¶ Mark Zandi joins the Chuck ToddCast
Well as we begin the fourth quarter of the year, if you want to look at it in quarters, and of course it's supposed to be the first quarter of America's fiscal year, but we have a government shutdown since we can't agree on those things. I always want to bring back somebody who makes I think makes the most amount of sense about what's happening in this economy and how much of this uncertainty can feel certain down the road.
It's of course Mark Zandi from Moody's Analytics. Mark, good to see you, Chuck, good to be with you.
Thanks for the opportunity.
So I have been describing the economy this way. If you have money, have some savings, and have the ability to invest, it got to be is going okay for you. But if you don't, this is a scary economy. I confess that's a simple, simplified way of putting it. But
¶ The economy is only good for the top 1/3rd of earners
that's what it looks like to me as a lay person. What kind of is that too simplified of a description or how would you do?
No, I think that's pretty apt. I think if you're in the top part of the income and wealth distribution, let's say, the top third of the distribution, you're doing fine. You got a job, you're getting a pay increase, get a bonus, you own your own home, you own some stocks, and of course stocks are on a tear, and you you don't really owe anything. You might I might have a mortgage, but you probably locked in back during the pandemic, so you've got a three three and a half four
percent mortgage rate. So you're making more on your money market account than on your you're paying on your mortgage. So yeah, you're sitting pretty If you're in the bottom two thirds of the distribution of income, certainly the bottom third, it's a struggle. You know, you probably have a job, but unemployment is starting to not hire her, and you don't want to lose your job because it's getting increasingly
¶ Lower income earners are struggling
hard to find another one. Hiring rates are very low. You don't you know, you really don't own very much. If you're in the middle part of the distribution, probably own a home, but if you're in the bottom part, you don't, and you owe on credit cards auto. If you're in the bottom third, you're probably on student loan debt, so so it is more of a struggle. So I think that way thinking about the economy and whether it's working for people works is very apt. Yes, I agree.
So you know it's interesting because this creates sort of I think political challenges more now for the Trump administration. You know, you know the Biden administration, and it was Biden, and I've always thought it was a bit almost because he spent most of his professional life where the economy was judged. A good economy was based on whether there were jobs being created. A bad economy is when there weren't. And I do think Donald Trump looks at a good
economy is when the stock market does well. A bad economy is when it doesn't. And like, ultimately both ideas the hey can I afford this economy? Right? Can I live in this economy? You know, it's one thing to have a job. Can you afford participating in the economy with your job? It's one thing if the stock market's doing well, but do you have the money to actually benefit from that? So I do see that as political.
But let's start with what you have to do, which is trying to forecast, trying to understand what the economy is. There's all these little tea leaves. I was reading about the other day that people are pulling back on big
¶ Signs of a consumer pullback are starting to show up
home renovations and they're now doing smaller ones. People are pulling back on big trips, so they're doing maybe road trips that while you're starting to see these little signs of a pullback consumer pullback, and it's not yet reflective anywhere else, not quite reflected in GDP. Yet, how important are those little indicators to you? And what ones do you look at, especially now that government data has been paused.
Well, yeah, I mean I pay attention to the anecdotal information in the kind of the little pieces of information here and there that you get from different sources, but I ultimately rely on the the data, the aggregate data. I mean, you can get fooled by you know, the economy is a big elephant, right, and depending on which part of the elephant you touch, you get a very different picture. So that you know, if I'm in one part of the country or another, that will influence people's thinking.
If I'm in one talking to one industry or another that influences people thinking. If I'm at the top part of the distribution of income or the bottom, that influences people thinking. So I try to be careful not to get caught up too much in the anecdotes in those little straws as you as you put it, look at the aggregate data and you know, there and for me, at the end of the day, it's still about jobs. And you know, are we creating jobs or they good paying jobs as a pay enough that people can have
¶ The economy isn't creating many jobs
forward to you know, purchase the things that they need and that they want. And there it feels like the economy is kind of a struggle, a bit of a struggle of you know, in aggregate we're not creating many jobs at all, but jobs we are being created are you know, in a very few industries like healthcare. It just doesn't feel like it's working for you know, a lot of Americans. So we're not in recession. We're growing.
GDP is positive, but it just feels kind of punk.
¶ Chance of a recession is forecast at 30-40% in 2026
That might be the word to use.
So if we see the general consensus apparently is a thirty to forty chance of a recession next year, Yeah, how should folks interpret a prediction like that?
Well, the most likely scenarios we kind of navigate through without an actual downturn, so the economy produces enough job so that unemployment really doesn't take off. Here, We're okay, it's not it may not be, but we're okay.
But so kind of like the first I felt like the economy in twenty oh one to twenty oh two where it was a mild recession but we kind of got through it.
Yeah, that that's that's right. But you know the risks are to the downside, right, I mean, you know, if if things turn out different than that kind of that economy we just described, it's going to turn out worse, not better. You know, just to give a little bit more context, kind of in a typical economy, the probability recession would be fifteen percent.
We tend to have a recession once every six seven, eight.
Years, so every year, if there was no you would you would say, well, you have to put it at fifteen percent. But that's just because that's the way it is all the time.
That's just it's so called unconditional probability. I mean, on average, you get a recession every seven years there for fifteen percent. So if you're a thirty percent forty percent, well, you.
Know that's on the high side. It's not over fifty that.
I'll take it, but you know, thirty forty is uncomfortably high.
You know.
The other way to think about. It might be nothing else can go wrong, right, the economy is punk, It's it's vulnerable to anything that might go off the rails here.
And it doesn't have to be a big thing.
It could be a small thing because the economy as
¶ The economic impact of the cuts to federal workforce
as vonible as it is.
What has been the impact of what feels because you know, look, the DOGE cuts get a lot of attention, but there's a real pullback on government jobs on the state and local level because there's a lot of federal money is no longer going to state and local, right, A lot of we had a lot of COVID. You know, it's funny, we lived almost a decade, decade, decade and a half. First the Great Recession sort of triggered federal help for state and local, and then COVID created more help for
state and local. And you know, I look at a California which is going to struggle for the first time with a budget deficit that they got to figure out, they got to do. They're going to do something really hard. I think a lot of states, I think there's going to be a a lot of sort of chickens coming home to roost in a lot of states who have these constitutional amendments that actually have to balance our budget.
What is that risk factor of contraction of government workers and how much could that trigger a recession.
Well, we're certainly seeing a lot of job loss at the federal level.
I mean, the number of federal government employees down about one hundred thousand since the beginning of the year. So we are making the numbers up, but you know, rough word magnitude, we had three million federal government workers at the start of the year. We're now at two nine and we've probably got another one hundred k to go.
Now, some people will hear that, say that doesn't seem like much two point eight to three. I mean, you round it up. It's still three million, right, Like, I mean, you know what I mean, Like, why is that a lot?
Well, in the context of federal government never relays off.
It's always in the reliable source of jobs.
And historically, you know, it's been around three million for as long as I can remember. So losing one hundred k and losing another one hundred k in a short
¶ Loss of 100k+ federal jobs will be a drag on the economy
period of time six twelve months, you know, that's meaningful. Certainly.
You know, obviously for the broad DC area.
And regional economy, you can feel it right, Yeah.
That broad metropolitan area is in a recession.
There's no doubt about that.
Now if if you're right, and I think you know, you make a good point that you know, federal government support the state in local first states and then local governments is now starting to wane. And you saw a tremendous amount of support in the in the pandemic.
A lot of teachers got raises from that money, right, Like it was just a lot of public officials with cops, firefighters, teachers, you know, the stuff politicians feel good about. Hey, look we gave our teachers a raise, we gave our cops and firefighters are raised.
Well. A bunch of other states they cut taxes, right, but you know they now that that's that's an issue because they're not getting that support from the federal government and likely not to going far and now they have a diminished tax base and so that's complicating things for them.
¶ Covid money is drying up in state and local government budgets
So yeah, the state local then there are a lot more folks working in state and local government then and then in the federal government, and that if that sector is now not adding to payrolls and ultimately starting to reduce payrolls, and that becomes an even bigger deal. So yeah, it's a it's just uh, you know, the labor market
has gone flat here. It's not creating any jobs. The only sectors that's creating jobs is healthcare, and everything else is a little bit adding a little bit, or hurt reducing a little bit.
¶ AI is starting to have impact on the job force
Government is reducing a little bit.
At this point, all right, let's talk about AI. Yeah, how is A How are is AI having an impact on the job market yet?
Uh?
Yeah, there's some evidence.
You know, I mentioned the hiring rate, the fact that if you look at the number of people getting hired relatives of the workforce, it's about as low as it gets when you're in the middle of a recession. We're not in recession because businesses aren't laying off, but they're not hiring. And one reason they may not be hiring
is related to AI. You know, businesses are thinking, oh, you know, do I really need to go out and hire those folks because artificial intelligence will be able to empower my existing workforce to do those do that work, and I don't.
Is this an experiment? Like my sense is businesses are trying to see if they can use AI to replace humans and then they're good and then if they don't, they'll go and hire. But if they can, then just then exponentially grow.
Yeah. Absolutely, Yeah, I think you know, AI has captured the imagination, you know, particularly of the senior leaders management of many large multinational corporations around the country. In fact, they're selling themselves as AI companies increasingly because stock prices are as high as they are juiced by the promise of artificial intelligence creating all this wealth and genering a lot of economic growth that they are now saying, we
are AI. Therefore we have to make AI work for our businesses, and so they're asking their existing workforce to figure that out. And you're right, I mean, so far, you know, there's some success stories, but there's a lot of failures as well, and must have to see how this plays out, and some companies will have to backtrack at some point.
But I think ultimately, you know, businesses will figure it out.
In new companies when they form, they're going to optimize around the AI technology, just like they did the Internet, and so it will diffuse throughout the economy and it will have more of an impact on the labor market going forward, particularly certain occupations in certain industries that are more likely to be affected by the use of AI.
Yeah, politically, I think AI job the fear of AI job displacement, I think is going to be a big issue in twenty eight, But not until twenty eight, right, Like I think we're I don't think we're there yet on that.
But when.
Is there? You know, all these data center investments, all this money that's going into this AI expansion is there. It's not creating new jobs. It's just computer power.
¶ Data center investment creates wealth but not jobs
No, no, so far, it's more about it's not about jobs.
It's not creating jobs. It's more about GDP and.
It's creating wealth, creating revenue. It's creating wealth. It's we're really good at manufacturing money right now.
Well, here is an amazing thing. And this goes back to where we started when we're talking about the folks in the top part of the distribution of the wealth distribution and wealth. The value of all US publicly traded stocks is up ten trillion dollars in one year, so.
It's sixty seven trillion dollars today. It was fifty seven trillion dollars a year ago. Trillion dollars.
And of course, if you own stocks, and particularly the AI stocks, you're feeling pretty good, and that's what's kind of driving the economic training. So the real impact of AI so far, it's not about jobs. It's more about wealth and GDP and not the more. In fact, if anything, it's reduced to employment and the tech sector and some of the other sectors that are that we just talked about.
So give me some historical parallels. We had this kind of investment in tech in the nineties, turn of the century. We had this kind of investment in the industrial Age. We had this kind of investment in the build out of the suburbs after the after World War Two? Is this a bubble? And it certainly looks bubblish, and yet
¶ Are the AI stocks creating a bubble?
it's amazing to me only Jamie Diamond seems to be the the only one in that world that seems to be concerned that this could could all be a bubble. How would you you know? Is this something you can forecast or you don't know if it's a bubble until after it pops?
Well, uh, And I'm hearing more voices kind of variations on that theme. And I think it's appropriate that the you know, the stock market, stock investors uh in aar kind of getting over their skis. You know, they they're there's this is real. These companies are joggernauts. They're you know, they're they're they're making massive investments and they're generating.
A lot of revenue.
Uh. But uh that is also generating a lot of euphoria around the prospects uh that these companies, uh, you know, are are generating and it's driving up their stock price. So you can have a situation and I think we do very similar to what happened back in Y two K and the Internet bubble and in previous huge technology periods of technological advance, where investors kind of get ahead
¶ Investors may be a bit over their skis with AI
of the story. You know, they they discount all the good news and then some and then some, and then once that happens, uh, you get speculation. That's when investors in stocks and other assets buy that stock or that asset simply because they think they can sell it at a higher price down the road. That's it. They're not they're not doing they're not thinking about, you know, what's
where the value comes from. You know, will this be more valuable in the future, simply the euphoria speculation And you know, I don't know that we're quite there yet, Chuck that I that's what I would call a bubble when you get that kind of speculative fervor.
But it feels like that's the direction of travel here, right.
And in fact that you know, when I look, I love, like most economists and people in the markets, I'm looking at the stock market four or five six times a day, you know, I go see what's going on. And usually when I see green on the screen, that's mean stock prices are up. I feel good now I'm feeling when I see green, I'm getting more nervous about it.
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Their fee is free unless they win. I'm not quite at retirement thinking about retirement, but you know so I'm still kind of and at the same time, yeah, you're like, geez, I know, I know there's going to be a correction. How massive is it?
Right?
You just talked about ten trillion dollars. That means we could lose five trillion dollars of wealth and still be up five trillion dollars. But if we lose ive trillion
¶ Stock price to earnings ratios are at historic high
dollars in wealth in the next six months, people are going to panic.
Yeah exactly, you got it just right. So, I you know, this might be a little nerdy, but you know, to measure this to your question, are we in a bubble? The tried and true way of kind of looking at that is the so called price earnings multiple. Take take take the stock prices, look at it relative to the earnings of the companies that you know.
I love doing that. Pallidteer is like one hundred and fifty times earning, but like Google is still only nineteen times earnings.
You know, you're a pee wow, that's impressive.
You know, I'm not an economist, but too yeah.
Yeah, Well anyway, so if I look at I have an what I call the economy wide price earnings multiple.
That's the Wilsher five thousand.
It's the value of all stocks, all stocks, divided by economy wide after tax corporate earnings. So that's the Ice Mobile on average since nineteen sixteen. That's as far back as I can calculate it. And I'm making this up roughly, so it's I'm rounding it's ten. That's the multiples. Ten ten times stock prices are ten times earnings. Right now today it's almost twenty twenty. There's one other time in that historical period when it's been higher y two k.
It was twenty four so and of course we're still going higher here.
So I don't know this so called mean reversion. You know, it feels like to me, we're getting we're overvalued, we're bordering on frothy and speculative. If stock prices continue to rise,
¶ Tariff impacts starting to show up, AI providing a tailwind for economy
then you know.
I ring some alarm bells. I do think we're going to see a correction at some point here.
I think what's odd about this is that a lot of folks assume tariffs would slow down the growth of our economy, right, would certainly hurt traditional companies because of rising costs, you know, and all of those things. And so here we are in this weird environment where tariffs are having some impact, certainly on the consumer and certainly on some businesses. But because this AI part is an investment type of thing, it is it tied to the tariff.
And in some ways Trump is has sort of compartment, you know, has protected that space from his protectionist policies. So how would you view that the impact of the tariffs it? You know, every time I've noticed this with a lot, every time we look at it, it's like, yeah, it's coming, but it's not here yet. Yeah it's coming, but it's not here yet. Where are we now?
The thing is, there's a lot of cross cards here, right.
We just talked about the tailwind, and that's AI, and that's a powerful tailwind. You know, all the data centers, all the investment in.
The electric electrical power, electric.
Power, all the wealth that's being generated, that's driving consumer spending of those folks that own the stocks, the you know, the high end network, the individuals. About half the growth
¶ Economy is very vulnerable to unforeseen shocks
in the economy is just AI. Right, So I'll give you to give you a number GDP growth that's the value all the things that we produce is two percent year over year two percent. If not for AI, it would be growing one percent. And that that's that's terraces. If you're growing one percent, that's not a recession. But if that's really uncomfortable.
Keep it up with your inflation at that point.
Yeah, So the terriffts are doing damage to the economy. It's just that, you know, the the fallout is being masked to a significant degory by this powerful tail end of AI that's really come into its own over the last six, nine, twelve months.
So this is it's so look at some point AI
¶ Price of gold at all time high, a warning sign?
investment plateaus, right, and the terror stick So that that's where this is headed.
Right, Well, I mean if the terraces rise and level off and stop rising at some point where you know, the me just to that.
So you know, both those things could iron you know, kind of offset each.
Other, so we could increasingly. This is the consensus view in my view that we you know, it's going to feel uncomfortable at times, but we're going to be able to avoid recession because of that AI tailwind that we're enjoying. But having said that, you know, the economy is soft, the job market is punk. You know, we're not seeing
any job growth whatsoever. We are vulnerable to you know, again, whatever else might not stick to script, and there's certainly a lot of things that might not sticks stick to script.
Here a few, a few. I want to hit two other topics here to sort of understand gold. Yeah, whenever gold, I've sort of in my head, you know, when I see gold go higher, that's bad news for the American economy. It always gets me nervous. Yet this is a case where everything's going up gold too. Yeah, that's unusual.
No, it is as I mean, uh, And this goes back to the question of are we in a bubble and speculation in the fact that we're seeing prices rise for all kinds of assets at the same time adds to the concern that this is you know broader that you know, a bubble is developing, and gold prices are at record highs where we're four thousand dollars an ounce
for the first time, silver prices, obviously, crypto prices. Actually, interestingly enough, the only asset for which that's not this is not the case is real estate.
Right if you've looked, well, that was going to be my next topic, which is sort of it is that's
¶ Uncertainty around American economy driving up gold price
a strange aspect that people that that real estate is not seen as a safe harbor, but gold still is.
Yeah, And I think the thing about gold is it's got in these one of these asset classes that were stocks, commodities like gold and crypto have its own kind of idiosyncratic aspects to.
It as well.
In the case of gold, you know, it really has got to boost when Russia invaded Ukraine in the US froze Russians. Those are dollar reserves or dollar assets sitting in bank accounts around the world, and the US froze those assets, those dollar assets, and so countries around the world with those dollars assets begin to wonder, well, maybe they'll do that to me if they don't like something I'm doing. Therefore, I'm going to diversify away from dollars
into let's say gold. So central banks around the world are now, you know, big investors in gold. The other thing is there's some you know, concerns about the safe haven status of the US right in the context of the trade and teriff wars and kind of the repositioning in the US and the global economy and the financial system by the Trump administration. I think global investors are asking themselves, is the US really the place you want
¶ Risk of American economy not being considered a "Safe Haven"
to go to put your money when times are tough? And if that, if you question that, then you know, you buy something like gold, you know, as a hedge. And then the final potential reason for what's going on in the gold mark is inflation. So you know, there's inflation has been a problem since the pandemic, the Russian War and the impact that head on energy and command prices push up inflation even more. And there's a lot
of discussion. Concern about FED independence is that theors are going to remain an independent going forward, and if not, does that mean the Fed's going to keep breaks too low for too long? And juice up inflation. And if so, if you're worried about inflation here, going down the road here, you're going to buy something like gold. So you know, there's a lot of things coming together there, I think, pushing up demand for that commodity.
What is the risk to our economy if we're not a safe haven.
Well, it means it means higher interest rates, all else being equal. I mean, you know, especially in most times, that that's not that big. It's a deal. I mean, we benefit from that, but it's really a big deal when things aren't going well, when the world has a crisis, when we have a pandemic or a global financial crisis, or something goes off the rail somewhere, money comes from
¶ Loss of safe haven status means higher interest rates
all over the world comes flowing into the United States, and it really cushions the blow of that shock on our economy and it helps us navigate through and we kind of lead the way for the rest of the world. That's going to be harder to do if, in fact, investors don't view us as that safe harbor or is that safe haven, and the money doesn't come flowing in in the next crisis, and we have to pay more for capital, higher interest rates and that's certainly a corrosive
¶ Impact of rising electricity prices on the economy
on our ability to invest and to do all the things that we want to do.
Yeah, I just sort of like to how to connected to the average person, Why should I care for not a safe haven? What you're saying is, well, if you like lower interest rates on your credit card debt, if you like a lower interest rate on your mortgage, this is why you want the rest of the world feeling America is a safe harbor.
Or your small business and you need to borrow money to expand your business or hire, or even if you're a large multinational and you need to go out and borrow money to invest in let's say, those data centers. I mean, it's just going to be a lot more costly to do it. And most times this generally going to be more of a corrosive on the economy. It's not a cliff of that. It's not like all of a sudden you go off a cliff because the safe
haven status is under question. It's more of a weight on the economy that over time diminishes the economy's ability to do what we've done historically, and that's kind of lead the global economy.
I don't know if this is sort of outside your field. But how do you assess energy costs because it does seem as if that's becoming a right. We're seeing rising electricity bills all over the country. Is this you know, how much of this is we haven't diversified our grid enough. How much of this is there's more of these AI companies, more demand on the grid itself, and we're having to do it. And is that easy to assess? And how do you factor that? Because you know, when when when
energy costs rise, that impacts everybody. Right, that's just a giant sort of slow down on the economy, and that feels like something that that we're not really it's happening, and we haven't really focused on on how that could be a real sort of governor on our economic growth.
Yeah, well, if you're talking about electricity, the cost of electricity, and that's going up just like everything else, demand and supply. On the demand side, you know, all these data centers scarf up a lot of electricity to be able to run the servers and do the AI calculations, So that's
¶ Oil and gas prices have stayed relatively low
juicing up demand. And on the supply side of the electric power market, it's slow to respond, particularly in the context of you know, policy changes under President Trump, where he's moved away from clean energy, you know, moved away from soular.
Just the shift itself slows us down. It doesn't like, you know, I'm not we're not weighing in on whether Biden's right or Trump's right. The transition itself slows us down.
Absolutely.
Now there's a lot of discussion going to nuclear and that's the direction we're going to head here, but that takes time. It's a lot of time, a lot of time. There's these smaller nuclear facilities that you can get online more quickly, but they're small. You need big nuclear plants to be able to generate the power that we need, and that's just going to take time. So I would I would buckle in here on the like that we're going to be paid.
More for electricity.
The fortunate thing though, is oil prices, which obviously you know, we still draw many people still drive of gas powered cars.
That's down, right, that's sixty sixty five bucks of barrowl that.
¶ Why haven't investors flocked to real estate as an investment?
But why if that's down, why isn't that having some impact on our electric bills? Because usually when the price of oil goes up, the price of every all energy goes up.
Well, I mean, no, electric electric power is very little of it's oil powered. You know, there's natural gas, but natural gas prices.
Are relatively low.
It's still relatively low because we we produce a lot of natural gas here and it's hard to export to the rest of the world, although we're trying. But most of it is natural gas or you know, renewable solar wind and to a lesser degree nuclear and calls becoming less of an issue. But oil is a very very small piece of the gotcha, of the what's used to power electric power plants?
Gotcha? So let's talk about real estate. There was an interesting little one of the million newsletters I read every morning. So I'm not going to sit here talking at right, there's so many of them, but one notice that it's like, so the the talking point of why real estate investment
¶ The price of commercial real estate is down substantially
has been slow as well, inventory is low, but it's still one would assume if you're if if there are investors looking for safe havens, why are they only going to crypto and gold. Why aren't they going to real estate, which has traditionally been a pretty good inflation buffer.
Well, there's the there's the residential side, which you mentioned the single family housing. And then there's the commercial real estate, and that's where generally have gone. It'so cre commercial office properties, you know, retail malls some of the time.
Amazing what the price of some of these beautiful office buildings are going for it at the oh. I mean, if you ever want to own an office building, right, do they have a deal for you.
Yeah. And I think a couple of things happened to commercial real estate. One is interest rates. When interest rates, real estate is very interest rate sensitive, much more than any other asset. And so when interest rates rose, when the FED jacked up interest rates to cool things off back you know a few years ago in twenty two and twenty three going into twenty four, that caused the prices to come down for almost all CRI. And then each property type had its own kind of story. And
¶ High interest rates have cooled demand for residential real estate
you mentioned office Obviously there it's remote work, and the demand for office space, you know, got crushed. But you know, other property types also got have their own stories. Like in the multi family sector, that's not about demand, that's more about supply. That's where builders were got ahead of themselves and put up a lot of these huge luxury apartment towers. While there's a lot of demand. There was just too much supply, and that's that's caused rents and
prices to come in. So commercial real estate has kind of operated on its own independent dynamic, and it's been much more affected by the run up in interest rates
than the other asset classes. On housing, you know that that's generally there's some investment in single family rental, but mostly that's you and I, you know, Merrick households buying those homes and there the market has struggled in terms of sales because of the so called interest rate lock you know, ways for very low back in the pandemic, people got mortgages at you know, three three, two and a half three.
I'd love to sell my house, but I don't know what I get into. Yeah, exactly, I mean, you know, I mean that's a real thing. It's like you will make Yeah, It's like, boy, I don't want to pay that high interest rate in my mortgage. I've got this great low interest rate, right.
Yeah, So if you have a three percent mortgage in existing mortgage rates now over six percent, are you really going to make that trade?
And the insurance most people are, you.
Know, at least not yet.
¶ The high end rental market is oversupplied
So what could let's stick with housing, what what could what could government do besides lowering interest rates? So let's set interest rates aside? What else could government be doing to just improve the affordability of the housing market.
Yeah, it's done a little bit of work here, I've got the paper out was a few colleagues. You could google Zandy affordable housing crisis, and this.
Is a This is for what it's worth. When you talk to members of Congress and they say, what issue do we and the press not bring up enough? But your constituents talk about all the time, it's this issue one, right, Yeah.
Yeah. In this paper, what we did we tried to
¶ Workforce/middle income housing is in short supply
estimate the balance between supply and demand for housing, both on the rental side and on the home ownership side, at a census tract level, so at a very detailed little geography so you can and it's very interesting, you see. And then we cut the data in lots of different ways, one of which is around price points, you know, different, just different is it for the for high end consumers kind of workforce or low income And what we found is no surprise. I just mentioned it. At the high
end of the rental market, it's oversupplied. You got too many big luxury condo towers in d C and Philly.
Chicago, San Francisco. That kind of thing builders got ahead of themselves.
Really interestingly, Chuck, you know, at the very lower end of the of the market, it's it's not overly undersupplied, it's kind of well balanced. And that's because there's a lot of tax subsidy already provided for low income rental, like light tech that's low income housing tax credit. The real shortage is actually for what I call workforce housing
rental and for home ownerships. Those are for kind of teachers and firemen and you know, kind of middle class people are making seventy five eighty K a year on a household basis, you know, nationwide, that's where the real shortage is. And so that's where policymakers really have not focused. They've been focused on the low end. They really need to focus on the middle part of the market. And
¶ Housing issues vary by city and region, hard to address nationally
there I would argue if we had some tax subsidy like a light tech for workforce rental, that would be very helpful.
Is this so how sensitive is that issue by wealth of county? Right? So I take a look at like you know, you go to around in and around San Jose. Frankly, in and around d C. Right Montgomery County or Lincoln County, where the service where the service industry folks, your teachers, your firefighters, your police officers can't necessarily afford to live in the county that they were right, because the cost
of single family homes are so high. This is true in and around Silicon Valley, This is true in close in parts of LA and New York, et cetera. It seems like that's a unique that's a challenge that's very specific. But is this Is this also an issue in and around Louisville, right in and around Wichita.
Yeah, it's coast to coast, and it's market to market, and even in those you know, very wealthy areas of the country, there are you can see there are you know, real pockets of problem of shortages in certain segments of the market. So it is coast to coast and it's very very local. Yet it's not That's one of the reason why it's a hard thing for policymakers to address.
¶ How much would the economy benefit from domestic migration?
It's not like I can do something at a thorough government level wave of magic wand and solve the problem. It's really a lot of you know, trying to understand individual markets at a local level and trying to figure out what the best strategy is to restless and of course underlying all of this is zoning and permitting. Chris. Feral government has nothing to say about that and won't because the political you know, ramifications trying to address that would be you know, overwhelming.
It's something as possible.
So it makes it very difficult for government, federal government, for the federal government to really address this head on in a grand ways. It's got to be done, you know, helping local governments try to figure out, you know, what they need and where they need it and give them the resources to help them do it.
So in some ways it's incentivizing local governments to change there.
Yeah, yeah, again, I'd go back to you know, there's light tech is low income housing tax right, much maligned, no one really likes it, but it's tried and true, it's kind of works.
Let's I take that and run with that and to just kind of tweak it and make it work for workforce rental.
That gets me as something else that I think is is and maybe this is just a hallmark of the twenty first century, but how much would our economy benefit from domestic migration? You know, we we and is that it it seems as if we move less domestically and we did. You know, hey, if I can't find a job here, I'm going to travel to another state to go get work, or I'm gonna I can't afford a house here, I'm going to move somewhere else. And we've seen,
you know, there was a little COVID migration. Obviously Florida experienced that Miami in particular, but that was kind of high end and it really is messed with inflation in
¶ Aging population a big factor in lack of domestic migration
Miami uniquely. But you know, I've always thought one of our one of our problems is that we and why we're we were so living in our silos, is that we don't have the domestic migration that we actually did have a lot of in the fifties or did have a lot of in the thirties. Is that measurable?
Yeah, yeah, it's an excellent point. You know, we get had Moodies all the credit files and country every month, you know, on anonymized and we can see address changes,
¶ Most Americans can't afford to move
so I can tell you exactly how many people are moving from Chicago to Miami and back in a given month, and you're absolutely right.
You know, over the last few decades we've become a much less mobile.
I used the U haul thing. By the way you haul light height always throws that out, and you know that's a lay person like me, the U haul rental thing. It's interesting to me, and it does seem I.
Should go look at that. I can't looked at that in a while because I've been looking at this this crediphile.
Do you have better data please? Kind of it's really good.
You know, because I am kind of nerdy. I love looking at that data. And you know, one of the reasons why we're not moving as much is because just raging when you get older.
You tend to move less when you're young, switching jobs.
And so we're just an aging population. That's one explanation.
Yeah, And the other is I think goes back to the income and wealth distribution. If you're lower income, middle income and you live in of the country that got nailed with the loss of manufacturing, you know, the economy is just not very dynamic. House prices have not risen at all. They may have actually even declined in some of those communities. You just can't you can't and then you've seen the house prices rise. We're on the coast, and.
¶ Impact of America's broken politics on the economy
You can't afford to move.
You literally can't, literally can't afford to move.
There's just no possible way you're going to be able to do that. So you're kind of stuck. Even if you wanted to move to get that to that job that's sitting in Miami.
Or wherever it is, you just can't do it. And and that's really cut down the mobility.
I will say though, that's one of that has historically been one of the unique characteristics of the US economy compared to anywhere else in the world. You know, very few exceptions to that. And it's that mobility that has allowed the US economy to adjust to shocks, because, as you say, if you lose a job over here, you can pick up and move to take a job over there.
But that that.
Flexibility, it's still there. We're still much more flexible mobile than let's say Europe or right, you know, other parts of the Asia, other parts of the world, but much less so. So we're not you know, we don't benefit to the same degrees we did thirty forty fifty years ago from that from that mobility.
All right, let me get you out of here on on this which is is our how much is our economy at risk due to domestic politics and how much of it is with more global forces?
I'd say follows the above.
But you know, you know, I think it's clear you can't really disentangle.
Yeah, I mean, look, I think it's pretty clear that our politics are fractured, and you know, probably goes back to.
Was that worth a point of GDP? Probably a better politics or a more functional political system, we probably would have a healthier overall economy.
How could it not be the case? I mean, just take a look at what's happening now with the government shutdown, right, I mean, yeah, there's no upside do that.
¶ Will issues with China's economy affect the globe?
There's nothing but downside, and it diminishes our.
Large I have no, there's nothing in the constitution that says government has to shut down if there's appropriations dispute. It tries me crazy that we've just decided collectively this is how we should function.
Yeah, there you go. And then you know, but of course that this goes to our ability to respond to the challenges that we face, and there are many challenges both domestic and you know, globally that what's going on globally. There's a tremendous challenges there, and we can't address them if we're as politically fractured as we are. So I think that's you know, again, I want to say, it's not a cliff event. I kind of think of there are corrosives and there's cliff events. This is not a
cliff event. It's not like we're going to go off the cliff here. But it's one of those things that kind of undermines the economy's ability to grow a longer run. And you know, you don't really feel it in a given year, but when you look back over a decade or two, you go, oh my gosh, you can see it.
You can see it, and you can feel well.
¶ Level of risk going into 2026?
The reason I asked about the international versus the domestic. I mean, look, I think we all understand the domestic, but I look out of China. Is that a healthy economy or not? If you thought employment is near twenty percent, how's that a healthy economy?
Now they got their we got their own problems.
I mean, could that lead to contagion globally? I mean, there's such a big economy, how could it not well?
I mean I think it's one of those things where they can keep it together for an extended period, right.
I mean because of their system of government.
Their system of government, I mean, it's very autocratic. I don't think it works well in terms of in terms of long term economic growth, but they can keep things going for a long time and you.
Know, paper over a lot of a lot of mistakes, and you know that's what they're doing right now.
So you know, I'm not bullish on China long run, but I'm not bearish in the near term.
I don't think that's something that's going to fall apart anytime soon.
All Right, So if I have you back here after the first of January, you think we're probably going to be in the same levels of risk, more likely than not, just sort of sitting in this same sort of elevated but not there in a recession.
Yeah, I think that'll be the case, junk.
I mean, I do think that if we look out a year from now towards the second half of next year, you know, we might start to see a lift because at that point we're on the other side of the tariffs, the immigration policy, and you've got lower interest rates. The FED is going to be cutting interest rates. And you know there's a lot of fiscal so called fiscal stimulus in that one.
Big beautiful bill that got passed.
You know, there's a lot of cutting, but that comes later, you know, next year, telling the tax cuts and so people are going to get bigger refund checks.
Good, So you think there could be another that in some ways we maybe we might have a leaky, hot air balloon, but there's gonna be more more air pumped into it.
That's great, I think of putting it. Yeah, that's a great metaphor. It's exactly what's going to happen. So, you know, I think the economy is going to be most vulnerable in the next six to nine months.
On the other side of that, then I think it'll get some juice from the fiscal monetary stimul sets in train.
Here, all right, Mark Sany Always great to hear from you.
Yeah, thanks, Chuck, Thanks, thanks for all the wide ranging questions. Always appreciate it.
Well, I you know, you you humor me well and at the same time, you're pretty good about putting this stuff in English, and I do. I mean there you go.
Pretty good, pretty good, Chuck, pretty good.
Well, you know you can't ever say great, right, right, I never give five stars. Right, I'm a four point nine guy.
Now I hear you. Thanks Mar,