Surveys, Sentiment and Stamps

Episode Summary

Executive Summary: The episode focused on a strong Q2 U.S. economy—GDP, spending, and inflation all improved—yet consumer sentiment remains weak due to high price levels, credit strain, and political polarization. Guest John Lear of Morning Consult explained how survey data reveal persistent pessimism, divergent partisan outlooks, global inflation differences, and a tightening 2024 election outlook, while the hosts debated Fed policy, labor-supply shifts, and whether conventional economic benchmarks still apply.

Main Topics: Strong U.S. growth and the GDP surprise (Priority: 5/5): The hosts discussed the second-quarter GDP report, which came in far above expectations, driven mainly by consumer spending and inventories, while trade was a drag and residential investment slipped. Inflation moderating toward target (Priority: 5/5): They reviewed PCE inflation, noting slowing goods, services, and shelter inflation, and debated whether the Fed should begin cutting rates or wait for more confirmation. Why consumer sentiment remains weak (Priority: 5/5): John Lear argued that survey pessimism reflects high price levels, weaker real wage gains, borrowing and savings drawdowns, and social-media amplification of negative economic experiences. Labor market and potential growth reconsidered (Priority: 4/5): The discussion questioned whether the economy is actually above or below potential, with references to Okun’s Law, rising labor supply from immigration, productivity gains, and post-pandemic labor-market changes. Partisanship and survey interpretation (Priority: 4/5): The group explored how Republicans, Democrats, and independents report very different economic views, and whether level differences in sentiment can be separated from changes that better predict spending. Global survey signals and inflation expectations (Priority: 3/5): Lear compared survey patterns across countries, highlighting Russia’s surprisingly resilient sentiment, China’s deflation concerns, Japan’s chronic weakness, and Australia’s negative inflation shock. 2024 election and trade policy (Priority: 4/5): The episode closed with a discussion of the tightening presidential race, Senate implications, and unusually broad support for tariffs and protectionist policies across party lines.

Key Arguments: The GDP surprise was real and broad-based, but much of the upside came from inventory swings that can reverse, so one strong quarter does not settle the growth outlook. Despite rising unemployment, the economy may not be below potential in the usual sense because labor supply and productivity appear stronger than pre-pandemic norms, implying higher potential growth than the traditional 2% estimate. Inflation is close to target on a PCE basis, and if shelter is treated differently, some measures may already be at or below 2%, strengthening the case for eventual rate cuts. Consumer sentiment is depressed less because spending has collapsed and more because households still face a much higher price level, lower real wages, and greater debt service burdens after borrowing to maintain consumption. Survey pessimism is not purely about current conditions; social media and narrative effects may spread inflation anxiety from highly affected regions to broader populations. Partisan polarization meaningfully changes reported sentiment levels, but month-to-month changes in sentiment may still track actual spending better than headline level differences. Support for tariffs has widened across both parties, reflecting souring views of China and a more America-first trade posture. Election dynamics have tightened, and turnout among younger and non-white voters could be decisive for Harris, while the Senate may matter most for policy implementation and confirmations.

Data Points: Q2 annualized GDP growth: 2.8% - Second-quarter U.S. GDP came in much stronger than expected. Expected Q2 GDP growth: 1.4% - Moody’s Analytics expectation before the release. Q1 annualized GDP growth: 1.4% - Used as a comparison showing growth roughly doubled in Q2. Consumer spending contribution to Q2 GDP: 1.6 percentage points - Main driver of the GDP upside. Inventory contribution to Q2 GDP: almost 1 percentage point - A major source of the GDP surprise and a potentially volatile component. PCE inflation month over month (June): 0.1% - Headline PCE inflation rose slightly from no change in May. PCE inflation year over year: 2.5% - Headline inflation moved closer to the Fed’s 2% target. Core PCE inflation year over year: 2.6% - Flat for the second straight month. Core PCE month over month: 0.18% - Noted as very close to a 2% annual pace. Real consumer spending year over year: 2.6% - Showed continued solid household demand. Personal savings rate (quarterly): 3.5% - Used in the GDP/savings discussion. Personal savings rate (monthly): 3.4% - Mentioned as the monthly figure. Core PCE minus core CPI differential: -0.65 percentage points - Marissa’s stats-game number; PCE inflation is lower than CPI inflation. PCE vs CPI shelter weighting: about 15-16% in PCE vs roughly one-third in CPI - Explains why the two inflation measures diverge. Morning Consult surveys collected daily: about 30,000 - Scale of the firm’s high-frequency survey operation. Countries covered by Morning Consult: 43 - Global survey footprint. University of Michigan consumer sentiment (June): 66.4 - Highlighted as weak versus long-run norms. University of Michigan long-run average sentiment: about 85 - Used as a historical benchmark. Conference Board consumer confidence: 100.4 - Shown as stronger and more consistent with spending than Michigan sentiment. Conference Board long-run average: 95 - Historical benchmark for that survey. Forever stamp price: 73 cents - Chris’s stats-game pick; cited as an example of a price increase consumers notice even if they rarely buy stamps. Business bankruptcies (annualized 3-month period): 24,872 - Moving upward but still well below historical crisis peaks. San Francisco Fed-style excess savings peak: about $2.4 trillion - Moody’s referenced this estimate as excess pandemic savings peaked. Remaining excess savings estimate: about $1.3-$1.4 trillion - Roughly half of peak excess savings still remains, mostly at the high end of the income distribution. Tariff proposals referenced: 10% on all imported goods; 60% on Chinese imports - Illustrated the breadth of protectionist policy discussion in the election.

Pivotal Quotes: "It’s not just the survey space, I think it’s the data space in general is trying to kind of move away from looking at averages." — John Lear: Explaining why aggregate sentiment can mask major differences across households and regions. "There’s this complete disconnect between what people say and how they perceive the world and what they’re actually doing." — Mark Sandy: Questioning why weak sentiment does not appear to be stopping consumer spending. "It’s never been easier to collect the data and it’s never been harder to collect good data." — John Lear: On the challenge of modern polling and survey design.

Implications: The economy may be stronger than consumer surveys imply, but inflation scars, debt stress, and political polarization still shape behavior and policy. Expect continued debate over Fed timing, labor potential, and whether surveys or hard data better forecast demand and the election.