A Plethora of Data

Episode Summary

Executive Summary: The hosts argued that the latest income, spending, and inflation data point to a weakening U.S. economy: income was flattered by one-off settlement payments, while real consumer spending was flat and core inflation heated up, likely reflecting tariff effects. They tied softer confidence, higher inflation expectations, and new auto tariffs to rising recession risk, while also warning that government data quality is deteriorating and could be further undermined by funding cuts and policy pressure.

Main Topics: Income, spending, and inflation report signals slowdown (Priority: 5/5): The personal income and outlays release showed strong nominal income but weak real spending and firmer inflation, suggesting consumers are pulling back while price pressures remain sticky. Tariffs and trade war effects on the economy (Priority: 5/5): The hosts linked tariffs—especially the new 25% auto tariffs—to higher prices, weaker demand, disrupted supply chains, and greater recession risk. Consumer confidence and inflation expectations deteriorate (Priority: 4/5): Both University of Michigan and Conference Board sentiment measures fell sharply, while one-year inflation expectations climbed, reinforcing fears that households are bracing for worse conditions. GDP, GDI, and near-term growth outlook (Priority: 4/5): Fourth-quarter GDP was finalized at 2.4%, but current-quarter tracking slowed to 0.8%, and GDI was much stronger at 4.5%, underscoring how mixed the underlying growth picture is. Data quality and government statistics under pressure (Priority: 4/5): The hosts criticized proposals to alter GDP methodology and warned that declining survey response rates and committee disbandments threaten the reliability of key economic statistics. Labor market resilience and risks from federal layoffs (Priority: 3/5): They discussed whether federal job cuts and immigration restrictions will materially lift unemployment, concluding the aggregate impact may be limited but could hurt certain regions and sectors. Foreign demand for U.S. Treasuries and deglobalization risk (Priority: 3/5): A listener question prompted discussion of whether tariffs and geopolitical tensions may reduce foreign appetite for U.S. debt, with China’s holdings already falling substantially from peak levels.

Key Arguments: The income side of the personal income report was distorted by one-time legal settlement payments and transfer payments, so it overstated underlying household strength. Real consumer spending has been essentially flat since November, which the hosts view as a meaningful warning sign that consumers are becoming cautious. Core PCE inflation accelerated, especially in durable goods, supporting the argument that tariffs are feeding through to prices. Higher tariffs hurt both growth and inflation simultaneously, creating a stagflationary risk rather than a simple negotiating tactic. Falling consumer confidence, especially when large declines persist over several months, has historically signaled recession risk. New auto tariffs could raise vehicle prices materially and damage sales, dealer activity, lending, insurance, and broader supply chains. Government statistical agencies need more, not less, funding because response rates are falling and survey quality is deteriorating. Private data sources are useful but incomplete; government surveys remain the broad gold standard for policy and macro analysis. Federal layoffs may not immediately spike unemployment because many workers may find private-sector jobs, retire, or face delayed claims filings, but regional effects could be severe. Foreign buyers may diversify away from U.S. Treasuries because of geopolitical tensions, sanctions precedents, and reduced confidence in U.S. policy stability.

Data Points: Personal income, monthly change: 0.8% - Rose in the latest personal income report, strongest pace since January of the prior year Personal income, year over year: 4.6% - Indicates nominal income growth remained solid Personal spending, monthly change: 0.1% - Weak overall spending in the latest report Real consumer spending trend: Flat since November 2024 - After inflation, spending has not meaningfully grown Personal consumption expenditures (PCE) deflator, monthly change: 0.3% - Headline inflation measure for the month PCE inflation, year over year: 2.5% - Headline consumer inflation rate Core PCE, monthly change: 0.4% - Above expectations and an acceleration versus prior month Core PCE, year over year: 2.8% - Up from 2.7% in January Durable goods inflation: 0.4% - Strongest increase in months, seen as tariff-related Saving rate: 4.6% - Rose from 4.3% in the month Q4 2024 GDP final print: 2.4% annualized - Revised up from 2.3% due to lower imports Q4 2024 calendar-year GDP: 2.8% - Strong full-year growth Current-quarter GDP tracking estimate: 0.8% - Moody’s Analytics near-term growth estimate Q4 2024 GDI: 4.5% annualized - Much stronger than GDP and used as a comparison Q4 2024 calendar-year GDI: 3.0% - Shown as another measure of strong annual performance Conference Board consumer confidence decline: 16.8 points over 3 months - Approaching recession-warning territory University of Michigan sentiment index: 57 - March reading discussed as sharply lower University of Michigan consumer sentiment by age, 18–34: 69 - Younger cohort’s sentiment level University of Michigan consumer sentiment by age, 55+: 71 - Older cohort’s sentiment level, slightly higher than younger cohort One-year inflation expectations, University of Michigan: 5.0% - Rose from 3.3% in January, highest since November 2022 Auto tariff rate: 25% - New tariff announced on imported autos and parts Estimated auto price increase: $5,000 to $15,000 - Projected consumer impact from tariffs Federal employment decline assumption: 300,000 to 400,000 jobs - Baseline scenario discussed for federal job cuts Monthly pace of federal job losses implied: 30,000 to 35,000 per month - Rough arithmetic over an 18-month period Chinese holdings of U.S. Treasuries: $760.8 billion - ChatGPT-checked estimate for January 2025 Peak Chinese holdings of U.S. Treasuries: About $1.3 trillion - Peak around late 2013 JOLTS response rate 10 years ago: About two-thirds - Used to illustrate deterioration in survey participation JOLTS response rate today: In the 30s - Significant decline in survey quality

Pivotal Quotes: "This feels like the leading edge of a real problem in the economy." — Mark Zandi: On weak real spending and hotter inflation in the PCE report "The tariffs and the trade war, the fingerprints are all over this." — Mark Zandi: Describing the likely source of rising goods inflation and weaker demand "We should be using those private sources, but those sources are not perfect either... the broad based survey that the government provides is really, again, that's the gold standard." — Chris Dorides: On the limits of replacing government statistics with private data

Implications: The discussion suggests rising stagflation risk, weaker consumer demand, and a more fragile growth outlook. If tariffs persist and data quality worsens, markets, businesses, and policymakers will face greater uncertainty and higher recession odds.