The Economy Is Stronger Than You Think—And Worse Than You Think

0:00Tired of your car insurance rate going up even with a clean driving record, you're not alone. That's why there's Jerry, your proactive insurance assistant. Jerry compares rates side by side from over 50 top insurers and helps you switch with ease. Jerry even tracks market rates and alerts you when it's best to shop. No spam calls, no hidden fees. Drivers who save with Jerry could save over $1,300 a year. Switch with confidence, download the Jerry app or visit jerry.ai slash wire. What if a few minutes with God could change the direction of your entire day with pray.com? You can begin each morning with powerful daily prayers, inspiring Bible stories, and messages created to strengthen your faith. Whether you need peace, encouragement, or a fresh start, pray.com helps you make prayer part of your everyday life. Download the pray.com app today. With midterms fast approaching, the economy is top of mind for voters. According to a July study

1:08from the Pew Research Center, 29% of American surveys said 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 US 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 DC and Wall Street are impacting the average American on a main street. I'm Daily Wire executive editor John Bickley with Georgia Hal. This is a special financial wire edition of Money Wire. Joining us now is Scott Linsekome, Vice President of General Economics at the Cato Institute. Great to have you on. Thanks for having me. We've had some really good corporate earnings this year, the stock markets through the roof. A lot of people are really excited about that and saying it

2:10points to a rosy future for the markets in general. 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. 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

3:11that massive capital expenditures from this big AI boom. But everything else is a little more complicated. Some industries are doing fine, but really not all 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

4:11around 7%. So I think overall, you have some sectors that are just doing gangbusters. And that's a huge tailwind for the US economy in the stock market. But everything else is pretty tepid. So 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 things like SpaceX and defense. Energy is another area that's really going well right now. You know, we don't like high oil prices and gas prices as consumers, but as producers, that's a good thing. And those high prices, of course,

5:13encourage more investment, more production, along with favorable regulatory policy from the Trump administration. And you're, 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 positive shockways throughout the industries, is correct? Yeah, I think it's a little bit more complicated than that for two reasons. One, there's just still 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 percent 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 Rodriguez 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.

6:14If you're a refiner that might be suddenly getting cheap Venezuelan crude, you're probably pretty excited. But if you're a primary producer, while 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 mortgage rates roughly around 7 percent, 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 though or anything again related to that, related electricity, production generation,

7:15everything's going quite well. Other sectors that are limping along retail facing industries, kind of restaurants as well. Again, costs are higher. And labor costs are higher. A minimum wages have pushed labor costs higher. Teriffs have pushed food costs and other things higher. You put all that together and you have Americans that are already pressed with tighter budgets. And that's just not in industry. Anything that's really consumer facing is not doing too great. Now, I know how 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. There are certain phone calls that somehow stay on the to-do list. The dentist, the annual checkup, finding a new doctor after you move or change insurance. You keep thinking, I'll call tomorrow.

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9:22I 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, mortgage rates, even for, you know, a 30-year fix mortgage is going to be close to 7%. And that means you have a much larger payment for the same house you may, where you were 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. 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, maybe baby boomers looking to retire, it's still not at a price point that allows a lot of,

10:26when 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 and those types of things that happen at the state and 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 available. 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 had a few good things, particularly on things like manufactured housing. We think of that as a mobile home and a trailer park, but in reality, there's a lot of manufactured housing out there today that can be more affordable, it could be

11:27mass produced. And it's totally unlike what you think of when you think of as 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 and local regulation or federal law as well. Now, you mentioned the bond market and a lot of people, you know, instantly fall asleep when you mention bonds, but this is important, right? It's actually can impact folks on Main Street. Yeah. Can you explain that? What is the health of the bond market? How does that impact the average person? Yeah. So the bond market is basically the market for mainly US debt, so 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

12:33is really closely related to mortgage rates is 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 treasury debt. And that stems from two main things. One, the US fiscal situation. The fact is, you know, we now have $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 face it, is an issue. And one that's a very long term systemic issue driven by a lot of things like entitlements and

13:35other 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 bet 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 massive. High cost of living, a job market that's up and down, as you've mentioned, major issues for 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

14:39the 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 kind of you have more dollars chasing not enough goods. And that's going to push up prices and a 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. And that could mean, again, higher credit card rates for us consumers and the rest. But I do expect if you listen to Fed policy makers, especially the new chairman, Warsh, they're aware of all of this. And they do seem to be laser focused on getting inflation to

15:40continue 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. And even in early 2020, right, back when a burrito costs seven bucks as the big controversy. Don't bring up burritos. Yes, burrito gate. 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 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 seven dollar burritos. And that's just something that unfortunately just ain't going to 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.

16:44My pleasure. That was Scott Linsecombe. And this has been a financial wire edition of Morning Wire. Happy Labor Day. What if a few minutes with God could change the direction of your entire day with pray.com? You can begin each morning with powerful daily prayers, inspiring Bible stories, and messages created to strengthen your faith. Whether you need peace, encouragement, or a fresh start, pray.com helps you make prayer part of your everyday life. Download the pray.com app today.