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.
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