Where is the U.S. economy heading? Job losses and high inflation spark concern

[00:00:00] Speaker 1: All right, let's get down to business. There are some growing concerns about where the labor market could be heading next. While there were some hopeful signs earlier this year, last month was an unpleasant surprise as the economy lost 23,000 jobs. And on top of that, consumers continue to pay more with gas prices up 34% from a year ago. And as our next guest puts it, if this trend continues, U.S. workers might find themselves squeezed on two fronts, a weakening job market and high inflation from an uncertain geopolitical conflict, cutting into paychecks and household budgets. With us now, the author of that story, Neil Irwin. He's the chief economic correspondent at Axios. And also joining me, Justin Wolfers, professor of economics and public policy at the University of Michigan. So, Neil, what does this last jobs report tell you about where the U.S. economy is heading right now? [00:00:52] Speaker 2: Look, the good news is the unemployment rate is still low. It actually ticks down in July to 4.1%. You know, we don't know exactly what trend job growth looks like because of immigration changes. And those numbers are kind of hard to interpret right now. But the real lesson we got on Friday is that the job market is not quite as firm as it looked earlier in the year. And, you know, we had several months of better numbers that looked like, you know, despite all the AI warnings, all the stuff floating around out there, that hiring was pretty solid. That's now in doubt. And that leaves in doubt what happens in the rest of the year. Does this kind of low hiring, low firing job market equilibrium persist? And that makes it very hard for people who lose their jobs to find a new one. [00:01:30] Speaker 1: Justin, can you help break some of this down for me a little bit? Because I think for some folks at home, it might be confusing for them to understand that the economy is losing jobs, but the unemployment rate is improving. [00:01:41] Speaker 3: Yeah, it's a funny thing. So remember, the unemployment rate, which is a really important metric of how things are going, to be counted as unemployed, you have to not only not have work, you've got to be looking for work as well. And so if the number of folks who are without work, if a bunch of them stop looking, they're no longer counted as unemployed. So the language we often use is we'd say the unemployment rate fell, but it fell for bad reasons. It fell because folks gave up hope and stopped looking rather than a good reason, which is when they go and find a job. [00:02:14] Speaker 1: You know, Director Kevin Hassett made some comments about fuel prices, which we know for Americans are such an important sort of psychological piece of the story here and indicator. It's why our colleagues are always visiting gas stations and talking to people. Neil, I want you to take a listen to what Hassett said recently. [00:02:33] Speaker 4: Now, prices are still higher than we would like, but we've taken a lot of steps so that when the Gulf situation is resolved, that we can expect prices to go way, way down because of all these new measures that we've taken. [00:02:46] Speaker 1: So what does that realistically mean for everyday people? Because as I was just talking about with General McCaffrey and some of my colleagues a few minutes ago, the situation in the Gulf is not set to be resolved anytime soon. [00:02:58] Speaker 2: Yeah. You know, it's hard to see exactly what the off ramps look like for Iran to end up in a situation where the flow of oil and other energy products is what it was pre-war. Look, energy prices are always volatile, but it is a price that people can't really control. It's something that you pay every week, every month. And in the short term, at least, you know, your commute is what it is, your car and its mileage is what it is. You need to heat your house. You need to consume electricity, which is related to other energy products. And what makes that difficult for ordinary Americans is it's something that you can't adjust that much in the short run when prices swing. And so, you know, even though these are not, you know, we've seen higher gas prices before historically. It's not like these are these are all time highs, but it's still just this painful grinding thing that affects your what you have available for everything else you want to buy week to week, month to month. [00:03:46] Speaker 1: Justin, one of the other interesting dynamics of the current economy is that people keep reporting unhappiness, concern about their future, the feeling that they can't afford homes. But they are spending money on sort of mini luxuries. They're still going out and buying some consumer goods. Can you explain what that sort of says about where we are as a country? If people are willing to splurge on some of the little luxuries and moments for themselves, what they are saying, well, I might never own a home. [00:04:14] Speaker 3: Mate, I went ahead and I had a cappuccino this morning and had avocado toast. So we should all live a little. [00:04:20] Speaker 1: Whoa, whoa, that's a lot. [00:04:22] Speaker 3: Look, as an economist, I still think those luxuries are worth it. But I think the sense of ennui, if I pronounce my French correctly, is real and deep. Young people are finding it difficult to get started in the labour market. I talk to parents all the time, very worried about what do I tell my kids to study at college? Now, remember, we're in the cusp of this AI revolution that could upend everyone, everything. And then we have this just absolute, you know, torrent of news out of Washington where we invade countries. We we threaten countries. We start trade wars with countries. We send immigrants out of the country. And there's that deep sense of uncertainty that whatever it was that was the foundation of American prosperity yesterday may not be the sense of prosperity tomorrow. So for those at home who feel that anxiety, I feel it, too. If it helps, what I do is I try and understand the world a little better. And the more I understand the underlying economics, the more I feel a little empowered. [00:05:28] Speaker 1: You know, you mentioned the AI revolution and, Neil, I know that that's a major factor in Kevin Warsh's thinking as he tries to remake the Fed. But there's sort of the short term reality ahead of him and the AI revolution, which is sort of here, but also not entirely yet here. How are those complicating the decisions he's set to make in the coming months? [00:05:48] Speaker 2: Yeah. So I reported this morning in Axios that that Kevin Warsh's belief in the kind of transformative importance of AI is a central thing to understand and expecting how his how the Federal Reserve is going to evolve under his leadership. You know, this very important economic policy organization. You know, it's it cuts multiple ways. So in the short run, this build out of data centers is actually fueling inflationary pressure. It means more demand for for for semiconductors, for construction equipment, things like that. And that's pushing up prices in some sectors and causing more inflation in the medium term. There's a real risk that it depresses demand for labor and makes for a depressed job market. If some of these predictions that AI will replace a lot of what work that's currently human work over the next few years and then over the longer term, if that proves true, that means higher productivity. That means higher output, higher GDP, higher incomes. But it might be a bumpy transition getting from here to there. And that's all the sort of thing that that the Kevin Warsh should be trying to grapple with as they set interest rate policy in the coming years. [00:06:44] Speaker 1: Neil, Mark Zuckerberg is out with this new massive AI related manifesto. I'm curious what you make of his argument, if you think it is compelling that he's basically arguing, you know, the concerns that many voters, a lot of them are around data centers right now, that they're overblown and people aren't paying enough attention to all the positives that could come with this. Do you think he's he's on to something? [00:07:05] Speaker 2: Neil, Mark Zuckerberg: Well, I think a key aspect of this kind of manifesto, it's a long piece, 6500 words that Mark Zuckerberg published today, is that it's important that AI be put to use to serve humans and to make our lives and society better. Now, how you do that is the real difficult question. He argues against power being concentrated in the the really cutting edge models, the anthropics and opening eyes of the world. You've seen that more and more from the tech community, a concern that just a couple of companies might control these transformative technologies that has geopolitical stakes, all kinds of risks associated. And so I take this as evidence that the tech community is getting more worried that that this power is too concentrated and that we need to have more guardrails to make sure that this does become a technology that makes lives better, doesn't make it worse for everybody. [00:07:51] Speaker 1: Justin, at a time when so many Americans are, I mean, they are literally going to city council meetings and going to battle against what feels like to them, this like game of whack-a-mole, new data centers coming up in their communities constantly, them feeling like they barely have answers about what's about to happen on the land near them. Do you think that Mark Zuckerberg is a messenger that they want to hear from? [00:08:13] Speaker 3: Mark Zuckerberg: I mean, it could be. Mark Zuckerberg: Well, I haven't heard from a good tech billionaire in minutes now, and I'm just glad that they're finally getting some attention. And if we're going to turn to anyone who's a completely disinterested party, we should definitely ask yet one more tech pro. I'm excited to read it. [00:08:36] Speaker 1: All right. Well, Justin, Neil, thank you both so much as always. [00:08:48] Speaker ?: Mark Zuckerberg: Thank you very much for coming. Mark Zuckerberg: Thank you very much. Mark Zuckerberg: Thank you. Mark Zuckerberg: Thank you. Mark Zuckerberg: Thank you. Mark Zuckerberg: Thank you. Mark Zuckerberg: Thank you very much. Mark Zuckerberg: Thank you. Mark Zuckerberg: Thank you. Mark Zuckerberg: Thank you.