Mark Zandi
@Markzandi
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Chief Economist @economics_ma . Host of Inside Economics podcast . Co-founder of . Views expressed here are my own.
Joined March 2010
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The more I dig into the Sept jobs report, the more I like it. The job market is strong, but not too strong to forestall lower inflation. All signs suggest the economy is at full-employment, not beyond, and labor supply is keeping up with labor demand. Couldn’t be much better.
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Wow. What a great week for the economy. The Oct jobs report was as good as it gets. Resilient, but moderating job growth, and easing wage pressures. And with oil prices back down to near $80/barrel, 10-yr T-yields close to 4.5%, and stocks showing lots of green, it’s tough not to…
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Understanding what is behind the painfully high CPI inflation is key to understanding where it is headed and when. This table should help with this. The Russian invasion and spike in oil and other commodity prices is the
#1
reason, followed by the pandemic & the housing shortage.
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As 2023 comes to an end, it is increasingly clear that not only did the economy avoid a widely anticipated recession, but it was also a great year for the economy. Real GDP is on track to grow a heady 2.5%, unemployment has remained below 4%, and inflation has quickly receded.
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As a professional economist, I do lots of forecasting. Some forecasts I’m confident in, some not so much. I’m confident that the growth in consumer prices for shelter is headed much lower and that this will push overall inflation back near the Fed’s target by this time next year.
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The August jobs report couldn’t be much better. Job growth is solid but slowing. Unemployment rose, but for that right reason - more labor supply as participation jumped. Wage growth continues to moderate and hours worked rose. The report has soft landing written all over it.
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If you had told me a few months ago that today 10-year Treasury yields would be near 5% and mortgage rates over 8%, I probably would have told you that the stock market would be down big and the economy headed to recession. While that still could happen, odds are good that it…
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Goodness, the increase in GDP at the end of last year was meaningfully stronger than I had expected. Not only did consumers spend and businesses invest more, as anticipated, but unexpectedly trade and inventories added to growth. But despite the robust growth, inflation was…
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If BBB doesn’t become law, real GDP growth in 2022 will be lower by 0.5% and reaching full-employment next year will prove elusive. Fallout will be quick as families w/ children will lose a tax break. Hard to see the Fed hiking rates 3 times next yr, as investors now anticipate.
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The deeper I dig into last week’s inflation statistics, the more confident I am that inflation will be back to the Fed’s inflation target by this time next year. And this without more interest rate hikes, a recession, or even much of an increase in unemployment.
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Amazing! The job market’s performance is extraordinary. From today’s job report: lots of jobs, steadfastly low unemployment, sturdy non-inflationary wage growth, rising participation and boomy labor force growth. Nothing in today’s report suggests recession. Just the opposite.
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Inflation has peaked. This, despite tomorrow’s blaring headlines on January consumer price inflation. Inflation peaked in October when the Delta wave of the pandemic was doing its maximum damage to global supply chains and keeping millions of sick workers off the job.
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The deeper I look into the bowels of last week’s job market data, the more I think we can skirt a recession. That’s because businesses aren’t laying off workers and unemployment is at a half century low, but regardless, job market slack is forming, and wage pressures are abating.
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What recession? The consensus view that recession was virtually a slam dunk looks increasingly off base. Yes, there will eventually be one, but odds that a downturn is dead ahead are receding. There are a bunch of reasons why the economy is hanging tough. Here are my top three…
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Contrary to the fears of many, inflation can recede without a recession or anything close. That’s the overarching message in the GDP report for the 3rd quarter released last week. Real GDP grew by a hot 4.9% but the core consumer expenditure deflator increased by a cool 2.4%.
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In response to popular demand, here is an update of my inflation decomposition. Of the 8.2% year-over-year CPI inflation through September, almost 60% is due to supply-side drivers, 28% is due to demand-side drivers, and the remaining 12% is tough to reasonably distinguish.
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Our newly released Moody’s Analytics election model predicts President Biden will win re-election by a thin margin with an average voter turnout. Read the full analysis here:
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I often get asked why I expect U.S. house prices to correct (down by single digits peak-to-trough) but not crash (down >20%). Topping the list of reasons is that mortgage credit quality has never been better. The % of loans delinquent and in foreclosure is at record lows.
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The Inflation Reduction Act seems likely to cross the legislative finish line. My analysis of its economic impact will be out tomorrow. In preview, while much smaller in scale & scope than the original Build Back Better agenda, it will have a material beneficial economic impact.
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A year ago, the strongly held consensus (which didn’t include me) expected a recession dead ahead. This view was rooted in history - in times past when inflation was high and the Fed jacking up rates, recession followed. But the consensus has been wrong, this time is different.
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The more I look for signs that the economy is headed to recession, the more I find reasons to think it can avoid one. Take corporate balance sheets – they’re strong. It has been 50 years since nonfinancial corporations devoted such a low % of cash flow to interest expense.
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November’s weaker than expected job gain looks like a head fake. The job market is MUCH stronger than this headline would suggest. Seasonal adjustment in retail, leisure & hospitality, and government. Job gains in previous months continue to get revised up a lot.
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This would be a good time to batten down the financial hatches. Not because a recession is at hand, it’s not. And not because the banking system is set to unravel, it won’t. It’s because of a politically manufactured crisis around increasing the Treasury debt limit.
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We got more stellar economic news this morning. Consumers are hanging tough, spending at close to a 2% real pace - strong enough to propel the economy forward but not so strong it fans inflation. Indeed, core PCE inflation has returned to the Fed’s 2% target in recent months.
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The runup in stock and house prices since the pandemic is eye-popping. Stocks are up 60% and homes 50%. Household net worth has swelled by $300k per household. While only 2/3 of households are benefiting, this is big money and a big part of the U.S. economy’s current success.
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The Fed shouldn’t dally much longer on cutting rates. It has all but achieved its dual mandate of a full-employment economy and low and stable inflation. As such, the current 5.5% funds rate is difficult to justify, as it is 3 ppt higher than the Fed’s own estimate of r-star.
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What recession? Today’s GDP report shows the economy’s extraordinary resilience. Consumers are doing their part, businesses are hanging tough, and the infrastructure legislation and CHIPS Act are providing a tailwind. The boomy gain overstates the strength as the inventory…
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The economy is meaningfully less interest rate sensitive than in times past. The tweet thread that follows lays out the case why, but this is a big reason why the economy has avoided recession despite the Federal Reserve’s aggressive rate hikes. Using some jargon, r* has risen.
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Fitch’s downgrade of U.S. Treasury debt to AA+ is off-base, IMHO. They rate the sovereign debt of a rather lengthy list of countries AAA. Really? Ask global investors whose bonds they would rather own if push comes to shove in the global economy - it’s those of the U.S. Treasury.
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Consumer price inflation for May is released later this week, and the report is sure to fan the ongoing debate over what is fueling the painfully high inflation. Well, it’s not outsized demand. Consumer spending during the pandemic has grown much as it did prior to the pandemic.
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The economy’s resilience to the Fed’s aggressive tightening is due in part to businesses’ successful effort to lock-in interest rates when they were low. The % of nonfinancial corporate cashflow going to cover interest expense is as low as it has been since in the wake of WWII.
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Another month, another good report on the job market. Abstracting from the vagaries of the monthly data, the economy is creating between 200-250k jobs a month, unemployment is hovering just below 4%, and wage growth is just over 4%. Not too hot, not too cold. Just right.
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The economy is hanging tough in part because of the graceful adjustment of asset prices to Fed tightening. While overvalued stock, bond and real estate markets have bent, they have not broken. Americans remain wealthier than before the pandemic, and key to why they keep spending.
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More good inflation news, with CPI steadily moderating. Encouragingly, while the typical household must spend $1,031 more per month to buy the same things as 3 years ago due to inflation, their income is up by $1,087. Want to see real income gains, but this is real progress.
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The Feb inflation data released this morning should ease concern about the jump in Jan inflation. The core consumer expenditure deflator increased by a rounded up 0.3%, and the market-based core PCE increased by 0.2%. Inflation is firmly in the 2s, and headed to the Fed’s target.
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One couldn’t ask for a better report on consumer price inflation. Inflation is definitively throttling back, and while today’s report overstates the case, there is a strong case that inflation is headed in the right direction. The Fed should rethink the need for more rate hikes.
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Inflation is on its back heels. Consumer price inflation for December couldn’t have been much better, slowing to 6.5% year-over-year. The peak was 9% last June. It’s still a long way to back to the Fed’s inflation target, which for CPI is 2.5%. But it’s well on its’ way.
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Most economists and Fed officials take as gospel that the economy is operating beyond full-employment. That is, the labor market is too tight and needs to ease up in order to get inflation back down. This is a key rationale for more Fed rate hikes. But the rationale is off-base.
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When it comes to the economy, I forecast many things. Some forecasts I’m confident in, some not so much. I’m increasingly confident that inflation will moderate in coming months, and not be a concern by this time next year. And this without further Fed rate hikes or a recession.
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Lots of economists, including many at the Fed, think the economy is well beyond full-employment. The current 3.4% Urate is well below the full-employment Urate of 4% or higher. Unemployment must increase a lot (aka recession) to quell wage growth and inflation. I don’t think so.
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Here are 3 unnoticed stats from last week suggesting that inflation and thus recession risks are fading. First, there are a record 926k multifamily units under construction. As completed in the coming months, vacancy will rise, and rents and housing cost inflation will weaken.
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Here’s a reason to think we can skirt recession next year – ample excess savings. This is the extra saving we did during the pandemic and are now drawing down to supplement our inflation ravaged purchasing power and continue spending. All income groups have excess saving left.
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There’s much pessimism regarding the economic recovery. It’s understandable, but overdone. 2021 was in many respects a better year for the economy than was widely anticipated a year ago – more GDP, more jobs, higher stock and house prices, and much lower unemployment.
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The Fed should pause its rate hikes. Now. The
#1
priority is rightly inflation, but it looks increasingly for sure headed back to target. Vehicle prices are set to fall, the growth in the cost of housing services has peaked, and even non-housing service inflation has rolled over.
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Another month, another very good jobs report. The economy continues to create lots of jobs, and unemployment remains steadfastly low. And slowing job growth, fewer hours, and cuts to temp employment suggest the economy is steadily cooling, and inflation will continue to moderate.
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Concern that households are taking on too much debt and are falling behind on their debt payments is overdone. Indeed, debt growth has slowed to a crawl and delinquency rates have stabilized. This is based on January credit file data for all Americans from credit bureau Equifax.
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It’s time for lawmakers to end the drama and come to terms and increase the debt limit. There has been little economic fallout from the political back and forth so far. But that is set to change quickly.
"Everyone is going to get hurt."
"Everyone?"
"Everyone. Just matter of degree."
@Markzandi
says the economy will sink into recession if the U.S. defaults on its debt:
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Ugh. March CPI was a bummer and will surely delay the Fed’s first rate cut. Inflation continues to moderate, and the only thing keeping it from the Fed’s target is shelter costs, which will recede, but nonetheless, the Fed won’t move until this forecast is all but certain.
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December CPI was ugly, but we are past the worst of the inflation. The Delta wave is behind the inflation surge. It scrambled supply chains and kept workers off the job. Omicron doesn’t help. But businesses are getting better at navigating through, and the pandemic will recede.
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Thank goodness! The Fed decided not to fan the hair on fire reaction to the recent inflation data. Instead, they put a bit of the fire out by announcing QT will be winding down. Can’t imagine they would do that if they didn’t think inflation was headed back to target. And it is.
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The Treasury debt limit is suddenly a serious threat to optimism we can avoid recession this year. Unless lawmakers increase, suspend, or eliminate the limit, Treasury won’t have the cash to pay all its bills on time later this year. Financial markets and the economy will crater.
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The economy ended last year in great shape. According to the 4th quarter GDP report released last week, real GDP grew a robust 3.4%, real gross domestic income increased 4.8%, the core consumer expenditure deflator increased an on target 2%, and corporate profits hit a new high.
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The 0.4% increase in February CPI was a tick stronger than I expected, but not surprisingly the culprit is owners’ equivalent rent. Exclude it, which I recommend given the difficulty measuring it, year-over-year CPI inflation is 2.2% and core CPI inflation is 1.9%. On target.
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Last week’s data suggest that the economy is on script to soft land. GDP posted a solid gain in Q3, further dispelling concerns we have suffered a recession. And while GDP has gone nowhere this year despite the Q3 gain, that’s what’s needed to quell inflation without a recession.
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Last week’s economic data were stellar, and I expect more of the same this week. Last week featured strong retail sales, low UI claims, and much better consumer confidence. Most telling, real median usual weekly earnings jumped - wage gains are significantly outpacing inflation.
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Job growth has been slower than estimated. This according to the BLS, which released its benchmark revisions today. The revisions suggest that avg monthly job growth in the yr ending this March is near 300k, and less than 200k since then. Strong, but slowing. End the rate hikes.
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The increase in the core PCE deflator for January stuck to script, coming in a hot 0.42%. But the increase was juiced by problematic seasonals. Abstracting from the measurement issues, underlying inflation appears close to 2.5% annualized. Within hailing distance of the Fed’s 2%…
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Not only did the economy avoid recession in 2023, as widely feared, the economy had a stellar year. The latest evidence is the just released Moody’s repeat sales house price index for December. Prices are up 5% from a year ago and almost 50% since just prior to the pandemic.
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Recession over the next 12 months is avoidable given the economy’s resilience and assuming some reasonably good policymaking. The Fed must end its rate hikes after this week’s ¼ point increase, and lawmakers need to keep the drama over the debt limit from going off the rails.
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Head-scratcher. That’s the January jobs report. Payroll jobs surged in the month, and previous months were revised up, but hours worked declined big as did household employment. Measurement problems are clearly at play. But abstracting from all the statistical noise, the signal…
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No, the runup in long-term rates is due in good part to the economy’s resilience. Q3 GDP, which will be released later this week, will be up a boomy 4% or more. Bond investors have thus finally bought into the Fed’s higher for longer policy for short rates, pushing up long rates.
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Without BBB, the economic recovery will be vulnerable to stalling out if we suffer another serious wave of the pandemic; an increasingly likely scenario with Omicron spreading rapidly. Detractors of BBB worry about inflation, but without it, the worry is more likely to be growth.
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The strong March gain in payrolls and low and stable unemployment are evidence that the economy remains rock solid. Most encouraging is that despite the job gains, labor supply is keeping pace, thanks to robust immigration. The tight labor market and wage growth continue to ease.
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Concern that Americans are taking on too much debt, posing a threat to the economy, is misplaced. Total debt is up only 3.5% in the year ending in August according to Moody’s data based on Equifax credit files. And the ratio of debt-to-income is low & stable, as is debt service.
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The Fed threatens to misjudge the economy’s strength, hold rates too high for too long, and unnecessarily undermine it. Take the job market, which has been critical to the economy’s resilience - hours worked, hiring and quit rates, and temp jobs are all down. All signs of stress.
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Today’s JOLTS report was near perfect. The job market is resilient but cooling off. The hiring and quit rates have normalized, suggesting wage growth soon will. There are plenty of job openings, but they are quickly declining. Compelling reasons for the Fed to end its rate hikes.
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Wonder why economists believe the economy is doing so well, but many Americans don’t? This chart explains it well…
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I’m perplexed by the sell-off in stock and bond markets in response to today’s GDP report for the 1st quarter. The increase in real GDP was a bit softer than I had expected, but only a bit, and the report remains consistent with the economy growing at its potential. The weaker…
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The Nov CPI report couldn’t have been better. Overall inflation barely budged, and inflation moderated across most goods and services. Gas and transportation costs fell, new vehicle prices were flat, and food and housing costs grew more slowly. No prices rose more than expected.
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There is still hope
#BBB
in some form will become law, but if so, it will surely be a shadow of what was being negotiated. What a shame. It puts the economic recovery at some risk in the near-term and will diminish the economy longer-run. And what about climate change?
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September CPI was on script - consistent with inflation returning to the Fed’s 2% target. A surprise was the big increase in shelter costs. But with weak market rents, they will moderate. And that’s all that’s needed - core CPI x shelter rose 0.1% last month and 2% over the year.
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What the pessimists got most wrong was thinking the inflation was due to strong demand, and to rein it in required much higher rates and a recession. Instead, the inflation was due to the pandemic and Russian war. As these supply shocks fade, so does inflation, without recession.
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The June employment report was close to perfect. Not too hot, not too cold. Abstracting from the monthly vagaries of the data, monthly job growth is just over 200,000. About the same as labor force growth. Thus unemployment has been unchanged in the mid 3s for more than a year.
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Whoa! The BLS jobs report for January was VERY strong. So strong, I don’t believe it. The BLS is likely having measurement issues. Most likely, difficulty seasonally adjusting the data, which is especially important in January. This January was the 5th warmest on record.
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The economy has better than even odds of avoiding a recession in the coming months, but what’s dead ahead will be a financial struggle, especially for low and low-middle income Americans. This is clear from the surge in consumer borrowing and delinquency rates over the past year.
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Household credit quality is stabilizing. The delinquency rate on all debt stood at 1.82% in December, which is about what it was in August. Credit card delinquency is still edging up, but delinquency on all other loans is flat to down, including auto and consumer finance. This…
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Excess savings for many households is likely to be gone before the end of the year.
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Note that often-touted reasons for the outsized inflation, such as stiff regulation of the fossil-fuel industry, strong money supply growth, and corporate greed are not playing a significant role in the high inflation. Ditto with the American Rescue Plan.
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You’re no doubt aware that the Moody’s Analytics’ Presidential election model predicts that Biden will be re-elected. While based on a bunch of assumptions such as voter turnout and the popularity of 3rd parties and the economy’s performance, I’m confident in the result. But…
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It’s tough to think the economic data released this past week could have been any better. Inflation is moderating and the economy is resiliently growing at near its potential. On inflation, the core PCE deflator increased 2% annualized on the nose in June - the Fed’s target.
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That’s because the surge in rates hasn’t been fueled by high inflation or rising inflation expectations, which is what I would have likely assumed in that hypothetical. If so, the Fed would still be tightening policy, and that would be a mortal threat to stocks and the economy.
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Not that 10-yr T-yields are going back deep into the 3s. At least not consistently. In the long-run - abstracting from the vagaries of the business cycle and monetary policy - yields should be closer to 4%. That’s the economy’s nominal potential growth. The long-run is now.
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House prices, which had skyrocketed during much of the pandemic, are coming back to earth. Surprisingly quickly. Since peaking in June, national prices are already down several %, and more than half the nation’s 400-plus metro areas are suffering significant declines.
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For the first time since the pandemic shutdowns, labor supply is growing faster than labor demand. Unemployment, which hasn’t budged this past yr, will soon rise. This is needed to quell wage pressures and inflation. But it's also when the economy is most vulnerable to recession.
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BTW, harmonized core CPI was up 1.9% yoy in March. Below target. Harmonized excludes OER, as done in many other developed economies. And which makes sense to do given that measuring owners equivalent rent is highly problematic. Especially now with the affordable housing shortage.
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I testified on the debt limit before Senate Budget this am. There were bouts of partisanship, but I was impressed by the moments of bipartisanship. I’m more sure we won’t default. But lawmakers must act now, as June 8 is the X-date when Treasury can’t pay all the bills on time.
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Today’s job numbers are incongruous with fears that recession is dead ahead. Job growth is slowing, but that’s a plus, not a minus, ensuring the economy doesn’t go past full-employment, exacerbate inflation, and force the Fed to hike rates even more than it currently plans to.
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How bad the housing correction gets, largely depends on how high mortgage rates go. Fixed rates are currently near 6.5%, more than double what they were a year ago when they were hovering near a record low. This has been a massive blow to affordability and the housing market.
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Handwringing over the increase in household debt and delinquency has been loud. The worry is that consumers are stretched, will soon stop spending and recession will ensue. This worry is way overdone, as inflation recedes so has borrowing, and delinquency will follow next year.
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Heads up, but oil prices have fallen to below $80/barrel. Just a few weeks ago they were well over $90, threatening to surge much higher. Announced OPEC+ production cuts, stronger Chinese demand, and the angst caused by the Israel-Hamas war contributed to the higher prices.
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The more I digest the inflation data, the more convinced I become it is peaking and will be decidedly lower by this time next year. Gas and most goods prices will fall by then, and the normalization of prices for services will be over.
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Today’s report should help allay recession fears. Inflation is moderating as the fallout from the pandemic and Russian invasion fade. Assuming this continues, which seems most likely, inflation will return to the Fed’s inflation target no later than mid-2024, without a recession.
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Sky-rocketing house prices are set to come back to earth as higher rates crush affordability. Nationwide this means flat prices for a while, barring a recession. The most juiced-up markets will likely experience declines. The metros most at risk of declines, rank ordered, are:
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There are other forces behind the higher rates, such as the nation’s big deficits and the flood of Treasury bond issuance. But if it is mostly about the economy’s strength, then rates are near a peak as the economy is set to throttle back. Q4 GDP likely will be no more than 1%.
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Is recession inevitable? You would think so listening to the ruminations of CEOs (a hurricane is coming) to my well-read next-door neighbor. Looking at the Blue Chip consensus, over 1/2 of economists seem to have a recession in their ‘23 forecast. The consensus is much too sure.
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The banking crisis is not over. Depositors remain on edge and continue to pull deposits from banks, moving their cash to money market funds. Money fund assets jumped again in the week ending last Wed and are up more in the past 2 weeks than any time save in the pandemic shutdown.
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As much as I want to, it’s not safe to declare there won’t be a recession. That won’t happen until the Fed cuts rates, which I don’t expect before next summer. Until then, the economy will be vulnerable to anything that goes meaningfully wrong. Like a lengthy government shutdown.
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The deal lawmakers struck to increase the debt limit is about as good as could be expected when it comes to what it means for the economy. Most importantly it forestalls a breach of the debt limit - the government will pay its bills on time. A breach would have meant recession.
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If my diagnosis is correct, then just as long as oil prices don’t jump again (yes, a risk), wage and price pressures should continue to abate without much higher unemployment. The Fed should be able to soon end its rate hikes and the economy should be able to avoid recession.
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As named, the Inflation Reduction Act will lean against inflation over the next decade. It also adds a bit to growth. And it is more than paid for with tax hikes on large corporations and the well-to-do. While modest legislation, there is plenty to like in the legislation.
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