This week's discussion highlights the significant economic impact of new auto tariffs, predicting a 25% price hike for consumers. The hosts dive into the reliability of government statistics versus private sector alternatives, questioning the accuracy of unemployment claims and GDP calculations. Additionally, they explore the stark economic perspectives between younger and older generations, noting increased pessimism among younger adults. The conversation wraps up with intriguing insights into labor market dynamics and recent growth trends in the economy.
The rise in personal income signals economic growth, yet the stagnation in real consumer spending reveals underlying consumer confidence issues.
Concerns over the new 25% auto tariff highlight potential inflationary impacts and industry shifts that could hinder economic stability.
The decline in trust and funding for statistical agencies raises alarms about the reliability of economic data crucial for policymaking.
Deep dives
Webinar Insights
The discussion highlights a recent webinar titled 'Trump Tariffs and Tail Risk' that attracted approximately 1,600 participants. Mark Zandy and his co-hosts emphasize their personal investment in understanding participant feedback to improve future presentations. Amidst the conversation, they reflect on the challenge of addressing diverse opinions in today's politically charged climate, acknowledging that it’s common to receive polarized feedback. The hosts also tease about the potential for more formal summaries of their webinars through newsletters, emphasizing new avenues for disseminating economic insights.
Consumer Spending and Income Trends
Recent data reveals a robust increase in personal income, which rose by 0.8% month-over-month, signaling one of the fastest growth rates in the past year. However, the discussion uncovers a concerning trend in real consumer spending, which only rose by 0.1% for the same period, marking the first decline in spending on services in three years. The hosts delve into potential factors behind this weak spending, including a significant legal settlement payment that artificially inflated income figures. This discrepancy suggests an overall flat trajectory for real consumer spending since the end of last year, raising questions about consumer confidence in the economy.
Inflation Pressures
The podcast reveals that the consumer expenditure deflator increased by 0.3% over the month, with core PCE inflation rising to 2.8% annually, surpassing expectations. This signals a worrying trend, as inflationary pressures are attributed to the effects of tariffs and trade wars, leading economists to see these developments as detrimental to growth. Despite the guards against inflation, rising costs are beginning to impact consumer purchasing behavior, reflecting a less vibrant economy. The participants express concern over the possibility of persistent inflation becoming entrenched in consumer expectations, especially as they observe the fluctuation of the stock market.
Impact of Tariffs on Automakers
A recent announcement warns of a 25% tariff on auto imports and parts, raising alarm over its potential inflationary impact and the steep increase in vehicle prices. Observations indicate that foreign automakers are beginning to pivot their production strategies to mitigate these costs; for instance, Hyundai plans substantial investment in American production to bypass these tariffs. However, skepticism arises regarding whether such investments will yield genuine growth or remain mere promises as seen in past scenarios. The hosts reflect on the broader implications for range of industries, stressing that reduced competition and increased prices could lead to a significant downturn in auto sales and employment.
Concerns about Economic Data Integrity
The conversation addresses the challenges surrounding the reliability of official economic data, particularly in light of disbanded advisory committees that formerly assisted agencies in data accuracy. With dwindling survey response rates causing alarm among economists, the hosts emphasize that high-quality data is critical for informed policymaking. There’s a consensus that declines in trust and funding for statistical agencies could impair government assessments of economic conditions. This trend ignites a sense of urgency among the hosts to uphold the integrity of available data amid escalating tensions in economic policy formulation.
Mark, Marisa, and Cris break down this week's flood of economic data and explain how new auto tariffs will affect consumers and the overall economy. Their conversation addresses important concerns about the quality and availability of government statistics as they consider private-sector alternatives. They wrap up the episode with the ever-popular "statistics game" highlighting key economic indicators and with responses to listener questions.
Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s Analytics
Follow Mark Zandi on 'X', BlueSky or LinkedIn @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn
Questions or Comments, please email us at helpeconomy@moodys.com. We would love to hear from you.
To stay informed and follow the insights of Moody's Analytics economists, visit Economic View.
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