you know collection efforts
are put in place, right?

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Do other categories start to
feel that pain due to the,

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the as student loans
are, you know, reflected?

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Absolutely. That's a question that we've
been covering quite a bit here as well.

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Hmm. Shifting gears a bit,
let's talk about small business.

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What can you tell us?

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Yeah, so small business sentiment is,

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it's been trending lower
since about December,

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and this really goes back to that
uncertainty in the tariffs. So, you know,

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small businesses are, you know, one,

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they're anticipating that they're
gonna face higher input costs, right?

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So now they're, now they're
in a pinch, right? We've,

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we've kind of touched on
some of the pressures the
consumers face. So, you know,

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can they pass those
costs onto the consumer?

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Are they gonna have to eat
that themselves? Right?
That's a, yeah, that's a,

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that's not a great
position for them to be in.

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And then kind of circling back to that
uncertainty story, right? They're,

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you know, they're not sure if they
should, you know, stock up on inventories.

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Now, if they do, will there, you know,
be ample consumption to eat that?

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How long are they gonna have to
hold those? So yeah, overall,

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the small businesses certainly feeling
the pressure from all this uncertainty

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and the rising input costs.

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And looking at a more, a broader picture,

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how are global trends
affecting the US outlook?

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Yeah, this is a, an
interesting area. I mean,

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we're seeing some a a bit of an
uncoupling, right? And I guess it's a,

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an intentional effect by the
administration, but, you know,

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we're seeing a decreased
appetite for US assets.

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So, you know, that'll have
the net effect of, you know,

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pushing up our interest
rates, right? As you know,

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as we don't have this global buyer
for us debt, you know, you're,

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you're seeing that pressure start
to show you know, this could,

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this could have the effect
of reducing the dollars value

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which, you know, that'll
be a tailwind to trade,

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but overall higher interest rates,

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that's just stands to be a
net drag on growth. Another,

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another interesting story we're following
here is just the decreased appetite

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for American tourism
services, right? So, you know,

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you're looking at historically low
numbers of Canadian tourists coming

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to America, right? As you
just kinda have this you know,

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boycott America movements abroad.

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Shandor,

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if you had to name the top two economic
indicators to watch for the second half

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of the year, what would they be and why?

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Yeah, so we're actually working on a,

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a machine learning recession prediction
model right now. Really exciting stuff.

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And, you know, one of the fun things
about kind of doing this kind of work is,

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you know, it, it,

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it gives you a chance to kinda look at
all this economic data we look at in a,

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in a different and exciting way. So, you
know, consistent with that, one of the,

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one of the top indicators that this
model uses is the conference score,

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conference board's leading economic
indicators index. You know,

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that, that's just to say this index is
doing exactly what it should be doing.

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But you know, I'm, I'm, I've
always been a believer in that one,

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but I would continue to tout its merits
after the work we've been doing on the

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machine learning front. And then the
other one I would mention is you know,

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initial claims for
unemployment. It's just a,

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a really high frequency indicator.

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It gives you a great snapshot of
the labor market. And, you know,

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if we're going to be tipping, that'll
be one of the first places you see it,

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right? So if, you know, you see
a sharp uptick in initial claims,

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you can anticipate a
pullback in consumption,

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and now you have that kind of
reinforcing cycle and a, you know,

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a loss of faith in the US economy.

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Shandor, so great having
you on the show again.

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How can our listeners connect with you?

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Yeah, you can connect with me on LinkedIn.

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My email's available on Moody's
shandor dot witcher at moody's dot com.

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Ask me any questions you'd like.

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