Thriving, Striving or Surviving

[Music] Welcome to Inside Economics. I'm Mark Sandi, the Chief Economist of Moody's Analytics, and I'm joined by my two trusted co-hosts, Marissa Dean of Tally, Chris Trees. Hi, guys. Hey, Mark. Hey, Mark. Hi, Chris. Are you, uh, I know, uh, Marissa, you're out on the West Coast, but you're not feeling this, uh, smoke of-- It's kind of ironic, right? Oh, yeah. You guys come out of fire, smoke? Yeah, it's really pretty bad. I was in New York yesterday, you know, boy, it was kind of dark. Of course, are you handling it? It's apocalyptic, right? Yeah. It's fun. Very sad. Yeah, just staying inside, right? That's the-- staying inside. Yeah. Yeah, yeah, it's a shame. And then we've got the World Cup championship this weekend, hopefully in New York. No less. Hopefully it clears up. Yeah. Yeah. Yeah. Um, okay. Um, and we have two, uh, colleagues, Matt Collier, Matt, good to see you. How are you? This is a CPI week, a PPI week, a inflation week, and you always join us to go over those statistics, and we'll do that in a second. And we've got Mike Brisson, Mike. Uh, we'll talk a little bit more with you later in the conversation, but thought you'd have you on here, uh, uh, uh, to talk about potentially vehicle prices if we have a chance. And we've got a guest, Emily and Alif from Equifax. She's going to join us in a little bit, after we get through the inflation numbers and the news of the week, uh, and we're talking about consumer credit and the condition of the household balance sheets and all that kind of stuff, which is really important for the economy. Um, but, uh, let's dive right in, uh, Matt, uh, want to tell us about the inflation numbers this week? Yeah, absolutely. So first data point we got was the consumer price index, which was expected after a bunch of months of big increases because of gas prices. June was expected to see where to bring a decline based off of what we saw in energy markets, kind of a temporary de-escalation in Iran. Uh, so we got a 0.4 percent decline from May to June in headline consumer price index that was weaker than our call, which was for a 0.2 percent decline. Um, and we were even called more optimistic. We were lower than consensus. So, so really was a big surprise to see the 0.4 percent decline. Um, expectantly, a lot of that comes from energy. You had retail gasoline prices averaging 450 per gallon in the US in May and then dropped to $4.405 per gallon in June. That's roughly 10 percent decline. And that's what we see in the, in the CPI for energy and CPI for gasoline. Um, food prices. Don't that bad? Can I just quickly on that? Are you surprised? We haven't seen, we, things are changing very quickly in the words restarted and gas prices are oil and gas prices are moving back up. It didn't the month of June, were you surprised we didn't see an even bigger decline in gas prices? Given the decline in oil prices? Looking at oil prices, like just crude prices in general, I think in isolation, you would expect to see that. But so much of that comes to as you know, you know, cracks, breads, which is just, you know, refinery capacity is diminished. And that doesn't really affect crude prices and the ability to move barrels of oil unrefined around the world. But if you want to turn it into jet fuel, gasoline, diesel, that's an extra step in the process that has been diminished and we're seeing those crack spreads widen. So you don't get the reaction that was maybe implied by gas prices alone. So the crack spread is the profit margin that the refinerers are getting and they can, they're able to not pass through the benefit of the lower oil prices because of lack of capacity in the refining industry globally. You know, because they're ex, I think there are US refineries are actually exporting product now to the rest of the world because they can get a higher price elsewhere, I think. Yeah. So that's not great relief for consumers because you know, they're not buying West Texas intermediate crude oil, but they are buying unleaded gasoline, which is slow to come down. And now as we are into July and we see a little bit of the decline that came through June, crept into the first week or two of July, but that's since reversed. And now we're at about 390, 395, close to four hours on the ground. If you look at gasoline futures, that implies we're going north of 420, 425 in the next week. So we think when we start to peg what the CPI for energy might look like in July, I think the best case scenario is that it's a neutral contributor, but more than more likely, we're going to see a positive contribution from gas, which is going to drive a positive contribution for CPI or CPI relief. Got it. Now food prices. Mild increase, 0.2%, we're expecting some pass through the higher energy cost to go through to food that happened early on in the wake of the conflict, but pretty mild again in June. Same increase in May, we're 3% year over year for food, food at home, the grocery store proxy that we're most interested in grew the same 0.2% on the month up 2.7% year over year. So moderate but important source of inflation. Do you expect that because diesel was a cost or an important part of grocery prices, I mean, to get the food from the seaport or the farm to the store shelf, would you expect to see more pass through there or is that pass through largely now behind us? Do you know? Do you have a sense of that? I don't have a sense of how much pass through behind us, but I think we can just return to the cracks, breads, the observation we make. We don't see the diesel coming down, so we shouldn't expect the same. We never expected a one-for-one relief, just it's not as sensitive to global energy prices as crude by right and gasoline are, but should not be much of an expectation to see a bunch of relief. And I would also add beef prices, they're rising considerably. You're a month to month, we're looking at a percent increase each month, there's shortages, there's other bacterial issues that have reduced supply and pushed up prices higher. That's separate from what's happening in the Middle East, but it's a significant upward pressure on food prices. Right. Got it. Okay. Where do you want to go next? I mean, if the most important data point from the report, headline inflation was going to go up, because it was going to go down, because it got prices. But if you look at Core CPI and the fact that we got no change or even a very small rounded to zero decline in Core CPI on the month, I didn't see that coming, markets consensus didn't see that coming, and you see reaction in bond markets initially to that being a surprise. So point zero, you know, zero percent change in Core CPI lowered the year-over-year rate from 2.9 to 2.6. That's significant. And now you're looking at a three month moving average just with that one month of no growth much more close to being consistent with the Fed's target. You know, Matt, going to that, because that's surprised the Core CPI inflation was flat, and we expected a modest increase. I've what, a couple of times of a percent, I think. 2% others were in that ballpark. Yeah, but it was flat, and you look at the report, it just feels so noisy to me. I mean, you got to see big declines in what electricity prices, they declines, which is a parallel move. I'm kind of moving through this sequentially, like as I reacted to it in real time, as I saw, like, oh man, zero percent, which is happy. Then the next phase is of what are driving this electricity services down 0.7%. That's a big one. I'm sorry, that's going to be excited. Of course, CPI, that's worth mentioning, but like medical care. That's, I think the story for healthcare, which is slow moving is you see, you run up late 2025. I think the worst or the most most of that acceleration has rolled over, but we got a 0.1% decline in June. I don't think there's no reason, no reason to expect continued declines. That's, I think, a one month noise is probably the best way to look at it, and then shelter very similarly. So you got the slowest month to month increase in the CPI for broadly for shelter since about late 2020, early 2021. What's happening there? Big decline, almost 3% in hotel prices. That's volatile. It doesn't tell you much about underlying price pressures. Maybe some demand. Isn't that weird? It's not because of my point about the noise is kind of weird, right? Because with the world copy, it would expect, I mean, you would. Yeah. I'd one month of hotel, I never feel too, I'd rather be conclusions. Yeah. But okay. I think even more so is that you get tenant rent, tenants rent at OER, which are your biggest two components in shelter. OER, the biggest owners equivalent rent, so owner occupied housing estimate of prices. You get this, you know, within the range of normal, but the very low end of it. So it didn't, it just was the kind of bouncing around month to month that just kind of coincided and took point one or point two percent increase down to zero percent. So yeah, with the hotel decline of 3%. And all of these things relatively noisy, but noisy in the same direction and you get unusually low reading that I don't think this tells a ton about trend moving forward. Okay. So I mentioned the parallel prices. They also declined. They're more volatile month to month. They go up and down, but they were also down quite significantly. So, you know, abstracting from the volatility in the numbers, what do you think underlying, and here's that word again, we're underlying. And that means it's abstracting from the vagaries of the data, the seasonal adjustment issues, the one-off factors, what do you think underlying consumer price inflation is at this point? Year over year. What do you think it is? So I'm going to go core CPI. I'm going to say 2.5, 2.7%. No, no, no, no, no, we're all still we're all see yeah. Oh, you're over 3% just with what's happening in gas prices. Yeah, I have it would take a real sustained deescalation to get us down to 3%, so I think you'd be safer to say that headline CPI is bouncing around 3.5% for us the year. Oh, 3.5% and core excluding food energy is more like I'd say the 2.5 to 2.7 range. We got some favorable base effects coming up. Yeah, I mean, I look at like what happened in shelter that was a week reading in hotel amplified it, but shelter is now running basically where we expect it to be and it's low. It's not a source of inflationary pressure food. All those things are a ton of upside risk from from energy prices and other shocks. Yeah, the reactions so far and the tariff story has been I think behind us the reaction so far for other core CPI items have been not dramatic in response to the war. Yeah, let me bring in Mike because the other thing that this has been a perennial. It wasn't a surprise in June. It was it could vehicle prices. They were kind of soft again and everything vehicle related is soft. I think isn't it maintenance and insurance? I think. But what we've been, it's currently fine wrong, but we've been kind of expecting inflation there to pick up and it has not. Do I have that right, Mike? And if so, what's going on? Do you know? Yeah, it's absolutely right. The I do want to break up new vehicles and use vehicles. New vehicle market we have expected the tariffs to raise prices because it costs more and parts and it costs more to import vehicles raising prices for consumers. That never materialized. And the story is that automakers did want to lose market share. They have raised prices significantly coming out of the pandemic. They took the losses in margins rather than losing the market share by raising prices. So that's kind of the story that played out there. It's not maybe it had come this year with this less political pressure. If a scene if they start to raise prices a little bit, that hasn't really been the case. On the used vehicle side of things, few different dynamics. You have a lot more supply now than we had over the previous years. So all the vehicles, the limited vehicles that were produced in 2021 and 2022. Now you get to where vehicle sales started to jump up in 23 and 24. And those are getting the used market in 26 now. So I think it's three or least in 2023 coming out of the market. So there's an increase in supply on the used vehicle market for where we were. So that's put a little bit of a pushed out in prices. There was a jump in our wholesale indexes at the beginning of the year. And those haven't flowed through to the CPI yet, which is a retail measure. And I would expect some upward pressure from those increase in whole self prices, which they jumped in the first quarter remained flat from then. So I do expect a little bit of upward pressure on those used vehicle prices the rest of the year. Got it. Got it. Okay. We also got the PPI, the producer price index. And that came in soft too, didn't it compared to what we were expecting? Did yeah. And if an astute listener could, I think my tone a month ago was more concerned about inflation. I don't think I pivoted entirely, but if there's an edge being that's been sanded off, it's that PPI came in week. And we got a pretty considerable reduction of revision to what looked like really strong wholesale price inflation in May. Still look strong, but not so bad. So 0.3% decline from May to June in the PPI for final demand. So the prices that businesses are charging each other as they work inputs through supply chains. And the increase in May of 1.1% was reduced or revised down to 0.6%. Again, still above average and PPI's more susceptible to revisions relative to PPI is more susceptible to revisions in CPI. But that's a significant reduction. Service prices goods prices that is where the revisions came from. So it's is a different picture than what it looked like a month ago. Still inflationary. Still high elevated, but maybe a little bit less worrisome. Okay. So we take the CPI, we take the PPI, and that gives us what we need to calculate the inflation as measured by the consumer expenditure deflator, PCE deflator, so called. And of course, that's the measure the Fed has historically used to gauge monetary policy, the PPI inflation target. What do we think this all means for the consumer expenditure deflator when we get that data next? Is it next week or the week after? It'll be two weeks to the end of July. This is when we'll get the June or so. This is going to say, so it'll be a non-adstromatic of a decline in headline CP in headline PC. That'll be a 0.1% reduction. And the core PCE, so excluding food and energy is expected to be a 0.2% increase. Okay. So what's underlying consumer expenditure inflation as what's underlying inflation as measured by the consumer expenditure failure year over year, top line? Because that's what the Fed targets. I'd say three, five there, with just as much confidence. Yes. So even with that you have a reduction coming from energy prices, we're expecting a 0.1% decline in the PC deflator. You're still you're at 3.7% year over year given that monthly projection. And that's down to 4%. Don't expect any relief. And core CP or core PCE will be closer to 3%. I mean, three percent with June's projection will be at 3.3. But if you push it forward a little bit, some base effects helpful for core PC, you're you're settling your 3%. Okay. Well, let's say we're going to end this part of the conversation with talking about what this means for the Fed. And let me turn to you, Chris. So you heard these inflation numbers. You heard Matt's estimate of underlying inflation PCE deflator underlying is 3.5 CPI is I think you said three, right? No, three and a close to three and a half for CPI as well. So 3.5% is kind of where inflation is and target is two. What does it mean for the Fed? Chris. I think it next meeting there you're just sitting on their hands. I think on our hands. Even with those inflation statistics. Even with those inflation statistics, I mean, they're at and the stats at this point, they're rear view mirror, right? So I think they're they're focusing on what's going on with all prices, the Iranian conflict. So I think that'll be a larger determinant of their behavior going forward. But I think for now they sit and wait. Yeah. Merced any different view on that one? No, absolutely not. I think though. He's studying him. Okay, Matt, I'm going to put you on the spot. What's underlying inflation's 3.5% today that says June that's mid 2020. So what's it going to be at the end of the year? 3.3 3.4. Oh, that's pretty precise. Oh boy. Mike, you're writing that down. Yeah, you should write that down. Mike, because after you, he's the second most accurate forecaster I know. Mike's definitely the most accurate. Yeah. Okay, what's it going to be at the end of 2027? There, I think it's an energy story. The more I read about, I guess, supply, gut, potential, that's like top of mind. Yeah. Below for PC inflation, I think we're closer to two and a half. Much improved. Yeah. That makes sense to me. That's very consistent with the forefork. Okay. Okay. Great. Anything else on the inflation front before we move on to Emily, ALF and Mike on the discussion around consumer credit? Matt, anything else? Strong import price data today, which was surprising. We were expecting another decline there. I mean, the US exports a lot of energy, but we'll be import a lot of it too. And the decline in prices from A to June was expected to be to affect to result in the negative income, negative change in import prices didn't happen. 0.3% increase. A lot of it is a big jump in Chinese imports, which I think is interesting. It's a lot of industrial supplies. Yeah. So the area of story is requires some some narrative spending. But yeah, but it's interesting. And I think what's thinking about. Yeah. Let's bring in our guests, Emily and ALF from Equifex. Emily, how are you? I'm doing really well. Happy to be here. Thanks for having me on inside Equifex. Absolutely. And where are you hailing from? Are you in Atlanta? I mean, the Atlanta area, yes. Yeah. Oh, very good. And we saw each other out at the Moody Summit in San Diego. That seems like a long time ago now. Doesn't it? Yeah, it did. I was almost two months ago, I guess. No, really? Two months ago? I think so. Wow. Yeah. Okay. And we also have another guest, one of our colleagues, Mike, Brisson. Hey, Mike. Hey, Mark, how's it going? Good, good. It's all going well. And you were out at the summit as well, right? Feels like yesterday. It feels like and we had an inside economics podcast and you were part of the podcast team along with Chris and Marissa. And Emily was there and participated as well. So Emily, can you just give us a sense of your job at Equifex and kind of a little bit about how you got to where you are today? Yeah, sure. So what I do is called the Equifax Advisors. And what we try to understand is taking the microeconomic picture and building that up into a more macro perspective. And I've been doing this for, I guess the last five years or so. And it had a natural transition from the, during the pandemic, we were trying to understand the massive changes that were occurring at that time, where you had a lot of the increases in inflation, unemployment, the movements and credit score, the influx into savings and various asset movement that occurred during that time as well. That had huge shifts in credit scores as a part of that. And so we had a necessity to help study that and provide a lot of insights. And through that, our market pulse webinar series was born. And you've been, I guess, on that multiple times with us and participated. And then we've, of course, through that work and research produced our market pulse index. So a lot of what we do is surrounded around understanding the, how does the macroeconomy impact consumers at an individual level and how that builds up. And, you know, prior to that, I come from an analytic consulting background in data science. So I take a much more slightly different approach to that where I think math taught me to think structurally and statistics taught me to think and reason under uncertainty, which of course has a lot of comparisons to economics in general. And then when we think about the, in what we do, the most applied microeconomic perspective is credit scoring. So I spent about a good portion of 20 years or so doing credit scores leading data science teams and wrapping that information up and studying the movement that occurs with connecting really thousands of variables simultaneously and building it up. It's almost like if you're, if you're familiar with the mathematical proof by induction, it's like, how do we prove it for one? How do you prove it for multiple? And then carry that through to scale. So I'm coming from a very, very micro perspective into, into the conversation. Well, very cool. You know, I noticed I was looking at your bio and I noticed early on in your career, one main financial. And the reason why that struck me was I was at one main financial yesterday. Yeah, speaking of the board, I'm speaking to the board. Great, great, great group. Great, great. That was the former commercial credit. When you were there, was it still commercial credit or was it? I was, I was part of the division that got acquired and moved into that. It was called American General Finance. Evansville and Diana. So that's right. Yeah, Southern Indiana. And then they ended getting acquired and moving into that position. But it was, it was, it was a nice place to get your, to cut your teeth in the space because we, I had a lot of exposure to, you know, financial behavior specifically in a more sub-prime experience. Yeah, and I should say, you know, Moody's, Moody's analytics, our team and the economics team. And me personally had a relationship with EqualFacts for, I think Emily, I think it's decades now. I really do. It's, yeah. Pride cards meeting. I've been there for 17 years and it was prior to that. Well, yeah, yeah, for many, many years. And we've worked together closely on developing data to assess the state of the consumer balance sheet to go on the liability side. And actually, Mike, Brisson has been very involved in, in that work more recently. And so it's good to have you on Mike as well. And of course, I didn't introduce you Mike because everybody knows you. You're, you're, you're regular on the, on the podcast, but anything else you would like to, oh, and you got promoted. And now congratulations. And now you're like a consumer guru, our consumer guru, right? Would that be a good way of putting it? It's funny. Hutt things change overnight. Starting at a single-blown expert, moved to Autos and all coming together. It's all coming together. Well, it's good to have you on board. Okay, well, let's dive in. So Emily, kind of a broad open-ended question. How do you feel about the state of the American household consumer from their balance sheet perspective, from liabilities and debt? How should we think, be thinking about that? How do you feel about it? So I guess the way that I look at it is, the biggest takeaway for me is the looking at an average or thinking about it in that way is, it feels like it's almost practically impossible now, because you have experiences. So when I'm coming at it from a micro perspective, you have individuals experiencing the same economy very differently. And that with respect to the, the things we've been studying at a consumer financial behavior level across dimensions, that firm K-shape economy has really been something that we've been observing directly with the data. And it's not just from a hypothesis or conjecture. We're seeing it across dimensions. And especially across dimensions tied together at a micro level and it scaled up. So you are a proponent of the view that the consumer is K-shape. The idea being that folks that are well to do higher income, presumably higher net worth, they're doing just fine, no problem, and that everyone else is having more financial difficulty. Is that your kind of perspective broadly? Yeah, so the way that we've been looking at it is we found some very clear inflections and separation points. And we've separated the groups into, I guess going back to this data study that we've had since 2021, really. And that's just when all of our data connectivity was most available and then pull through to today is the bottom 20% we're referring to as the strivers. And I would think about that as-- That's by income emolling. The bottom 20%. It's 20% across dimensions. Across dimensions. Yeah, so the Markables Index looks at wealth and assets from a liquid wealth and asset perspective. We look at credit scores, we look at income, we look at debt service ratios, whether those are positive or negative, favorable towards the individual. And even within wealth and assets there's things like savings, stocks, bonds, etc. That would build into that. And so if you look at things from a combined perspective, including credit score, the strivers are the lowest 20% if you're converging those from a variability standpoint on the lowest end across dimensions. And then the thrivers is the top 10% across those same dimensions. And then what do you call the folks in the middle there? I guess we've been referring to them. We have very names that we've been looking at, but right now we're calling them the pivoting middle because there's been so much movement. But if we look back, specifically going back the last six quarters or so, we've seen an increase in the striver population by 11% and the thrivers over 30%. In terms of the groups that are sitting there. So the expansion is-- Can I just call stops? For a second. Just to let people get their minds around. Let me get my mind around what you're doing and saying here is, so you have all of this data at an individual level. You know something about me, you know something, you know a lot about Mike. Chris, no one knows anything about Chris. I'd be surprised if you have any information on Chris, but okay, you may have some information about Chris. And you say, okay, I'm looking at their score, their credit score, I'm looking at their assets, I'm looking at their liabilities, I'm looking at their income, so forth and so on. And then you create this index based on all of this, you're calling these dimensions, these dimensions. And you then create a distribution across all the individuals when you say the folks in the bottom, 20% of that distribution of scores of what you call market pulse index, you're calling those folks strivers. They're striving, presumably they're also struggling I guess to some degree, but that would be kind of a loaded way of describing them, strivers. And you're saying the folks in the top 10%, you're calling them thrivers. And then everyone else is kind of the pivoting middle. And you're saying that that's pivoting one way or the other, they're going north or they're going south. And that's why you get this, when you say up 11, up 11% for the strivers, up 30% for the thrivers, that's that's the pivoting middle, they're bifurcating into the tails of the distribution. Do I have that right? You did, yeah. And to add a couple more things of flavor to that is the the middle population. If we go back the since Q, I guess it's Q3 2023, we have seen that drop by 6% and then that's where the expansion in this hop and the bottom end has come from. Where did you, what was the decline of 6% where was the last six quarters? Oh, middle section has declined by a net 6%. Oh, so the middle was hollowing out is what you're saying? Yeah, it was. Yeah. Not for a first quarter of this year, it remains constant. So there wasn't continued expansion, but there's movement that occurred because if we look at that, the thriver population on the top end reduced by 5%, and then the bottom end continued to expand out by 2%. And a lot of the top end drop was, do the where the equity markets were at the time? Right. And why that cut off? Why strivers 20% of the population and thrivers 10% of the population? I know that's based on your score. Why those cutoffs? I guess I'm asking. I guess we've seen some, I guess very, some of it is alignment to the industry. It's specifically some sass that we've seen, even you put out with respect to what's happening in the top 10% of the most affluent, and they're accounting for the majority of the spend, for example. But we also did see a very clear separation in the data where once you got to that 10%, there was a clear movement that you almost like when you get there, you can almost stay there because your wealth and asset profile allows you to continue regardless of any form of a setback or inflationary pressures and things like that. Hey, Mike, do you look at the market pulse index in your work? Are you looking at that? No, I don't have a direct look at that with our partnership. Oh, maybe we should start looking at it. Chris, do you look at the market pulse index? I say, I do not. You do not. Yeah. I guess I'm interested though. Certainly, you like to. Right. So, but Emily in aggregate, if I know you don't, you said it's hard to look at the averages, but you know, if you did look at the aggregate economy, how would you characterize it from the perspective of the market pulse? What's it saying to you? I would say that the experience is divergent. It's very divergent in terms of like the that overall picture. And I'll take it back to kind of an anecdote. I mentioned as we were just like kicking off here before we started doing the recording that I grew up in, the Gary and Deanna area. And oftentimes when someone will ask me and they'll say, do you think we're in inter-recession, not in a recession, etc. And oftentimes I'll just, I have a little grin and I'll say there are people that I know who have been experiencing a personal recession for the last 50 years. And then there's people who are experiencing a personal, I guess high levels of gains during that time as well. So I think the experience is very divergent. And I would say that if you are sitting in the lower end of the, I guess, across low income, low credit score, very low wealth and assets, and then you're more likely having a struggling environment. And that would even be an indicator, for example, like a credit score is not, you could have a high credit score and still be sitting within a, the striver population, which is almost like a redefinition of what it means to be experiencing subprime. Because if inflation continues to rise, and if you have a credit score, maybe you'll be able to qualify for some additional things from to obtain more liquid credit if you needed, if you run into financial struggles. But that starts running out over time. Okay, Mike, let me turn to you. You look at the Equifax based credit file data that we get every month. And that gives us a very detailed data. But it's more macro. We don't have this breakout by dimension that's available in the market pulse. But the link with C-Rade's amount of data outstanding by score band, by region of the country. Lots of different dimensions to the data. I'm the same question. How looking at that data and everything else you look at, how would you characterize the American household from the finances of the American household? Sates stabilizing. I mean, there's really stabilizing. Stabilizing. Yes. So we saw a large rise. I like to focus kind of on the bank card and auto segments. And we saw a large rise in the link with C-Rade coming out of the after the pandemic when the link with C-Rade's went way down when there was all the fiscal stimulus and accommodations for borrowers. So you saw a pretty large rise. But that happened two years ago now. The real large rise. It's been very stable since. I think we've found a place where the link with C-Rade is kind of where the banks want it to be. We've had increase in the lending standards, which means that a lot of loans out there are good loans. So I'm not really too concerned from a macro perspective of for the consumer. We've seen spending remain high. We've seen the debt service ratio remain low and come down. Name a bank card to the link when C-Rade has come down over the year. So there's a lot of positives I'm seeing on the consumer credit side of things. There's definitely concentrated risk and a low income, thin credit, score borrowers. However, I think in a general sense, do it pretty well. Okay. So how do you square the circle with what Emily was just saying? I mean, I listen to Emily and I'm here. Well, the distribution of household finances is skewing. It's bifurcating. We've got increasing number of folks that are under significant pressure and increasing number of folks that doing better. The middle is kind of hollowing out. That doesn't feel like stabilizing. And then you're saying stabilizing. How would you square those two things? From a macro perspective. I'm trying to create a food fight here. I can see a little bit of a food fight. Come on. Take, throw a little bit of cauliflower over the wall. From a macro perspective, if things were getting that bad for across the board, the debt service ratio would be going up and not coming down. And we've seen the debt service ratio continue to come down over the past couple of, okay, explain what the debt service ratio is. So that's how much it takes of someone's income to pay their dollar debt. To just service their debt to meet their interest in principal payments on the debt. Yes. Yeah. Chris, what do you think of that? I'm going to let you be way in here. So what do you think? You got Emily and I on one side of this. And I think I'm characterizing this correctly. Krugging me if I'm wrong. But Emily sounds a little more nervous and worried about the way things are going. Mike, you know, Mike, not so much. Where would you land in this kind of discussion? Well, first I'd say that we love wordplay on the podcast. So Emily drivers, strivers and survivors. What do you think? Oh, one of the, all right. You can have that one. Thank you. But along those lines, I agree with Mike from the broad macro perspective things are pretty sanguine when it comes to consumer credit. But I'm also certainly cognizant of, there are these distributional effects. And I don't know if it's just pockets of risk. I'd say there is skewness in the distribution. I don't think it's enough to take the economy down, but you certainly have folks with low wealth or low income who are really struggling with higher levels of inflation and they're turning to credit. So you do see student loan delinquencies or FHA mortgage delinquencies up at very elevated levels. So so I'm certainly concerned about that. But not from a macro perspective. Just as I look across households, there is bifurcation that I see. Yeah, Chris, you on a way in here? Yeah, I agree. I think undeniably there's a big difference between the top of the income distribution and the bottom in both in terms of performance and in terms of sentiment. In terms of their, you know, just look at the wealth they've accumulated or not accumulated in the last five or so years. So so they're both, I think they're both right, right? I mean, from a macro perspective, as Chris said, I don't think I'm extremely worried about the overall health of the economy because of just looking at the top line numbers. But as Emily said, I think that's increasingly difficult to do and ignore, you know, it's becoming increasingly difficult to ignore the detail. One thing that I would add that I think I picked up on with what Mike was describing, when he said the phrase, "concentrated risk" is the part that I really perked up and heard as a part of that. So I do agree with respect to things coming from a stabilized perspective when we're looking at the averages. But when we look at, for example, credit score, and you look at credit score alone, if you go back to December of 2019, there were 26% of consumers experiencing subprime credit. That and that's, you know, just consider, say, less than 620 across the, you know, generic credit score. Is that how you define it 620 score? About that, you know, just, okay, just a credit score. But I would actually define a subprime experience on the strivers. now because it's multidimensional. But what happened is that 26% of those that were under that credit score dropped to 19%. And so if the delinquencies are holding around the same level, you're seeing that concentrated risk occurring, meaning there are more, there are less proportion of people sitting in a subprime credit perspective according to credit score. However, delinquencies have remained constant. If you, and just from like thinking about the math, it's almost like a substance paradox where you have like the difference in the overall average of percentages, where if you're likely to have a delinquency on your credit card, you're more likely to have a delinquency on your auto. And so when we look at the delinquencies across the board, it's concentrating into a smaller proportion of the population, even if the averages are remaining the same. Got it. Got it. You're saying the financial stress is, I guess the word is concentrated, you know, becoming more concentrated. And that stress is increasing for that group, but that group is a smaller piece of the pie, you know. Right. And I don't know. You're wondering about my feelings about it. I don't know if I'm necessarily worried. I think where I'm at is, I just know what the data says. And when I, when I, when I, I'm a true data scientist, I feel like I was like, I was like, I was like, I was like, I don't know about the data. You know, you know, you know, that's why that's the difference. Maybe the economist in the, in a data scientist, the kind of is they, they feel the data, Emily, we feel the data to our core. Except Mike, Mike is very, you know, to the book, very to the book. I get emotional about modeling methodology. Okay, you're weirder than we are. Okay, you just, we established that. Thank you. Yeah. See, she's, that's not an insult. That's a compliment. That's a compliment. Got it. Got it. Let me, let me, Mike, let me push back as I'm want to do. And I always lose when I push back on you, but let me push back a little bit. So, uh, and, and I do agree, these aren't falling apart, at least not from the credit data. I mean, the frequency rates have kind of leveled off here, except for, uh, FHA mortgage to the frequency that has picked up quite a bit. And I know there's some issues with regard to change in the FHA program. And maybe that's impacting it. But does that give you any concern? FHA, by the way, is, uh, that's the, those are loans, those government loans made to folks that are generally first time home buyers or lower income households, you know, have lower credit scores and put very little down. And so they're most at risk. And so if there is going to be stress, uh, you expect to see it there, uh, at least first. And you have seen some increase in credit problems in the FHA book. Any, any reason to be nervous about that, Mike or not, I defer to Chris on the housing piece of it. I intentionally did not bring Chris into this. Um, uh, yeah. Um, so I'm not too concerned. I think it's a small pocket. I know mortgage is the largest segment for the consumer. Uh, I was more concerned about the student loans, uh, though those really spiked when we had the repayments again, but they've come down. Uh, so I'm not really too concerned. I mean, the total debt's growing 1.7 percent, uh, over the past year, that's slower than incomes are rising. So I think people can pay off the debt that they're taking. Uh, for the housing side of things, I would be concerned if we start to see, uh, home value start to decline rapidly or any, any meaningful way. I know there's different. But they are declining, right? I mean, in the south and the west, they're declining. I mean, nationwide, they're flat, uh, basically. So, so definitely, there's areas where they are coming down, but nationwide, they're, they're pretty stable comparison. Yeah. But how's the country's experiencing price declines, right? I mean, I'm, if the, if the national price, I'm just, you know, obviously, uh, waving my hands, but, you know, the national house prices are basically fat. So we are seeing some about pretty significant price declines in different parts of the country. No. Yes. Yes. Yeah. Right. All right. Chris, go ahead. Why shouldn't I be worried about the FHA mortgage delinquency? Oh, to Mike's points, the small portion of the total mortgage pie, right? 25% I'd say 30, 25, 30%. And I think more of like a canary in the coal mine, you know, the short go for, yeah. Okay. Sure. I agree with that. And you do. And you did, uh, you did mention that there have been changes in the, uh, servicing of, uh, FHA loans. Yeah. A lot of FHA loans were essentially getting a free modification, kind of extending out or pretending. Right. Uh, along the delinquency spectrum. So if anything, right, had that, had today's servicing rules been in place, we would have experienced higher delinquency rates for longer period of time. And we wouldn't have seen the spike up, right? It was just, we would have, right? Probably would have seen more foreclosures earlier, runs were just kind of catching up here. So that's catching up. Okay. Something to bear in mind here. But you are right that that is the segment that is most sense. Right. These are borrowers. Right. Not only are they low credit score, but they have very low down payments when they get these loans. So if they originated a loan just a year or two ago and prices are coming down in their area, they could very well have negative equity, right? So if anyone's going to feel that the pain first, it's these borrowers. It's not the borrower who got their mortgage 10, 15 years ago, right? It was built up a huge variety. It's someone more recent with, with more limited credit. So definitely, are worth watching and trying to tease out what the impact is of the servicing versus the true underlying delinquency impact. And once you do that, you do see that these delinquencies are going up. So there is some signal there of, of some stress, particularly in these markets with lower house prices that you talk about. Yeah, the other stat that comes from the EqualFac state of that I just throw out and get I'm curious how you respond to it is if I look at the delinquency rate on subprime debt and Emily, and I'm defining subprime debt with a score below 660. I just pick 660. Okay. We could look at 620, but I looked at 660 and across all product lines, across cars, auto, student loans, mortgage, the whole shooting match, percent of dollars outstanding. That is now just about 10%. So 10% of all the subprime debt outstanding is 30 day and over Delinquent. That says of June. And that's pretty elevated. I mean, you have to go back to just after the GFC when Delinquency rates are declining to see a, Delinquency rate that high. And certainly above kind of where we were pre pandemic. So Mike, back to you, how do you think about that? Is that a sinus stress or am I overstating the case? Both. So I'm on to do that by the way. Yeah. It's definitely a sinus stress. I think we've nailed that down. It's concentrated. There's stress at lower income levels. However, there's a lot less people below that 660 marker in terms of the distribution of lending that there was prior to the financial crisis. People have just, there's more loans going out to those in the higher credit scores and the were before. So I think it's overstating in comparison with where we were going 2007 where there's a much higher population in that less than 660 that we're getting more loans. However, there's definitely concentrated risks. So both ways. Okay. All right. So to summarize, the collective wisdom of the group is yes, there is some bifurcation of financial performance. There's the folks that are struggling and the folks that want to do and the middle is kind of moving in one direction or the other. So that's not great and certainly a sinus stress. And if you look at the credit statistics, same deal, some signs of stress, but not it's not to the level or to the degree that is becoming a macroeconomic problem, an impediment to the consumer in aggregate. Is that anyone disagree with that mercy? Do you you're on board with that characterization? Yeah. And we lean. I do agree. It's individuals that are struggling and they're maybe poor folios that are struggling. Right. Chris, you agree with that? Yeah. Yeah. You shaken it said yes. And of course, Mikey, well, I don't know. Mikey, you agree with that as well. How does perfectly summarized perfectly summarized? Okay. All right. Well, let's, I want to play the game. I want to end the podcast with the stats game. Before I do that, do I mean anything else you want to add to the to the conversation before we move on and play the game? Yeah. I think the, I think the main thing is the big story for 2020, 26 isn't just the 18.2 trillion total dollars or the delinquency rates. It is with respect to that the various concentration and the main drivers behind it are going to be the financial stability is more often defined by the assets you hold in addition to your income and ability to generate those assets on top of the credit score. So she, she already started the game 18.2 trillion. It was Yeah, that's the total amount of household dead outstanding according to the Equal Fex credit fall data. Correct. Is that do I have that right? Uh huh. See, Mike, were you impressed by that? No, not really. He wasn't really. Everyone. We haven't started playing the game yet, Mark. Oh, sorry. Oh, sorry. Yes, that's right. We're going to play the game. The stats because we before to stat. The rest of the group tries to figure that out with clues, questions deductive reasoning. The best stats one that's not so easy that we get it right away. One that's not so hard, we never get it. And if it's that proposed to the topic at hand, which doesn't have to be, but a pretty clear topic, let's go around all the better. And we always, Emily, I'm sorry. We always begin with Marissa. It's tradition, as you know, because you are a long time listener of inside economics. We'll begin with Marissa. What's your stat? My stat is 53.3%. That's the odds of Spain winning the World Cup. Oh, maybe. Is that Chris? Is that the odds of the winning the World Cup? I don't know. Yeah. Is it the increase in spend from travel leisure because of the World Cup? No. Is it related to the World Cup? It's not related to the World Cup. Is it based on data that came out this week? This is data that's updated every day. Oh, every day. It is a percentage. 53.5%. Is it a probability or odds of like a prediction market? It's the probability of something. Of a fed rate hike at the next meeting? Yeah. Oh, the September meeting. Yes, September meeting. Yes, that's right. Oh, okay. That's an interesting one. So by the September, there's a meeting coming up here, I think, in a week or two weeks. And the odds are probably well below 50% for that. They're like 10% for the first. 10%. Yep. And this is from what? The CME or futures markets or something from above the fund? Oh, okay. The futures are signaling of 53.5% probability of a rate hike by September. Yeah, 53. What do you think of that? Well, it's interesting because it's way down, right? The odds were much higher before we got the most recent read on inflation. But it kind of goes back to the consumer credit, right? Because one thing we didn't really talk about much was interest rates and how consumers are fairing in a higher interest rate environment. And we're looking at a potential situation coming up here where we may even be facing higher rates a year ago. We were talking about lower rates and somewhat of a relief foul for the mortgage market, the housing market, all of this, right? But now because of the war with Iran, we're facing potential higher rates. Right. Right. Oh, that's a good one. That's a really good one. Okay. Emily, do you want to go? You got the hang of it, Emily? I know you're a hang of it. Yeah. Thanks. Yeah. Sure. So I guess the stat that I have, if I may, provided in two parts. Sure. No, that's against the rules. No, it's not. Is it against the rules? I think you might need it. I'll go ahead. If you want to go with just the second part. So the overall stat is 17.9, but I want to give you the next layer down in true bifurcated form, 12.6 and 5.3. These are percentages? Percentages. Oh, so the total is 17.1. What did you say? 17.9. And it breaks down into 12.6 percent and 5.3 percent. And it would be very unfair if this is a market pulse statistic. Is it a market pulse statistic? It is a market pulse statistic. Oh. Well, you got it then. Right. Oh. That's a good guess. I got it. What is it related to? Oh, man. So it's distributional. It's some part of the population is in these buckets. I don't think we're going to get that, Emily. To tell you the truth. Should we get it? Do you think we should get it? In two, if we spent enough time on it, I think you guys would naturally get it, I think. Okay. We're going to let you go ahead. Tell us what it is. Push out of it. So there are 17.9 percent of individuals that were in the middle class that were recalling the pivoting middle. 12.6 percent of US consumers moved down. 5.3 percent moved up in the last six quarters. Interesting. Okay. This goes back to our earlier discussion. You're saying this pivoting middle is what you're calling. I'm not hollowing out of them. But they're hollowing out of them. But the number is a little bit bigger. That's 17.9. So there's movement to the outer tails, but there's also movement back inward for a net change of that 6 percent that I described as the net reduction over that same thing. Let me ask you looking at the story. You may not have done this, but I'm just curious because this might be something to watch. I mean, historically, when the share of the population that strivers rises above a certain level or the thrivers decline below a certain level, does that signal something about the macro economy? Is it a good leading indicator? That's a great question. I think the thing that we've observed the most is that when we index inflation to itself, so think about indexing inflation from a year over year change. So in essence, that's a acceleration. So it's an acceleration or the second derivative to get really nerdy of inflation is highly correlated to a, I guess, is the first derivative of that change for the market pulse index. So what is the velocity of change for market pulse index is highly correlated to the, that multi-change from inflation? Oh, OK. You're saying when inflation is accelerating, then you see this by for more of this by forcation going on. Yeah. So if you mean like, so we look over the last five years holding over 3%, that's going to impact things more dramatically. And that's why we do see that's well 0.6% moving down. Right. I guess that makes sense. That's the reason. Yeah. It's cost of living rises and people lowering comm households in particular will start to struggle. But OK. Oh, that was a good one. Mike, do you have a good one? Maybe. OK. So far away 6.7%. Is that in the Equal Facts credit data? No, it was a real interest rate. Economic view took this week. Oh, it's a fixed mortgage rate. Yeah. Nope. No, it's not yet. I think it is. It's 7%. That's 6.65. 6.65. Yeah, 6.65. But that's something that you had in mind. Is it credit? Is it credit related? No, it's consumer related. Oh, is it related to retail sales? How it? Yeah, retail sales. Got it. Go ahead, Mercy. You leave it away. So a percent change year ago in retail sales. So that's for all retail food services. That's kind of boring. It's kind of nominal. Right. Nominal? Yes. But X without autos and gas, it's still 5.7%. So it takes out most of the inflationary pressure because you take out the gas purchases there. So I think it's just a sign that consumers still are spending. Consumers still doing well. I don't know why you keep saying they're doing well. I mean, real consumer spending growth, I'm picking on you. But real consumer spending growth is 2% on the nose. That's what it's been. It's what it is. Is that well? It's not bad. It's okay. He worse. It could be worse. But it's 2%. And you have a case shape. You're telling me that means the folks in the top part are doing four that the guys are doing zero. That's not good. Consider we just went through a war. We just said tariffs raised. I don't think they're going to worry about it. I don't worry about it. The war's still ongoing. Yes. I don't know. But all these had wins. I still think this is pretty strong. Really? Okay. I'm going to have to just sway you of that view. I don't know. I agree with Mike. I mean, I would have expected it to be a lot worse given everything over the past. Even with the tax cuts and all that kind of stuff. And the World Cup. We're all in World Cup. A lot of the World Cup spending was a disappointment. A lot of the World Cup, like a lot of the expectations for World Cup spending in different host cities was disappointing. Really? Relative to expectations. I heard that. Yeah. Okay. Interesting. Okay. All right. Okay. See, see Emily, you're lucky you're not Mike. I'm just picking on Mike. I'm going to pick on Mike. Chris, you want to do one more? And we'll call it a podcast. Sure. Sure. This is a good one. 2.9. It's a double. 2.9% and 13.1%. Um, I signed the credit statistics. Yes. In the, in the, in the Equifax related credit statistics. One of them is Equifax. And what are the two of them again? 2.9 and what? 2.9 and 13.1. Are they delinquency rates? They are. Hmm. Uh, more good than student. loan. Nope. They're, but two, but the 13.1 is not Equifax. One is not a two point one. That's pretty high. Yeah. I did look at the CNBS, the link with C-Rates, commercial mortgage back security. I think that's close to 10 in rising. That's not 13. It's consumer related, Chris. It's consumer. It's actually the same product. Is it more kind of total and more credit card? What's that? I'll ask if that's mortgage. It's not mortgage. Subspecible. Credit score band. Is it credit score band? No. No. One is not Equifax. No, we said there are from two different sources. I think it includes whether or not you are examining the delinquencies alone or if you're including write offs. Well, it's the New York Fed data. That's what I'm saying. New York Fed. Oh, this is great. This is really good. I want to hear. Explain this, Chris. Then I want Emily to tell us what she thinks of this. Go ahead. This came out today or came out this week, actually, or where surface this week because a lot of the banks reported their earnings this week, JP Morgan, Bank of America. They showed very low stable delinquency rates on their credit card portfolios. If you go to the New York Fed data, which is very popular, it gets released every quarter, it showed a 13.1% delinquency rate. For this is for the first quarter of 2026. I went to the Equifax data, the credit forecast.com looked at 90 plus data delinquency rates and that was 2.9%. A huge difference between the two. The reason for that, there was a lot of discussion. I actually talked to some journalists about this as well. The reason for the difference is that the Equifax data that we've been talking about really takes more of a lender view. When a loan actually is charged off of the books of a lender, it comes out of the portfolio and we're only looking at 90 plus data delinquencies out of the currently active set of loans. The New York Fed approach is more of a consumer view. They are not excluding the bad debt that is charged off because technically the consumer is responsible for that even post-charge off. If you don't pay on your loan, the bank may charge it off but that gets sold to a debt collection agency and that debt collection agency as we very well know. We'll continue to pursue that debt for some time. Actually, they can continue the pursuit of the loan forever. After seven years, they're no longer allowed to sue for it. It comes off the credit report data. Bottom line is you have these two measures which sound very similar. They're both 90 plus data delinquency rates but they're taking different approaches and it does inject quite a bit of confusion in the market. What do you think of what the New York Fed is doing though? I mean, bottom line. I mean, feels pretty bogus to me. I don't think I understand what's going on with the consumer today. If you go back seven years ago, seven years ago, it includes the pandemic. I mean, come on. Exactly. I'm not a fan of that approach. Very little of that data. The reality is very tiny percentage of that charged off loan amount actually ever gets recovered. In the minds of consumers, I don't see them as thinking that they are going to pay that back. Emily, I'm going to give you a chance to be critical of the New York Fed. I think they have a different purpose as how I would describe it. Much like thinking about, just adding up data and data, it's like, what are you including in your numerator and what are you including in your denominator? I think the more important part is having that understanding of what question you're trying to answer and which statistic is most relevant to address that. In essence, if you are trying to, as we've been describing, what is the overall thinking about it from a macroeconomic perspective risk as it elevates into bank stability, for example, likely to remove the charge-offs after they've been recorded for that. The most recent time periods is an indicative version of that. If you are trying to examine it from a very more granular perspective, knowing that it does impact an individual level consumer and their credit score for those seven years that Chris described, there is some level of impact to that. I think it's really just a different purpose. Yeah, I think it's bogus. You're trying to understand what that is going on with the way it's being used. With the world that's using it, it's trying to understand what's going on with the consumer today. Is there a problem? Or is there not a problem? 13.1% says we've got a streaming problem. We've got depression-like conditions. That's Michael will tell you, just not right. Come on, that's just bogus. The other thing that makes me so annoyed with the New York Fed data is a small sample. I think they based it on a 5% sample, which is okay for the aggregate level of delinquency. When you start trying to break it down by a different group, score band, region, product line, whatever it is, 5% doesn't cut it. It is wrong. We know that because of the aquafax data, thank you. A census of what's going on. We have a much clearer sense of it. I don't know. I had a long email back and fours of the New York Fed about this, about three, four years ago. I'm going to publish it. Just so people can see it. I just think it's just misleading. In fact, I'm so annoyed that I thought that I'm going to now pick the top five statistics that people should not look at to try to gauge what's going on. By the way, I was going to go solicit everybody for their statistic. I think this is a good idea. Don't you guys think a good idea? Five to top five statistics. What you should not be looking at, this would be on the list. I don't know if it's number one, but it's certainly the top five. Anyway, you got me going. That was a great one first. That was a great one. Yeah. Pushed a button. That's the first to button. Yeah. Now we'll get a call from the New York Fed. No, no, they won't. They know my position on this. I made it pretty clear. Anyway, with Emily, thanks so much, Mike. Thanks so much. Guys, anything else before we call it a podcast? Merissa, anything? Chris, I hope you guys have a great weekend. Go who you guys are rooting for in the roll cup. It's hard not to root for Argentina, isn't it? It's kind of hard not to. I'm just rooting against smoke. So yeah, where is the game? Is the game in New York? Yeah. Oh goodness. That's not good. That's not good. Hopefully this clears up. Anyway, we're going to call this a podcast. I hope you enjoyed it, dear listener. And we will talk to you next week. Take care now. Bye. Bye. [Music]