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Conservates that the economy is the issue they most want to hear about, that's followed by
cost of living at 15%. Meanwhile, the stock market has continued to climb, driven by strong earnings,
particularly from AI technology-related companies. While some say that paints a rosy picture for investors in the U.S. economy at large, others are sounding the alarm about a bubble.
“In the special Labor Day episode, we sit down with an economist to focus in on what matters”
in the metrics, and how decisions in D.C. and Wall Street are impacting the average American on Main Street. I'm daily wire executive editor John Bickeley with Georgia Halb. This is a special financial wire edition of Moneywire. Joining us now is Scott Lincecom, Vice President of General Economics at the Keto Institute. Great to have you on. Thanks for having me.
So we've had some really good corporate earnings this year. The stock markets, you know, through the roof, and a lot of people are really excited about that and saying it, you know, it points to a rosy future for the markets in general. But we wanted to look at this too in terms of some of the fears around this. Some people are scared. There might be a bubble, particularly because of AI. How do you see things right now? How healthy is the stock market and the
“economy in general? Yeah, I mean, I think the stock market is perfectly fine, but the economy”
in general is a bit more complicated. The reality is right now where you have a bit of a two-track
economy and that really does play into the stock market as well. You have AI and then everything else. Anything that touches AI, whether it is big tech companies, services, manufacturing, all of those things are doing quite well. And in fact, we've had a manufacturing expansion for the last eight months or so that is almost entirely being fueled by AI-related industries, that aren't facing a lot of tariffs and are having that massive capital expenditures from
this big AI boom. But everything else is a little more complicated. Some industries are doing fine, but really not doing great. Other industries are actually struggling a bit. And then for consumers, you have, again, a mixed bag. Wage growth is okay, but prices are still up. Home prices are still high, and a lot of the things that we really care about gas prices and food costs. Well, gas is way up because of the Iran War. And food is not terrible, but it certainly hasn't gone down.
“And so I think for consumers that are seeing more modest wage gains, I think those are”
our concerns. And then you throw in the bond market and treasury rates, which those affect things like mortgages and credit cards, those are still quite high with mortgages around 7%. So I think overall, you know, you have some sectors that are just doing gangbusters. And that's a huge tail went for the U.S. economy in the stock market, but everything else is pretty tepid. So AI, anything that touches AI you said is doing well, what are some other industries that
are looking, you know, very healthy right now? Well, I think you really see some buoyancy in aerospace. That's another area, whether that's for back ordered Boeing jets, defense related production. That industry is going really well. Boeing had a bunch of back ordered jets, and that's really been cranking the aerospace industry for a while, along with new things like SpaceX and defense. Energy is another area that's that's really going well right now. You know, we don't like
high oil prices and gas prices that's consumers, but as producers, that's a good thing. And those
High prices, of course, encourage more investment, more production, along wit...
policy from the Trump administration. And you know, it's good days if you're working for big oil.
Yeah, the Venezuela deal, how much is that? I would think that would be sending shock positive
“shockways throughout the industry as this correct? Yeah, I think it's a little bit more complicated”
in that for two reasons. One, there's just a ton of uncertainty about this deal itself. There's questions about the legal authority to create this kind of quasi state-owned company because the federal government's taking like a 35% stake in that via the Pentagon. There's a little question there. There's questions about the durability of the deal because, of course, it's with the Rod Riga's regime that is not the democratically elected regime. So, and then really wonky logistical
questions. The other thing, though, is that this entity might actually compete with a lot of large American energy producers. So, it really depends on what side of the deal you're on. If you're a refiner that might be suddenly getting cheap Venezuela and crude, you're probably pretty excited. But if you're a primary producer, well, you might actually be looking at a new state-owned competitor.
“And what about some of the industries that are struggling a little bit? You mentioned it's up and”
down depending on the sector. What industries do you see having real problems? Yeah, really construction outside of data centers and a few pockets of manufacturing is struggling. Again, with more good rates, roughly around 7%, with home prices having been an issue for many years owed a lot to regulatory barriers and construction materials tariffs and those types of things. Home construction has been depressed for quite a while and even outside of residential construction, the situation
just really isn't great. If you're building a data center, or anything again related to that related to electricity, per generation, that everything's going quite well. Other sectors that are kind of limping along retail facing industries, kind of restaurants as well. Because again, costs are higher and labor costs are higher. Minimum wages have pushed labor costs, higher tariffs have pushed food costs and other things higher. You put all that together and you
have Americans that are already pressed with, you know, tighter budgets and that's just not in industry. Anything that's really consumer facing is not doing too great. Now, I do have to say though, a lot of those industries got big fat tariff refund checks because of the Supreme Court's ruling against the Trump administration's emergency tariffs. And they're having a nice quarter that's boosting some of those earnings. But in the long term, it's not looking great right now.
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articles about the affordability crisis. I had read recently that we're finally in a buyer's
market for homes. But of course, you know, the proportionality of earnings to home prices is still not terribly favorable. Where do things stand now for, say, average earners and their ability to
“access a home? Yeah, I'd say it's still a pretty tough market if you have to take out a mortgage,”
which let's face it most of us to do. You know, mortgages, mortgages rates, even for, you know, a 30-year fixed mortgage is going to be close to 7%. And that means you have a much larger payment for the same house you may be. We're looking at five years ago or don't even get into, you know, like 2021 or 2020. And so I think that that's still going to be tough. And the other thing though is that home prices have plateaued, but they haven't dropped. So even though, you know,
You're seeing more inventory on the market from people who maybe want to sell...
looking to retire, it's still not at a price point that allows a lot of, but I'd say true
middle income earners to afford. And of course, to save up with a big down payment as well. You know, there's some things that are helping on the margins. Some cities and states have actually enacted great reforms to boost housing supply. A few things the Trump administration is doing as well to try to encourage, do you regulating the housing space? Because so much of this relates back to zoning and permitting in those types of things that happen at the state local level,
“there have been some good things in some pockets. But I think overall nationwide, it's still a”
pretty tough home buyer market, even with a little more supply being of it. Right. HUD just took some action on this, right? To deregulate subscribe. Yeah. And yeah. And I think, you know, the the legislature law that was just passed that was this bipartisan housing law, I had a few good things, particularly on things like manufactured housing. We think of that as a mobile home and a trailer part, but in reality, there's a lot of manufactured housing out there today that can be more
affordable, it could be mass produced. And it's totally unlike what you think of when you think
of it's a manufactured house. The problem is before this law was passed, there were some really
dumb old regulations that required like a fixed chassis on a manufactured house, which again doesn't make sense for some of these new products. And so that type of additional supply, anything that can unclog the supply side of the residential market is a good thing whether it comes again from state local regulation or federal law as well. Are you mentioned the bond market and a lot of
“people, you know, instantly fall asleep when you mentioned bonds. But this is important, right?”
This actually can impact folks on Main Street. Can you explain that? What is the health of the bond market? How does that impact the average person? Yeah, so the the bond market is basically the market for mainly US debt to treasuries. And it can go in certain increments. The one that we care most about when we're talking about American consumers is probably the 10-year treasury bill because that
is really closely related to mortgage rates. It's basically they rise and fall together. Treasuries
are set in a mostly private market and meaning that it's a supply and demand issue. And investors today are demanding a higher price for treasuries debt. And that stems from two main things. One, US fiscal situation. The fact is, you know, we now $40 trillion in federal debt. And that makes buying that federal debt and holding it a little more a little riskier. And so you're going to demand a better interest rate on that debt. And that's going to push up your 10-year treasuries and then
again affect things like mortgages and some auto loans and other things like that. And so that stems from again, the US debt situation, which would space it, is an issue. And one that's a long term systemic issue driven by a lot of things like entitlements and other government spending that we really do really need to get under control. The other one, though, is that investors have other options in the bond market that aren't government debt. And right now, for example, AI-related companies are issuing
a lot of debt themselves to build all these data centers. And that's creating some competition for treasuries and pretty safe debt that these tech bonds are going to be safe. So again, you're seeing that maybe push-up yields a little more. But the big driver is, unfortunately, this big debt issue. Yeah, which we just passed the $40 trillion mark on. That's massive. High cost of living a job market that's up and down, as you've mentioned, major issues
“for the Americans. What is the outlook for inflation in particular in the coming months?”
Yeah, I mean, I would expect inflation to continue to trend down, but still not be where the Fed wants it. And that's important because the Fed wants inflation to be at around 2% per year. So we're still at around 3% per year. So we've come down from the Biden years. That's good. But we're still not where the Fed wants it. And that's so to several factors. Some are short-term factors, tariffs, gas prices, things going on in Iran as well. That's going to push-up prices a
bit temporarily. But others, again, relate to federal spending that drives going to give more dollars chasing not enough goods. And that's going to push-up prices. And Fed policy monetary policy. And so the issue with that is that the Fed is going to have to consider actually raising
Interest rates to get all the way down to that 2% benchmark.
card rates for us consumers in the rest. But I do expect, if you listen to Fed policymakers,
“especially the new chairman, wash, they're aware of all of this. And they do seem to be laser-focused”
on getting inflation to continue trending down, on looking through these temporary things. And I'd expect it to continue to trend down just not as fast as you and I want. And the other
thing we have to always remember, normal humans, not economists, actually want full on deflation.
“We want to go back to those wonderful old price levels of 2019, even in the early 2020, right?”
Back when a burrito costs seven bucks says the big controversy. Don't bring up burritos.
What are these do? We don't get, we all remember. The reality, though, is that typically policy
makers don't actually want full on deflation. Because that can cause other big economic problems. The goal is to just get inflation to really slow down to a crawl, have wages outpace inflation, and then we get richer over time. But again, more American voters, normal people, we want to actually go back to $7 burritos. And that's just something that, unfortunately, just ain't gonna happen. Well, Scott, a lot to take into account here. Thank you so much for summing up all of
this complicated data for us. We appreciate it. My pleasure. That was Scott Lensakome, and this has been a financial wire edition of Morning Wire. Happy Labor Day.
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