The American Economy Is Flashing Three Warning Signs

[00:00:00] Speaker 1: to bring in Neil Irwin, chief economic correspondent at Axios, and Justin Wolfers, professor of economics and public policy at the University of Michigan. I want to start with the new data we got in this morning. Producer prices rose by 1.3% in September. That is the biggest jump we have seen in four years. We know inflation is a problem. What's your take on this moment, Justin? [00:00:23] Speaker 2: So it's, to be clear, Steph, that 1.3% is what happened in one month. If you go back over the whole year, that's 6.3%. If you strip out food and energy, it's 5%. So what I want folks to understand from that is, yesterday we heard about inflation. Inflation was uncomfortably high at 3.7%. Today we heard about the inflation that businesses are experiencing, what's going on in their supply chains. And we hear that their costs are rising even faster. Well, some things can go on for a while but can't go on forever, which is if business costs are rising, at some point they start to pass that through. It would have taken a lot. PPI is not one of these numbers we spend a lot of time freaking out about. It would have taken a lot to get people's attention. This will get people's attention. And so if you were a Federal Reserve Governor, this morning you might have thought, maybe I'll skip the PPI. And then you would have seen this and you would have thought, crikey, this is going to be a very difficult decision coming up. [00:01:22] Speaker 1: Neil, what do you think? The markets aren't worried. We were just saying a moment ago markets were down yesterday and they're already up 200 in the last one minute. [00:01:29] Speaker 3: Yeah, we're seeing over and over this evidence that the inflation that really surged ahead earlier in the year after the Iran war started, it's not contained. It's broadening. It's both higher and broader than it seemed just a couple of months ago. And that's a red alert for the Fed, as Justin says. You know, if you're at the Federal Reserve, you're thinking, you know, we need to do something to bring this inflation down. It's not going to happen on its own. We thought it might just go away as the tariff effects kind of diminish. But that is not what's happening. And the data yesterday, today, make that as clear as it can be. [00:01:59] Speaker 1: Okay, but here's the thing. And we talk about it all the time. If you are along the market, if you own assets, if you're among the wealthiest Americans and business leaders, these have been go-go days. People think this is a boom time. But, Justin, voters are clearly zeroing in on what is going on with inflation. It is a global issue, not just here. Do you think people in power, both in government and in corporate America and on Wall Street, have a true sense of this threat, how angry, how frustrated people are? Because it's amazing. Like, when I'm talking to voters versus business leaders, it's literally like two different planets. [00:02:38] Speaker 2: It is two different planets, Steph. And it's a big part of the current puzzle right now, which is, in fact, actual consumption spending by households is reasonably okay. You ask them how they're doing, and they feel absolutely miserable. And I've been digging into those data a bit recently, Steph, and I think I have a hint of what's going on. People sort of feel like things are okay right now, but they're very worried about the future. And you sort of understand why. If you ask them how do they think about the quality of economic policy, is our economy being run, is it high-quality economic policy, is it poor economic policy? The share of Americans who say it's being run poorly is at an all-time high, and it's not even close. If you think about the things that are worrying people right now, high interest rates, tariffs pushing up the cost of living, high energy prices that are still pushing through the rest of the economy. It's never been the case, Steph, I don't think, in your career, that the three biggest threats from inside the American economy come from inside the house. They're all the result of policy errors. And normally, what you want to do is sleep a little better at night because you know they're a good economist looking after you, trying to protect you from the rest of the world. And this time, they're the problem. [00:03:55] Speaker 1: Well, we're newly minting billionaires during this AI tech boom. Neil? [00:04:01] Speaker 3: Yeah, look, think about it. A lot of this growth has been propelled by the data center boom, the AI boom. And who does that benefit? You know, that's not a broad benefit, at least the way people perceive it right now. All it's doing is driving up the cost of semiconductors, of land, of HVAC technicians. So there's a situation where we have growth that's driven by the stock market, by an AI boom, that does not create broad benefits for wages for the mass of Americans. You know, you can't eat GDP. And when GDP is rising in a nice clip, but it doesn't flow through to labor income and people's quality of life, that hurts. And then when you have these exogenous things around the Iran war that have driven up energy prices that, you know, remind you of the pump every month, every time you get a heating bill, an electrical bill, that's a recipe for some real pain. So when you put that together, it's less surprising that we have this mix of a low unemployment rate, a solid GDP growth, and yet public opinion on the economy is just sharply negative. [00:04:52] Speaker 1: Okay, one of the reasons public opinion is so negative isn't just about affordability. It's about accountability around corruption. Okay, there is new Bloomberg reporting that the CFTC staff was told to hold back on looking at suspicious oil trades that were made around Trump's March 23rd reversal on an Iran power plant attack. What are we to make of this? Okay, Neil, especially the efforts to try to stop an investigation. [00:05:25] Speaker 3: Yes, it's very curious. You know, we've had a few of these scandals. [00:05:28] Speaker 1: That's a nice way to put it. [00:05:30] Speaker 3: With the calcium things where somebody in the White House was betting on what would be in the president's speech. The numbers in the global oil futures market are orders of magnitude different from these little small bets on the trading platforms. And so the potential, you know, scale of money involved here is massive. There's more we don't know than what we do of why this investigation was apparently shut down. But yeah, these are potentially huge opportunities. When the president uses social media to do things that swing the global price of oil by $10 a barrel in one tweet, that creates a ripe opportunity to be exploited. We don't know exactly what happened here at this juncture. [00:06:10] Speaker 1: Okay, I get it. But the fact, Justin, that we're no longer even looking into it, how does the government justify that? [00:06:18] Speaker 2: I think that's the tell here. So, Steph, in the past, you've asked me questions previous times, there've been sort of hints coming from Wall Street that maybe someone got ahead in just the wrong way. And I had actually been on the I'm less suspicious side. There's so many different trades happening so many times that, of course, things that look suspicious happen. You know what you can't get past? Saying, stop looking into this. I cannot think of a reasonable explanation for that. This is not sort of, you know, the problem is there's so many trades, it's hard to figure out which ones are legit, which ones aren't. I think that's a very difficult statistical problem. This is a simple story. They said, stop looking. I can't tell an appropriate story about stop looking. And it's part of a broader narrative. One of the things that's really starting to come through with the midterms coming up is the fraying of the MAGA coalition. And what's striking is how much the polling is. It's not about economic policy necessarily. A lot of it is about watching the bloke in charge get literally billions, billions of dollars richer. And people who supported him, who sent $20 checks, who wore red hats, frankly, very resentful about that. [00:07:30] Speaker 1: Yeah, people just want to, we're not even saying there's definitive wrongdoing here, but why would you stop looking into it? That's the question. Gentlemen, thanks for joining me this morning.