22 States Already In Recession Or On Brink Warns Moody's Chief Economist | Mark Zandi
Summary
Economic Outlook: Moody's Chief Economist Mark Zandi highlights that 22 U.S. states are in or near recession, with economic softness potentially spreading to larger states like California and New York, which could tip the national economy into recession.
Market Dynamics: The U.S. economy is described as tenuous, with some states like Texas and Florida experiencing growth due to strong demographic trends, while others struggle due to factors like tariffs and immigration policies impacting manufacturing and goods-producing sectors.
Investment Concerns: High valuations in equity markets, particularly driven by AI-related stocks, are raising concerns of a potential bubble, with speculation increasing across various asset markets including gold, silver, and cryptocurrencies.
Labor Market: The labor market is identified as a weak spot, with job growth stagnating and hiring rates at recession levels, although layoffs have been minimal, serving as a firewall against recession.
Housing Market: Issues such as interest rate lock and capital gains tax policies are contributing to housing market stagnation, with proposals to increase capital gains exclusions to stimulate housing transactions.
AI Impact: AI is seen as a disruptive force for certain industries and occupations, but not expected to cause mass unemployment, with historical analogies suggesting a gradual diffusion allowing for economic adjustment.
Government Shutdown Risks: Prolonged government shutdowns could disrupt services and negatively impact the economy, adding to recession risks alongside potential equity market corrections.
Future Outlook: Despite current vulnerabilities, the expectation is for the economy to avoid recession with potential fiscal and monetary stimulus, although risks remain high.
Transcript
And I agree with his take that uh people this should be on people's radar screen. It's definitely a concern and you know each day I see more green on the screen the more worried that there is a bubble unless you bought your home in the last couple 3 years. You're sitting on a lot of equity and there's like zero probability that you would you go into foreclosure. What would be the trigger for more layoffs then if that were to happen? What should investors do in an environment where almost everything seems overbought? Well, we'll talk about that and what happens with the economy now that the government is in shutdown. According to our next guest, half the country is already not doing great. Mark Xandy joins us. He is a chief economist at Moody's Analytics. Welcome back to the show, Mark. Good to see you as always. >> Yeah, thanks David. Good to be with you. >> I want to talk about the economy uh economic growth and start with this article from Fortune that quoted you. Roughly half of US states are effectively in a recession and hang on by their fingertips says Moody's uh chief economist. Um that's you. So 3.8% GDP growth and four 4.3% unemployment. Um Xandy warned that if the economic softness spreads from smaller manufacturing hate heavy states to giants like California or New York, the national economy could tip into recession. chief economist told uh Fortune that 22 states are contracting and many lower and middle inome households are hanging on by their fingertips. Which are these 22 states? You don't have to list them out all of them, but um what is happening with these 22 states, Mark? Uh well, those are states that uh each have their own uh kind of story. Uh a lot of it goes back to economic policy. I mean, the Doge cuts are obviously doing damage to DC, Maryland, Virginia, the broader DC market. uh the manu nation's manufacturing sector uh agriculture, transportation, distribution, mining, really the goods producing side of the economy is struggling and that goes to tariffs and immigration policy and those states that are heavily dependent or more dependent on those industries or sectors are the ones that are the ones in recession. I should say 22 states are in recession or close to recession. But those 22 states, many of them are relatively small. They account for about a third of the nation's GDP. Another third is of uh states that with another third of u the nation's GDP is treading water. So like California, New York are kind of neither in recession or expanding strongly. They're kind of treading water. in in another set of states accounting for a third of GDP are expanding growing. Texas, Florida kind of top the list. So it you know it kind of gives you a sense as to the economy. It's not in recession. It's growing but it's very tenuous because you know you got all these parts of the country that are you know either in recession or pretty close. So let me flip this around. What are the other 28 states doing that are avoiding recession and in fact growing in some cases like you said Florida and Texas and second part are those 28 states the ones that are propping up the markets right now? >> Yeah. So you know Texas and Florida they are benefiting from just the inflows of pe people uh they their demographics are strong. You lot of folks coming in from the Northeast, Midwest, you know, from like a Boston and a Chicago coming into Dallas and Orlando and that helps to support economic activity and growth and that cuts through lots of everything. It keeps those economies humming. Texas, excuse me, California and New York, you know, that's really about AI, uh, you know, the two artificial intelligence, the boom in in, uh, investment spending and technology. uh uh those tech companies, those platforms are doing very well. Uh and also the surge in equity prices related to AI is lifting the fortunes of wealthy households and they're outspending and of course California and New York are among the two wealthiest states in the country. So that's uh that's helping. So it's really you've got these you can think of this the the this dynamic where you've got these headwinds created by the tariffs and the immigration policy and the tailwinds created by AI and they're bumping up against each other and depending on you know your industrial mix sectoral mix that determines whether the state is struggling in recession or whether it's you know kind of hanging firm or expanding. So can you make the argument uh or the conclusions uh Mark that perhaps some of the states that are in a recession or are close to recession or manufacturing hubs like you said they're seeing a slowdown because of tariffs and perhaps a slowdown in trade and on the other hand uh wealthier states of California and New York those states are being propped up by the wealthier population that are still spending and because markets are high the wealth effect is kicking in people feel the wealthy feel wealthier so they're spending money so it's only a small fraction of the population maybe less than 5% that's propping up the entire country. Can we make that conclusion? >> Well, I I you got it exactly right except I'm not sure I'd say the top 5%. It's broader than that. It's probably the top third of the income and wealth distribution. Obviously, most of the action and most of the juice is coming from folks in the top the tippity top of the income and wealth distribution. But I say, you know, roughly speaking, about a third of the of of the population in that are uh in terms of income and wealth are the ones that driving the train here. >> Do we need to see a big correction in capital markets before a recession? In other words, due to the wealth effect, do we need to see people's the wealthier's wealth eroded because of their investments in the capital markets before they start spending less? >> Well, I guess one way, right? I mean, you know, if if uh we see a correction in the equity market uh for whatever reason and because valuations are awfully high and you know, maybe uh these companies that are enjoying these high stock prices don't live up to expectations and we see a correction just they just a misstep. Uh that would do it. Uh you know that would cause those high uh high net worth wellto-do consumers to pull back and be the plotter for recession. But there's other scenarios uh you know for example uh you know this isn't my baseline but it's possibility the government shutdown that we're in the middle of now doesn't last a week or two which is the widespread expectation it lasts a month or two and that's a big deal and that could be enough to cause a negative dynamic to unfold in recession to occur. There's lots of different ways that could happen, but clearly one concern would be one scenario that's of concern is, you know, the equity market stumbles here and that's so key to driving a lot of economic activity. >> Just on the government shutdown, I've heard that they the government workers would get paid back anyway, so it doesn't really matter. Is that true? >> Uh well, although the president has been threatening not to to to do that. I mean, it's possible, but I it's politically hard to fathom that that would actually happen. But, you know, under law, they need to be paid retroactively, but that that it ultimately has to be appropriated, and if they don't appropriate the money, then they wouldn't get paid. But I, you know, I be very surprised if that were happen. The the bigger concern isn't that. The bigger concern is if this drags on for more than a few weeks and lasts a month or two, then government services are severely disrupted. And that's everything from, you know, air traffic to getting, you know, federal flood insurance to be able to buy a home to the FDA approving uh manufacturing activity, uh, pharmaceutical activity, you know, SEC approving doing all the paperwork it needs for an IPO. I mean, it's on and on and on. If the government can't get its work done, then, you know, at some point it becomes a problem for the broader economy. >> Let's talk about valuations. Valuations are high. They have been historically high for quite some time, Mark. So, I think the question that investors are asking perhaps is, >> should we even care anymore? >> Well, they're high, but they're getting higher, David. I mean, right. >> Yeah. I mean, it's like straight up here. I mean, uh uh you know, I I there's different measures of valuation. My favorite measure is a an economywide price earnings multiple. Take the Wilshshire 5000 in the numerator. That's the value of all publicly traded stocks. Take after tax corporate earnings in the denominator economywide from the national income and product accounts. That's in an economywide PE multiple. You can construct that back to 1960. On average over that over that period of history, the PE multiple I'm making this up, David, I'm rounding, but it's about 10. That's the multiple. The multiple today is 20 on the nose and the highest it's ever been uh the only other time it was even higher than it is today was in the in the height of the Y2K bubble that was 24. So you know uh that doesn't necess high valuations doesn't necessarily mean markets are overvalued or or even bordering on bubble like but does feel like the direction of travel is uh that's the direction of travel and investors are getting ahead of themselves that speculation is starting to creep in and it's not only in the equity market it's gold prices it's silver prices it's crypto you know asset markets except outside of real estate financial asset markets are all juiced and it does feel like we're getting to a place where this, you know, you know, hard to to define a bubble, identify a bubble, impossible to know when that what's going to happen with that bubble. Is it going to burst? When is it going to burst? I don't know, but does feel like this should be on the radar screen as a as a as a reason for some nervousness, some concern. >> Phosphate might not sound exciting until you realize it's one of the most critical ingredients in lithium ion phosphate batteries or LFPs. 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This was reported by uh CNBC earlier uh this week. The bubble and people searching for AI bubble has burst. Retail investors fear of an AI bubble appears to have fallen off after spiking this summer. I did uh some verification myself. So I went on Google Trends. I searched AI bubble worldwide. Uh let's just narrow in on the United States. Let's see what happens. Uh it does seem like yes, it's uh it has peaked earlier in August. Search interest has fallen off a little bit and I don't know why it's making this projection that it's going to go back up. Let's see. But anyway, >> that is is that a projection? >> That is a projection. That is a dotted lines. Is Google making a trend projection? Uh based on what I'm not sure, but they are projecting that the uh search volume will increase by later October, but it has fallen off since August. So market perception of a bubble has fallen or at least people have cared slightly less. I guess if you're searching for a bubble, you're concerned about a bubble pop popping and it hasn't happened. Well, time to go back to buying mode, right? >> No. Is that a good thing, David, or a bad thing? I mean, I don't >> I'll let you answer that. Yeah, good question. >> I don't know. I mean the fact that people aren't concerned concerns me more. I mean you know if people get complacent that's when you know things they you know they they drive up prices even further as speculation becomes more endemic and the risk of of an actual bubble forming and then bursting is now much higher. So I'm not I'm not quite sure I I'm whether that's a good thing or bad thing that people are now more comfortable that there there isn't a bubble or they're not searching for the words AI bubble. Jamie Diamond said there's a 30% of a correction. Uh 30% chance rather of a correction. Um he says, "I'm far more worried than others." Uh this came in this week. Uh so if the market is pricing in 10%, I would say it's more like 30%. And I'm not saying next year because the timing of these things is impossible. The level of uncertainty should be higher in most people's minds than what I call normal. He's been kind of cautious/bearish for quite some time now. Um I I wonder if you agree with this take. Uh yeah, I I mean I agree with his take that uh people this should be on people's radar screen. It's definitely a concern and you know each day I see more green on the screen. The more worried that there is a bubble and that it could you know or one is forming and that that could be become a threat if you know if it were to burst 30% you know I that implies a probably a false level of precision. Yeah, I'm not sure. >> But um but the the level of risk here is is is high and and increasing with each passing day that you see more green on the screen for sure. >> Is there a disconnect between the real economy and stock markets right now? >> No. Uh I don't I think so. I mean, I think the the bubble, you know, the high valuations is all related to AI. Uh and if you look at the S&P 500 as just your proxy for the overall market X the AI companies there you're seeing uh stock price gains that are more consistent with a the kind of economy that we're experiencing. Not a recession but one where the economy is kind of kind of punk you know not going anywhere fast. It's kind of you know feels a bit uncomfortable at times feels okay at other times. uh so I I think the what's happening in the equity market is it's just uh AI and everything else and when I say AI it's now AI direct and uh the platforms and the hyperscalers but you know all the indirect kind of activities that are related to AI as well you know everything from electric power to you know semiconductors and chips and everything else so I think if you want to really get a read on the to answer the question is the is the economy consistent with the market you have to look at the market X AI that because AI is running on its own dynamic that's where if there is a bubble that's where the bubble's forming >> the unemployment rate has ticked up to 4.3% as you know uh give us a synopsis of the labor market what is happening right now should people be concerned about losing their jobs in the next two quarters >> uh yeah this is the weak spot in the economy this is where the economy is most vulnerable I mean job growth has come to a standstill uh and I suspect when we get all the data in after revision it'll show some meaningful job decline the job growth we are getting is very narrowly focused. It's really in the healthcare education sector. Outside of that, you know, some industries are adding a little bit. Others uh uh reducing payrolls, the net is zero. There's no hiring. Uh that's the problem. The hiring rate, the number of hires relative to the labor force is kind of recession level. It's that low. Particularly hard for young people in their 20s if trying to get into the labor market. Their unemployment rate has jumped three percentage points over the last couple of years. just over 9% and it and it is headed straight north. Uh temp job jobs jobs are down. It's a leading indicator of weakness. Hours worked are down. They're consistent with recession. The the reason why the labor market isn't even in worse shape is that businesses have held the line on layoffs. They're not laying off, which is really key. I mean, I think layoffs are the firewall between the economy we have and a recession. And so far, that firewall is holding. But that that's a reason for some concern that there's no no hiring and no no job growth at this point. So that if you had to point to the thing that is most worrisome and of course that's what's driving the Federal Reserve to cut interest rates is that the the labor market is uh very soft. As an economist, how do you usually approach or interpret a hiring freeze or low hiring? Can you take the glasses half full approach and say well maybe the market is the labor market is in equilibrium. uh lack of hiring means that everyone is fully employed and and you know and uh there isn't a lot of labor slack out there for people to hire. Is is that one way to look at it? >> Yeah. Well, I don't think that's the case. I mean, unemployment rate up a percentage point from where it was a year ago. As I mentioned, it's three points for folks in their in their early 20s. And all those other labor market indicators indicate slack, not that the labor market's full up. Now, you could argue because of the of the immigration policy and and the fact that the the foreignb born labor force is declining is putting a lid on the ability to generate jobs. No doubt about it. So, the break even rate of job growth is a lot lower. You know, it's probably 50 75k per month, but we're at zero, probably negative when we get all the numbers in. So, I I don't think that argument works. I it is uh you know, you ask great question, what's behind fundamentally behind the lack of hiring? I don't think it's one thing. It could be a b bunch of stuff. you know, the uncertainty around policy might be playing a role. AI is probably playing a role. There's some research that indicates that, you know, that's affecting particularly for young people that's having an impact. Um, you know, so uh uh and it's demand, you know, tariffs are doing damage to um to the manufacturing base to uh to transportation distribution. So, you know, when you have some weakness there, you're not going to hire. So I I don't think it's one thing. It's a bunch of stuff, but it's a it's all conspired to indicate that, you know, businesses are just not hiring and the level of hiring is consistent with the recession. >> Uh by the way, Jerome Pal himself has called this a low hiring, low firing situation. When we do get low hiring and low firing, in other words, companies aren't hiring more people, but they're also not laying people off on mass. What does that mean? >> Yeah, I I mean, I think uh it's a vulnerable economy, but not a recession, right? I I don't think you recession unless businesses lay off workers because but once they if they do lay off workers then very quickly we're going under because you know without with those layoffs that's going to spook low middle- inome households in particular they're going to pull back that's going to cause businesses to lay off even more and you get into this kind of self-reinforcing vicious cycle called a recession. So that's why I called say layoffs are kind of the the firewall. The one thing to note though about layoffs uh at least based on uh historical experience is that uh they they happen all of a sudden. You know, one company in each industry decides to lay off workers, then every company in that industry follows suit very rapidly. So it it's no layoffs, no layoffs, no layoffs, lots of layoffs. You know, UI claims, unemployment insurance claims go low, low, low, boom, you're, you know, high. So, I don't know. I you know, I take a whole lot of soloulless uh in in that. Uh but uh you know, the if the firewall is still up, but I'm not sure I take a whole lot of soloulless in that given how quickly things could change and how vulnerable we are, >> right? And so, what would be the trigger for more layoffs then if that were to happen? >> You know, we talked a little bit about that. Suppose the equity market were to correct. Suppose, >> okay, >> you know, suppose um Nvidia, I'm making this entirely up. Nvidia >> it comes in with a revenue growth of 96% but the market expected 103%. >> Yeah. >> You know we get a correction. Uh suppose the president nominates someone for the federal the Fed chair as you know J Pal the Fed chair is going to roll off in May of 26. He nomin they nominate somebody that it's not Kevin Hassid it's not Bessent Scott Bessant it's someone we don't really know. someone similar to the BLS commissioner that the president had to withdraw the name because he had no support that could spook markets. Concerns about Fed independence and future inflation. Suppose the government shutdown doesn't last a week or two, it lasts a month or two. You know, those are the kinds of things that could happen that could upset already fragile sentiment and confidence and cause uh lay business to start laying off. And again, once that starts, once that firewall comes down, then we're in recession. We're into that self-reinforcing vicious cycle. But now, let me just say, David, those aren't my that's not what I that's not my baseline. My baseline is the firewall will hold and we'll get to the other side of this 6 n 12 months down the road. We'll get some monetary fiscal stimulus and the economy should regain some traction. We should avoid recession. But, you know, I do think recession risks are awfully high and these these are the kind of scenarios that are behind that that concern. >> You think if companies aren't hiring more and they're not firing more right now, they're probably just I again I'm speculating here. Maybe they're stocking up on cash and once we get more policy certainty, if that ever happens next year, that's when we see cash deployment, capex spending, and a boom. Uh, is that a plausible theory here? Well, I mean, they're holding their payrolls constant, right? I mean, so are they preserving cash? You know, I'm not sure. Uh may maybe on the margin. Uh but, you know, I don't know that that's what their thought process m maybe in the sense that they're so uncertain about things they're sitting on their hands, right? They're not going to move. Uh they're not going to hire. They're not going to fire. They're they're they're holding the line on capex. I mean outside of AI capex is kind of have has kind of flatlined you know back to an earlier point. So broadly the uncertainty is just causing businesses to freeze just hold the status quo on every dimension of what they do and that that would ex explain the the lack of hiring and the lack of firing. >> What's going on with the labor market? I'll pull up some stats but let me just to get your overview first. You did write an article um you co-authored an article uh from uh uh from Moody's Analytics called capital gains taxes in the misallocation of housing. In this analysis, Moody's Analytics examines how capital gains tax policy is increasingly causing homeowners to remain in homes that are no longer suitable to the demographic needs. That's the first opening uh introduction. Tell us more about that. >> Yeah, so this goes to you know one other weak point in the economy is housing obviously and the fact that uh housing demand has been flat on its back. Home sales have been consistent with recession levels with the actually existing home sales consistent with the lows we experienced during the teeth of the pandemic and the in the height of the great global financial crisis. And you know one of the problems there is uh so-called housing lock. People are kind of stuck in their homes. There's interest rate lock where people have mortgages with uh interest rates that they got back in the pandemic at three, three and a half, four percent and they don't want to sell their home, extinguish that mortgage, go buy another home, get another mortgage because the mortgage rates are the market rate is now 6 and a quarter 6 and a half%. So that's a form of interest rate lock, housing lock. Another form of housing lock is around capital gains. So uh you know right now there's a capital gains exclusion. uh if you sell your home. Uh but uh that was that those exclusion limits were set back in 1997 of course many years ago and after there's been a significant increase in house prices since then. So many people are sitting on a lot of unrealized gains and if they sell they're going to have to pay taxes on those gains. So that is another form of housing lock. Another reason why people aren't moving, particularly baby boomers, you know, the folks that are sitting in these large homes that were conducive to their demographic needs back when they had kids, but now their kids are, you know, long gone. They're they're empty nesters and they have these big homes that they don't need and they don't really want, but again, they don't want to pay the capital gains tax, so they're sitting on it. So the proposal is to simply increase the exclusion so that uh this is less of a bite if people sell and uh you know that would get help unstuck unstick the market, reduce the lock and get housing transactions moving again and help the housing market get back on its feet. That's that's the idea. That's the that's the nature of the problem and and the the uh the idea that the policy idea putting forward to try to address it >> despite this friction. Do you think that perhaps lower mortgage rates from lower Fed funds rate going into 2026 may offset some of this friction? >> Uh well that I mean that's already embedded, right? I mean markets anticipate the Fed's going to ease pretty aggressively here. So that you know the markets are expecting a 3% funds rate by next spring, early summer. That's kind of the equilibrium rate that's already priced in. So no, if the Fed actually follows through on what the markets expect, and I think that's an appropriate forecast, then long mortgage rates just continue to stick to roughly where they are, 6 and a/4 to 6 and a half%. I'd like to show you some of these stats perhaps flying under the radar on the mainstream news. This is from uh uh realtor.com. Foreclosures uh are rising in the US. There were a total of 101,000 US properties with foreclosure filings during the third quarter of 2025, up less than 1% from the previous quarter, but up an astounding 17% from a year ago according to uh the latest report from Adam data. >> I uh I I wonder if you have a reaction to this. What's uh what's happening here? >> Uh they're coming off incredibly low levels. So the you know, even with this increase, they're still incredibly low by historical norms. You know, and it makes sense because most homeowners have a boatload of equity that they build up in their home when house prices took off. I mean, house prices nationwide are up 50 60% from where they were before the pandemic 5 6 years ago. So, you know, unless you bought your home in the last couple three years, you're sitting on a lot of equity and there's like zero probability that you would you go into foreclosure. Foreclosures are up probably. I didn't see to see that piece, but I wouldn't be surprised. maybe FHA loans to homeowners that bought in, you know, in uh in 2022, 23 or 24 and the prices since then have not really risen all that much. And in some parts of the country, they've actually declined in the south and the west and that's where you might be seeing the foreclosure issues. But the level Yeah, there you go. The level, >> you're right. I mean, historic, if you just compare to the historical average, it is still quite low. >> Still very low. Yeah. >> All right. So, a slight uptick. No need to worry uh just yet. Um we are we are getting um comments that uh um housing affordability is is on the consumer's side. So take a look at this report for example. Key findings from the October mortgage monitor include this is the mortgage technology report uh ice mortgage monitor. Falling rates lead to best home buying affordability in 2.5 years with 30-year mortgage rates averaging 6.26% in mid September. The monthly principal interest payment on average priced homes has fallen to $2,148 or 30% of the median US household income. Still more than 5 percentage points above his long run average. Although costs have declined, it's improved from 35% peak in late 2023. So a slight improvement in affordability from a rates and mortgage expenses perspective. What does this mean for buying into 2026, you think? Yeah, I I think we're going to see a slow, steady improvement in home sales as affordability, while still really poor, is improving and we should see some more transactions. The other thing that's happening is that people have been locked into their homes for a long time and their demographic situations have changed over the past five, six years, and they're sitting in homes that don't fit their demographic need. And at some point uh given the demographics despite affordability, they're gonna need they're going to want to sell, they're going to need to sell, and they will sell. We'll get to get more inventory. So, home sales, housing demand is, you know, flat on its back, but it's, you know, it's not going to get any worse, and I expect it to steadily get uh better and in part because of that uh improvement in affordability, which goes to mortgage rates primarily. You know, mortgage rates have come in. I mean, back in 2023 when uh the affordability was at its low, fixed mortgage rates were firmly over 7%. They're now, you know, 6 and a quarter, 6 1/2. And so, you've seen some improvement. And with that improvement, you're seeing some improvement in demand, and that should continue. >> All right. Well, final question. Uh, selective job market disruption. You were on a podcast um with uh Capital Groups Jared France recently, and I believe uh you were talking about um a lot of the topics we're talking about. So, let's finish off in the job market. you you are not calling for mass unemployment just yet. Uh but you are saying that some sectors will be disrupted more than others if I'm not mistaken. Can you just comment on that? Which sectors will do better than others in the remainder of the year into next year? >> I think I think we in that conversation we were talking about AI, weren't we? artificial intelligence, what dision and I, you know, I think the point at least the point I was trying to make and I think Jared was making the same point roughly speaking is, you know, AI is going to be disruptive for certain occupations and certain industries and we're already starting to see it. >> Uh, but yeah, you know, uh, in terms of overall employment and unemployment, uh, that uh, it it won't be overly disruptive. Won't there's a lot of concern in the tech world that this is going to be dystopic. It's gonna the AI is going to come on so fast cause so many jobs to be lost that there's going to be very high unemployment even mass unemployment you know I we have to be humble here because there's a lot of unknowns and this is a new technology but if history is any guide that's not what's going to happen you know what's going to happen is the technology is going to AI is going to diffuse through the economy slowly enough uh so that it allows the economy to adjust and we will see some dislocation some unemployment but it'll be very modest going forward. >> Perhaps not in the long run. Uh this is a medium-term forecast. Uh but let's put on our sci-fi hats here now, Mark. Looking ahead multiple decades, I can't and some economists have been even even some scientists have been kind of warning about the scenario in which it's a scenario in which AI basically outperforms everybody at everything. We're going to have humanoid robots performing bluecollar tasks more efficiently and perhaps more safely. Perhaps a robot plumber per, you know, I certainly I think AI could do my job better. Imagine a podcaster hooked up to the internet. Perhaps an AI economist could look at multiple data points um across >> Yeah. billions of different data. No, never. Never. You're never going to get replaced, Mark. Never. Um I'm just saying in a world where um a lot of people will get replaced, what do humans do? I mean, how do you even as an economist look at the labor market? you have to fundamentally change your definition of what full unemployment means or structural unemployment. U some some economists are calling this more disruptive than the internet, but that's their opinion. What do you think? >> Yeah, I I mean if again I you know as a as a an economist that does forecasts, I look to history as a guide to help with those forecasts. I look for historical analoges. And if I go back and look at other periods of rapid technological change, it just takes time for that to diffuse. And in generally the technology doesn't diffuse until new companies form and optimize around that new technology. That takes time. And there's so many other frictions involved with the diffusion. You know, legal issues, compliance issues, financial financial uh constraints, you know. So, you know, maybe this time is different, but I I doubt it. I I think AI is going to diffuse in a way that allow for the economy to d to adjust and for the labor markets to digest it. And again, I'm not saying there won't be job loss and a lot of churn in the labor market, but the net of all of it will be a labor market that's just fine. And you know, the labor market can adjust in a lot of different ways. You know, there's no, it's not written in stone anywhere that people have to work 40, 50, 60 hours a week. You know, they could work 10, 20, 30 hours a week. I mean, you know, so there's lots of ways of adjusting. uh you know to to these kinds of things. >> There was a period of time when I think more than half of the labor force was involved with agriculture and then post-industrial yeah >> revolution >> people have more time to pursue other other professions and leisures and what would happen to the world when 20 hours a week is all that's necessary to maintain full productivity. I don't know. >> I'm not worried about it, David. We'll figure it out. But there's going to be things that we're going to be able to do that we can't even envision at this point in time. Yeah. So, I'm not worried about a lot of free time for us. >> No, no. I mean, we'll fill it. We have no problem filling it. So, I I'm not the slightest bit worried about that. >> Thank you. Where can we learn uh about you, follow you right now, Mark? >> Yeah. There there is uh my podcast, Inside Economics. I would encourage people. You got to be a little nerdy, but if you're listening to you, David, you got you're nerdy. So you you'll enjoy my economic podcast and I'm on social media and of course Economic View is our website that you can go to if you want to see real time what's going on in economies around the world. >> All right, we'll put the website uh down below as well as Inside Economics podcast. Check it out. Thank you very much, Mark. Good to see you again. Take care. >> Yeah, anytime, David. Thank you so much. >> Thank you for watching. Don't forget to like and subscribe.
22 States Already In Recession Or On Brink Warns Moody's Chief Economist | Mark Zandi
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And I agree with his take that uh people this should be on people's radar screen. It's definitely a concern and you know each day I see more green on the screen the more worried that there is a bubble unless you bought your home in the last couple 3 years. You're sitting on a lot of equity and there's like zero probability that you would you go into foreclosure. What would be the trigger for more layoffs then if that were to happen? What should investors do in an environment where almost everything seems overbought? Well, we'll talk about that and what happens with the economy now that the government is in shutdown. According to our next guest, half the country is already not doing great. Mark Xandy joins us. He is a chief economist at Moody's Analytics. Welcome back to the show, Mark. Good to see you as always. >> Yeah, thanks David. Good to be with you. >> I want to talk about the economy uh economic growth and start with this article from Fortune that quoted you. Roughly half of US states are effectively in a recession and hang on by their fingertips says Moody's uh chief economist. Um that's you. So 3.8% GDP growth and four 4.3% unemployment. Um Xandy warned that if the economic softness spreads from smaller manufacturing hate heavy states to giants like California or New York, the national economy could tip into recession. chief economist told uh Fortune that 22 states are contracting and many lower and middle inome households are hanging on by their fingertips. Which are these 22 states? You don't have to list them out all of them, but um what is happening with these 22 states, Mark? Uh well, those are states that uh each have their own uh kind of story. Uh a lot of it goes back to economic policy. I mean, the Doge cuts are obviously doing damage to DC, Maryland, Virginia, the broader DC market. uh the manu nation's manufacturing sector uh agriculture, transportation, distribution, mining, really the goods producing side of the economy is struggling and that goes to tariffs and immigration policy and those states that are heavily dependent or more dependent on those industries or sectors are the ones that are the ones in recession. I should say 22 states are in recession or close to recession. But those 22 states, many of them are relatively small. They account for about a third of the nation's GDP. Another third is of uh states that with another third of u the nation's GDP is treading water. So like California, New York are kind of neither in recession or expanding strongly. They're kind of treading water. in in another set of states accounting for a third of GDP are expanding growing. Texas, Florida kind of top the list. So it you know it kind of gives you a sense as to the economy. It's not in recession. It's growing but it's very tenuous because you know you got all these parts of the country that are you know either in recession or pretty close. So let me flip this around. What are the other 28 states doing that are avoiding recession and in fact growing in some cases like you said Florida and Texas and second part are those 28 states the ones that are propping up the markets right now? >> Yeah. So you know Texas and Florida they are benefiting from just the inflows of pe people uh they their demographics are strong. You lot of folks coming in from the Northeast, Midwest, you know, from like a Boston and a Chicago coming into Dallas and Orlando and that helps to support economic activity and growth and that cuts through lots of everything. It keeps those economies humming. Texas, excuse me, California and New York, you know, that's really about AI, uh, you know, the two artificial intelligence, the boom in in, uh, investment spending and technology. uh uh those tech companies, those platforms are doing very well. Uh and also the surge in equity prices related to AI is lifting the fortunes of wealthy households and they're outspending and of course California and New York are among the two wealthiest states in the country. So that's uh that's helping. So it's really you've got these you can think of this the the this dynamic where you've got these headwinds created by the tariffs and the immigration policy and the tailwinds created by AI and they're bumping up against each other and depending on you know your industrial mix sectoral mix that determines whether the state is struggling in recession or whether it's you know kind of hanging firm or expanding. So can you make the argument uh or the conclusions uh Mark that perhaps some of the states that are in a recession or are close to recession or manufacturing hubs like you said they're seeing a slowdown because of tariffs and perhaps a slowdown in trade and on the other hand uh wealthier states of California and New York those states are being propped up by the wealthier population that are still spending and because markets are high the wealth effect is kicking in people feel the wealthy feel wealthier so they're spending money so it's only a small fraction of the population maybe less than 5% that's propping up the entire country. Can we make that conclusion? >> Well, I I you got it exactly right except I'm not sure I'd say the top 5%. It's broader than that. It's probably the top third of the income and wealth distribution. Obviously, most of the action and most of the juice is coming from folks in the top the tippity top of the income and wealth distribution. But I say, you know, roughly speaking, about a third of the of of the population in that are uh in terms of income and wealth are the ones that driving the train here. >> Do we need to see a big correction in capital markets before a recession? In other words, due to the wealth effect, do we need to see people's the wealthier's wealth eroded because of their investments in the capital markets before they start spending less? >> Well, I guess one way, right? I mean, you know, if if uh we see a correction in the equity market uh for whatever reason and because valuations are awfully high and you know, maybe uh these companies that are enjoying these high stock prices don't live up to expectations and we see a correction just they just a misstep. Uh that would do it. Uh you know that would cause those high uh high net worth wellto-do consumers to pull back and be the plotter for recession. But there's other scenarios uh you know for example uh you know this isn't my baseline but it's possibility the government shutdown that we're in the middle of now doesn't last a week or two which is the widespread expectation it lasts a month or two and that's a big deal and that could be enough to cause a negative dynamic to unfold in recession to occur. There's lots of different ways that could happen, but clearly one concern would be one scenario that's of concern is, you know, the equity market stumbles here and that's so key to driving a lot of economic activity. >> Just on the government shutdown, I've heard that they the government workers would get paid back anyway, so it doesn't really matter. Is that true? >> Uh well, although the president has been threatening not to to to do that. I mean, it's possible, but I it's politically hard to fathom that that would actually happen. But, you know, under law, they need to be paid retroactively, but that that it ultimately has to be appropriated, and if they don't appropriate the money, then they wouldn't get paid. But I, you know, I be very surprised if that were happen. The the bigger concern isn't that. The bigger concern is if this drags on for more than a few weeks and lasts a month or two, then government services are severely disrupted. And that's everything from, you know, air traffic to getting, you know, federal flood insurance to be able to buy a home to the FDA approving uh manufacturing activity, uh, pharmaceutical activity, you know, SEC approving doing all the paperwork it needs for an IPO. I mean, it's on and on and on. If the government can't get its work done, then, you know, at some point it becomes a problem for the broader economy. >> Let's talk about valuations. Valuations are high. They have been historically high for quite some time, Mark. So, I think the question that investors are asking perhaps is, >> should we even care anymore? >> Well, they're high, but they're getting higher, David. I mean, right. >> Yeah. I mean, it's like straight up here. I mean, uh uh you know, I I there's different measures of valuation. My favorite measure is a an economywide price earnings multiple. Take the Wilshshire 5000 in the numerator. That's the value of all publicly traded stocks. Take after tax corporate earnings in the denominator economywide from the national income and product accounts. That's in an economywide PE multiple. You can construct that back to 1960. On average over that over that period of history, the PE multiple I'm making this up, David, I'm rounding, but it's about 10. That's the multiple. The multiple today is 20 on the nose and the highest it's ever been uh the only other time it was even higher than it is today was in the in the height of the Y2K bubble that was 24. So you know uh that doesn't necess high valuations doesn't necessarily mean markets are overvalued or or even bordering on bubble like but does feel like the direction of travel is uh that's the direction of travel and investors are getting ahead of themselves that speculation is starting to creep in and it's not only in the equity market it's gold prices it's silver prices it's crypto you know asset markets except outside of real estate financial asset markets are all juiced and it does feel like we're getting to a place where this, you know, you know, hard to to define a bubble, identify a bubble, impossible to know when that what's going to happen with that bubble. Is it going to burst? When is it going to burst? I don't know, but does feel like this should be on the radar screen as a as a as a reason for some nervousness, some concern. >> Phosphate might not sound exciting until you realize it's one of the most critical ingredients in lithium ion phosphate batteries or LFPs. 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This was reported by uh CNBC earlier uh this week. The bubble and people searching for AI bubble has burst. Retail investors fear of an AI bubble appears to have fallen off after spiking this summer. I did uh some verification myself. So I went on Google Trends. I searched AI bubble worldwide. Uh let's just narrow in on the United States. Let's see what happens. Uh it does seem like yes, it's uh it has peaked earlier in August. Search interest has fallen off a little bit and I don't know why it's making this projection that it's going to go back up. Let's see. But anyway, >> that is is that a projection? >> That is a projection. That is a dotted lines. Is Google making a trend projection? Uh based on what I'm not sure, but they are projecting that the uh search volume will increase by later October, but it has fallen off since August. So market perception of a bubble has fallen or at least people have cared slightly less. I guess if you're searching for a bubble, you're concerned about a bubble pop popping and it hasn't happened. Well, time to go back to buying mode, right? >> No. Is that a good thing, David, or a bad thing? I mean, I don't >> I'll let you answer that. Yeah, good question. >> I don't know. I mean the fact that people aren't concerned concerns me more. I mean you know if people get complacent that's when you know things they you know they they drive up prices even further as speculation becomes more endemic and the risk of of an actual bubble forming and then bursting is now much higher. So I'm not I'm not quite sure I I'm whether that's a good thing or bad thing that people are now more comfortable that there there isn't a bubble or they're not searching for the words AI bubble. Jamie Diamond said there's a 30% of a correction. Uh 30% chance rather of a correction. Um he says, "I'm far more worried than others." Uh this came in this week. Uh so if the market is pricing in 10%, I would say it's more like 30%. And I'm not saying next year because the timing of these things is impossible. The level of uncertainty should be higher in most people's minds than what I call normal. He's been kind of cautious/bearish for quite some time now. Um I I wonder if you agree with this take. Uh yeah, I I mean I agree with his take that uh people this should be on people's radar screen. It's definitely a concern and you know each day I see more green on the screen. The more worried that there is a bubble and that it could you know or one is forming and that that could be become a threat if you know if it were to burst 30% you know I that implies a probably a false level of precision. Yeah, I'm not sure. >> But um but the the level of risk here is is is high and and increasing with each passing day that you see more green on the screen for sure. >> Is there a disconnect between the real economy and stock markets right now? >> No. Uh I don't I think so. I mean, I think the the bubble, you know, the high valuations is all related to AI. Uh and if you look at the S&P 500 as just your proxy for the overall market X the AI companies there you're seeing uh stock price gains that are more consistent with a the kind of economy that we're experiencing. Not a recession but one where the economy is kind of kind of punk you know not going anywhere fast. It's kind of you know feels a bit uncomfortable at times feels okay at other times. uh so I I think the what's happening in the equity market is it's just uh AI and everything else and when I say AI it's now AI direct and uh the platforms and the hyperscalers but you know all the indirect kind of activities that are related to AI as well you know everything from electric power to you know semiconductors and chips and everything else so I think if you want to really get a read on the to answer the question is the is the economy consistent with the market you have to look at the market X AI that because AI is running on its own dynamic that's where if there is a bubble that's where the bubble's forming >> the unemployment rate has ticked up to 4.3% as you know uh give us a synopsis of the labor market what is happening right now should people be concerned about losing their jobs in the next two quarters >> uh yeah this is the weak spot in the economy this is where the economy is most vulnerable I mean job growth has come to a standstill uh and I suspect when we get all the data in after revision it'll show some meaningful job decline the job growth we are getting is very narrowly focused. It's really in the healthcare education sector. Outside of that, you know, some industries are adding a little bit. Others uh uh reducing payrolls, the net is zero. There's no hiring. Uh that's the problem. The hiring rate, the number of hires relative to the labor force is kind of recession level. It's that low. Particularly hard for young people in their 20s if trying to get into the labor market. Their unemployment rate has jumped three percentage points over the last couple of years. just over 9% and it and it is headed straight north. Uh temp job jobs jobs are down. It's a leading indicator of weakness. Hours worked are down. They're consistent with recession. The the reason why the labor market isn't even in worse shape is that businesses have held the line on layoffs. They're not laying off, which is really key. I mean, I think layoffs are the firewall between the economy we have and a recession. And so far, that firewall is holding. But that that's a reason for some concern that there's no no hiring and no no job growth at this point. So that if you had to point to the thing that is most worrisome and of course that's what's driving the Federal Reserve to cut interest rates is that the the labor market is uh very soft. As an economist, how do you usually approach or interpret a hiring freeze or low hiring? Can you take the glasses half full approach and say well maybe the market is the labor market is in equilibrium. uh lack of hiring means that everyone is fully employed and and you know and uh there isn't a lot of labor slack out there for people to hire. Is is that one way to look at it? >> Yeah. Well, I don't think that's the case. I mean, unemployment rate up a percentage point from where it was a year ago. As I mentioned, it's three points for folks in their in their early 20s. And all those other labor market indicators indicate slack, not that the labor market's full up. Now, you could argue because of the of the immigration policy and and the fact that the the foreignb born labor force is declining is putting a lid on the ability to generate jobs. No doubt about it. So, the break even rate of job growth is a lot lower. You know, it's probably 50 75k per month, but we're at zero, probably negative when we get all the numbers in. So, I I don't think that argument works. I it is uh you know, you ask great question, what's behind fundamentally behind the lack of hiring? I don't think it's one thing. It could be a b bunch of stuff. you know, the uncertainty around policy might be playing a role. AI is probably playing a role. There's some research that indicates that, you know, that's affecting particularly for young people that's having an impact. Um, you know, so uh uh and it's demand, you know, tariffs are doing damage to um to the manufacturing base to uh to transportation distribution. So, you know, when you have some weakness there, you're not going to hire. So I I don't think it's one thing. It's a bunch of stuff, but it's a it's all conspired to indicate that, you know, businesses are just not hiring and the level of hiring is consistent with the recession. >> Uh by the way, Jerome Pal himself has called this a low hiring, low firing situation. When we do get low hiring and low firing, in other words, companies aren't hiring more people, but they're also not laying people off on mass. What does that mean? >> Yeah, I I mean, I think uh it's a vulnerable economy, but not a recession, right? I I don't think you recession unless businesses lay off workers because but once they if they do lay off workers then very quickly we're going under because you know without with those layoffs that's going to spook low middle- inome households in particular they're going to pull back that's going to cause businesses to lay off even more and you get into this kind of self-reinforcing vicious cycle called a recession. So that's why I called say layoffs are kind of the the firewall. The one thing to note though about layoffs uh at least based on uh historical experience is that uh they they happen all of a sudden. You know, one company in each industry decides to lay off workers, then every company in that industry follows suit very rapidly. So it it's no layoffs, no layoffs, no layoffs, lots of layoffs. You know, UI claims, unemployment insurance claims go low, low, low, boom, you're, you know, high. So, I don't know. I you know, I take a whole lot of soloulless uh in in that. Uh but uh you know, the if the firewall is still up, but I'm not sure I take a whole lot of soloulless in that given how quickly things could change and how vulnerable we are, >> right? And so, what would be the trigger for more layoffs then if that were to happen? >> You know, we talked a little bit about that. Suppose the equity market were to correct. Suppose, >> okay, >> you know, suppose um Nvidia, I'm making this entirely up. Nvidia >> it comes in with a revenue growth of 96% but the market expected 103%. >> Yeah. >> You know we get a correction. Uh suppose the president nominates someone for the federal the Fed chair as you know J Pal the Fed chair is going to roll off in May of 26. He nomin they nominate somebody that it's not Kevin Hassid it's not Bessent Scott Bessant it's someone we don't really know. someone similar to the BLS commissioner that the president had to withdraw the name because he had no support that could spook markets. Concerns about Fed independence and future inflation. Suppose the government shutdown doesn't last a week or two, it lasts a month or two. You know, those are the kinds of things that could happen that could upset already fragile sentiment and confidence and cause uh lay business to start laying off. And again, once that starts, once that firewall comes down, then we're in recession. We're into that self-reinforcing vicious cycle. But now, let me just say, David, those aren't my that's not what I that's not my baseline. My baseline is the firewall will hold and we'll get to the other side of this 6 n 12 months down the road. We'll get some monetary fiscal stimulus and the economy should regain some traction. We should avoid recession. But, you know, I do think recession risks are awfully high and these these are the kind of scenarios that are behind that that concern. >> You think if companies aren't hiring more and they're not firing more right now, they're probably just I again I'm speculating here. Maybe they're stocking up on cash and once we get more policy certainty, if that ever happens next year, that's when we see cash deployment, capex spending, and a boom. Uh, is that a plausible theory here? Well, I mean, they're holding their payrolls constant, right? I mean, so are they preserving cash? You know, I'm not sure. Uh may maybe on the margin. Uh but, you know, I don't know that that's what their thought process m maybe in the sense that they're so uncertain about things they're sitting on their hands, right? They're not going to move. Uh they're not going to hire. They're not going to fire. They're they're they're holding the line on capex. I mean outside of AI capex is kind of have has kind of flatlined you know back to an earlier point. So broadly the uncertainty is just causing businesses to freeze just hold the status quo on every dimension of what they do and that that would ex explain the the lack of hiring and the lack of firing. >> What's going on with the labor market? I'll pull up some stats but let me just to get your overview first. You did write an article um you co-authored an article uh from uh uh from Moody's Analytics called capital gains taxes in the misallocation of housing. In this analysis, Moody's Analytics examines how capital gains tax policy is increasingly causing homeowners to remain in homes that are no longer suitable to the demographic needs. That's the first opening uh introduction. Tell us more about that. >> Yeah, so this goes to you know one other weak point in the economy is housing obviously and the fact that uh housing demand has been flat on its back. Home sales have been consistent with recession levels with the actually existing home sales consistent with the lows we experienced during the teeth of the pandemic and the in the height of the great global financial crisis. And you know one of the problems there is uh so-called housing lock. People are kind of stuck in their homes. There's interest rate lock where people have mortgages with uh interest rates that they got back in the pandemic at three, three and a half, four percent and they don't want to sell their home, extinguish that mortgage, go buy another home, get another mortgage because the mortgage rates are the market rate is now 6 and a quarter 6 and a half%. So that's a form of interest rate lock, housing lock. Another form of housing lock is around capital gains. So uh you know right now there's a capital gains exclusion. uh if you sell your home. Uh but uh that was that those exclusion limits were set back in 1997 of course many years ago and after there's been a significant increase in house prices since then. So many people are sitting on a lot of unrealized gains and if they sell they're going to have to pay taxes on those gains. So that is another form of housing lock. Another reason why people aren't moving, particularly baby boomers, you know, the folks that are sitting in these large homes that were conducive to their demographic needs back when they had kids, but now their kids are, you know, long gone. They're they're empty nesters and they have these big homes that they don't need and they don't really want, but again, they don't want to pay the capital gains tax, so they're sitting on it. So the proposal is to simply increase the exclusion so that uh this is less of a bite if people sell and uh you know that would get help unstuck unstick the market, reduce the lock and get housing transactions moving again and help the housing market get back on its feet. That's that's the idea. That's the that's the nature of the problem and and the the uh the idea that the policy idea putting forward to try to address it >> despite this friction. Do you think that perhaps lower mortgage rates from lower Fed funds rate going into 2026 may offset some of this friction? >> Uh well that I mean that's already embedded, right? I mean markets anticipate the Fed's going to ease pretty aggressively here. So that you know the markets are expecting a 3% funds rate by next spring, early summer. That's kind of the equilibrium rate that's already priced in. So no, if the Fed actually follows through on what the markets expect, and I think that's an appropriate forecast, then long mortgage rates just continue to stick to roughly where they are, 6 and a/4 to 6 and a half%. I'd like to show you some of these stats perhaps flying under the radar on the mainstream news. This is from uh uh realtor.com. Foreclosures uh are rising in the US. There were a total of 101,000 US properties with foreclosure filings during the third quarter of 2025, up less than 1% from the previous quarter, but up an astounding 17% from a year ago according to uh the latest report from Adam data. >> I uh I I wonder if you have a reaction to this. What's uh what's happening here? >> Uh they're coming off incredibly low levels. So the you know, even with this increase, they're still incredibly low by historical norms. You know, and it makes sense because most homeowners have a boatload of equity that they build up in their home when house prices took off. I mean, house prices nationwide are up 50 60% from where they were before the pandemic 5 6 years ago. So, you know, unless you bought your home in the last couple three years, you're sitting on a lot of equity and there's like zero probability that you would you go into foreclosure. Foreclosures are up probably. I didn't see to see that piece, but I wouldn't be surprised. maybe FHA loans to homeowners that bought in, you know, in uh in 2022, 23 or 24 and the prices since then have not really risen all that much. And in some parts of the country, they've actually declined in the south and the west and that's where you might be seeing the foreclosure issues. But the level Yeah, there you go. The level, >> you're right. I mean, historic, if you just compare to the historical average, it is still quite low. >> Still very low. Yeah. >> All right. So, a slight uptick. No need to worry uh just yet. Um we are we are getting um comments that uh um housing affordability is is on the consumer's side. So take a look at this report for example. Key findings from the October mortgage monitor include this is the mortgage technology report uh ice mortgage monitor. Falling rates lead to best home buying affordability in 2.5 years with 30-year mortgage rates averaging 6.26% in mid September. The monthly principal interest payment on average priced homes has fallen to $2,148 or 30% of the median US household income. Still more than 5 percentage points above his long run average. Although costs have declined, it's improved from 35% peak in late 2023. So a slight improvement in affordability from a rates and mortgage expenses perspective. What does this mean for buying into 2026, you think? Yeah, I I think we're going to see a slow, steady improvement in home sales as affordability, while still really poor, is improving and we should see some more transactions. The other thing that's happening is that people have been locked into their homes for a long time and their demographic situations have changed over the past five, six years, and they're sitting in homes that don't fit their demographic need. And at some point uh given the demographics despite affordability, they're gonna need they're going to want to sell, they're going to need to sell, and they will sell. We'll get to get more inventory. So, home sales, housing demand is, you know, flat on its back, but it's, you know, it's not going to get any worse, and I expect it to steadily get uh better and in part because of that uh improvement in affordability, which goes to mortgage rates primarily. You know, mortgage rates have come in. I mean, back in 2023 when uh the affordability was at its low, fixed mortgage rates were firmly over 7%. They're now, you know, 6 and a quarter, 6 1/2. And so, you've seen some improvement. And with that improvement, you're seeing some improvement in demand, and that should continue. >> All right. Well, final question. Uh, selective job market disruption. You were on a podcast um with uh Capital Groups Jared France recently, and I believe uh you were talking about um a lot of the topics we're talking about. So, let's finish off in the job market. you you are not calling for mass unemployment just yet. Uh but you are saying that some sectors will be disrupted more than others if I'm not mistaken. Can you just comment on that? Which sectors will do better than others in the remainder of the year into next year? >> I think I think we in that conversation we were talking about AI, weren't we? artificial intelligence, what dision and I, you know, I think the point at least the point I was trying to make and I think Jared was making the same point roughly speaking is, you know, AI is going to be disruptive for certain occupations and certain industries and we're already starting to see it. >> Uh, but yeah, you know, uh, in terms of overall employment and unemployment, uh, that uh, it it won't be overly disruptive. Won't there's a lot of concern in the tech world that this is going to be dystopic. It's gonna the AI is going to come on so fast cause so many jobs to be lost that there's going to be very high unemployment even mass unemployment you know I we have to be humble here because there's a lot of unknowns and this is a new technology but if history is any guide that's not what's going to happen you know what's going to happen is the technology is going to AI is going to diffuse through the economy slowly enough uh so that it allows the economy to adjust and we will see some dislocation some unemployment but it'll be very modest going forward. >> Perhaps not in the long run. Uh this is a medium-term forecast. Uh but let's put on our sci-fi hats here now, Mark. Looking ahead multiple decades, I can't and some economists have been even even some scientists have been kind of warning about the scenario in which it's a scenario in which AI basically outperforms everybody at everything. We're going to have humanoid robots performing bluecollar tasks more efficiently and perhaps more safely. Perhaps a robot plumber per, you know, I certainly I think AI could do my job better. Imagine a podcaster hooked up to the internet. Perhaps an AI economist could look at multiple data points um across >> Yeah. billions of different data. No, never. Never. You're never going to get replaced, Mark. Never. Um I'm just saying in a world where um a lot of people will get replaced, what do humans do? I mean, how do you even as an economist look at the labor market? you have to fundamentally change your definition of what full unemployment means or structural unemployment. U some some economists are calling this more disruptive than the internet, but that's their opinion. What do you think? >> Yeah, I I mean if again I you know as a as a an economist that does forecasts, I look to history as a guide to help with those forecasts. I look for historical analoges. And if I go back and look at other periods of rapid technological change, it just takes time for that to diffuse. And in generally the technology doesn't diffuse until new companies form and optimize around that new technology. That takes time. And there's so many other frictions involved with the diffusion. You know, legal issues, compliance issues, financial financial uh constraints, you know. So, you know, maybe this time is different, but I I doubt it. I I think AI is going to diffuse in a way that allow for the economy to d to adjust and for the labor markets to digest it. And again, I'm not saying there won't be job loss and a lot of churn in the labor market, but the net of all of it will be a labor market that's just fine. And you know, the labor market can adjust in a lot of different ways. You know, there's no, it's not written in stone anywhere that people have to work 40, 50, 60 hours a week. You know, they could work 10, 20, 30 hours a week. I mean, you know, so there's lots of ways of adjusting. uh you know to to these kinds of things. >> There was a period of time when I think more than half of the labor force was involved with agriculture and then post-industrial yeah >> revolution >> people have more time to pursue other other professions and leisures and what would happen to the world when 20 hours a week is all that's necessary to maintain full productivity. I don't know. >> I'm not worried about it, David. We'll figure it out. But there's going to be things that we're going to be able to do that we can't even envision at this point in time. Yeah. So, I'm not worried about a lot of free time for us. >> No, no. I mean, we'll fill it. We have no problem filling it. So, I I'm not the slightest bit worried about that. >> Thank you. Where can we learn uh about you, follow you right now, Mark? >> Yeah. There there is uh my podcast, Inside Economics. I would encourage people. You got to be a little nerdy, but if you're listening to you, David, you got you're nerdy. So you you'll enjoy my economic podcast and I'm on social media and of course Economic View is our website that you can go to if you want to see real time what's going on in economies around the world. >> All right, we'll put the website uh down below as well as Inside Economics podcast. Check it out. Thank you very much, Mark. Good to see you again. Take care. >> Yeah, anytime, David. Thank you so much. >> Thank you for watching. Don't forget to like and subscribe.