Latest / Market Pulse / A Midyear Check on the U.S. Economy with Moody’s Analytics

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A Midyear Check on the U.S. Economy with Moody’s Analytics · Market Pulse

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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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