December 15, 2025 • 18 mins
All year, the jobs market, consumer sentiment, AI and inflation flashed warning signs about the economy — but 2025 managed to avoid a recession.
On today’s Big Take podcast, host Sarah Holder talks with Bloomberg’s Stacey Vanek Smith and Moody’s Analytics Mark Zandi to understand what this year’s wonky economy can tell us as we head into 2026 and what to watch for in the new year.
Read more: US Recession Risk Is Receding as We Move Into 2026
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:09):
It's that time of December. We're taking stock of the
year that was and looking forward to the upcoming year.
Problem is, trying to describe the state of the US
economy in twenty twenty five isn't exactly a straightforward task.
Still we try.
Speaker 3 (00:25):
We're journalists, we're storytellers. We're always looking for a story
in the data.
Speaker 2 (00:29):
Stacy Vanismith is a financial journalist and the host of
Bloomberg Businessweeks Everybody's Business podcast. She says, when she tried
to reflect on the year that was, the data just
didn't translate into neat narratives.
Speaker 3 (00:44):
I just couldn't find one that held together.
Speaker 2 (00:47):
From jobs numbers and consumer sentiment polls to stock valuations
and inflation indicators. Everything has been topsy turvy.
Speaker 3 (00:56):
Right now in the economy. There are parts that are
so strong and so good. I mean, obviously the markets
setting records all the time, there's all this really exciting
growth and expansion with AI. At the same time, the
job market is so stagnant. It feels like it's in
(01:16):
a deep freeze. It's just a hard economy to get
your head around. Every time I sort of identify a
narrative thread, it goes away. What I ended up landing
on was Alice in Wonderland. No, I'm because that is
a place where nothing makes sense. When Alice goes into Wonderland,
(01:37):
she follows the rabbit and like is in this strange world,
her perspective is always getting thrown off.
Speaker 4 (01:43):
How very curious.
Speaker 3 (01:44):
She's big, she's little.
Speaker 4 (01:46):
Much of the gains wiped out as investors sold off
after the rally.
Speaker 2 (01:50):
People speaking gibberish North Korea has used cryptocurrency to evade sanctions.
Speaker 3 (01:55):
She thinks she's getting a handle on what's going on.
She doesn't have a handle on what's going on.
Speaker 2 (01:59):
There is growing uncertain over the economy again as President
Trump renews a possible hike in Chinese goods.
Speaker 3 (02:08):
And that's how I feel what I look at the
economy like none of these numbers are lining up. We
are in a through the looking glass economy.
Speaker 2 (02:14):
To me, I'm Sarah Holder, and this is the big
tick from Bloomberg News Today. On the show Bloomberg, Stacey
Vano Smiths and Moody's analytics Mark Zandy help us understand
(02:34):
what this year's wonky economy can tell us. As we
head for twenty twenty six, Good things stabilize or are
we still seeing recession risks down the rabbit hole? For
several years in a row, economists, market watchers, and everyday
(02:54):
people have looked at the US economy and saw warning
signs of a recession. Remember when yield curve inverted in
twenty twenty two, and when the unemployment rate triggered something
called the Psalm rule in twenty twenty four. These have
historically been reliable recession predictors.
Speaker 3 (03:10):
A few years ago, all of these economic indicators were
saying one hundred percent chance of a recession, ninety percent
chance of a recession. All of these really respected, venerated
institutions that study the economy very seriously. We're all saying
a recession's coming, and then here we are. It just
never came.
Speaker 2 (03:29):
And there were also recession fears this year, right what
what do you think was kind of the peak of
our recession fears in twenty twenty five.
Speaker 3 (03:37):
Oh, Liberation Day in April Liberation Day, when President Trump
unveiled the chart, you remember the chart on the White
House lawn with all of those double digit tariffs on
dozens of countries all over the world. It was shocking.
I mean, here at Bloomberg, I think our economists recession
predictions went up from twenty percent to forty percent, I believe,
(03:58):
and everybody just thought, this is going to throw such
a huge wrench into our economy, into economies around the world.
This is going to do it. A recession is going
to come. It didn't come. Here we are end of
twenty twenty five, no recession. In fact, the economy has
been growing at a pretty strong pace, like over three percent.
Speaker 2 (04:18):
That doesn't mean there aren't still fears of an economic
contraction as we head into twenty twenty six. Analysts surveyed
by Bloomberg put the odds of recession next year around
thirty percent. Mark Zandy, the chief economist at Moody's Analytics,
said his team has it even higher.
Speaker 1 (04:35):
Well, to be precise, forty two percent probability recession over
the next twelve months. It's based on a model that
we've created that looks a lot of different data. I mean,
and that's very consistent with my intuition. So if you said, hey, Mark,
you know, what do you think the probability recession is
over the next year, I'd say forty to forty five percent.
So at this point in time, both the model and
(04:56):
Zandy say they're roughly the same thing.
Speaker 2 (04:58):
It's not quite a coin flip, but it's close. And
Mark things these odds are uncomfortably high in a healthy economy.
He says that number should be closer to fifteen percent.
Speaker 1 (05:10):
We're growing, but it's a very fragile growth. You know,
everything's got to kind of stick to script here. The
way I think about what's going on in the economy
and where it's going to be over the next year
is it's being buffeted by these very two powerful crosswinds.
One is deglobalization, Tariff's immigration policy or part of that.
Speaker 4 (05:27):
There's other aspects of that as well.
Speaker 1 (05:30):
And the tailwind is AI And these two forces are
really buffeting each other to a draw. But if anything
changes to alter that balance between those headwinds and tailwinds,
then we got a problem.
Speaker 2 (05:43):
And those headwinds are strong. Mark says tariffs and immigration
crackdowns are already impacting sectors like manufacturing.
Speaker 1 (05:52):
That's a very trade sensitive part of the economy that's
in recession. It's you know, we're losing jobs and industrial
productions going nowhere fast and c manager surveys are indicating
contraction transportation distribution, also trade sensitive that's contracting that's in recession.
Speaker 2 (06:08):
Transportation distribution, meaning like the trucking industry.
Speaker 1 (06:11):
Yeah, like trucking because there's just a lot less trade,
you know, going through the ports and through the rail
system and through the trucking systems. Also housing construction broadly
outside of data centers, you know, AI, it's in deeper session,
you know, contracting. But at the end of the day,
you know, the key to whether we go into recession
or not is whether businesses begin to lay off workers
or not.
Speaker 2 (06:32):
Stacy Vennixsmith says it's the labor market that worries heard
the most too.
Speaker 3 (06:37):
The job market is in a really strange place. Fewer
and fewer people are quitting, and fewer and fewer people
are hiring.
Speaker 2 (06:43):
This deep freeze that you're talking about.
Speaker 3 (06:45):
Deep freeze, yes, And I think the problem with that
is what it's showing is a job market where everybody's
kind of clinging onto the job they have, and that
puts people in weird positions. If you don't feel like
you've got options as a worker, that means are you
going to ask for a promotion? Are you going to
ask for a raise, Are you gonna, you know, take
a chance. Probably not. You're just kind of waiting it out,
(07:08):
waiting to until things get better.
Speaker 2 (07:10):
And in the meantime you are still having to buy things,
still having to get groceries, still having to pay rent. Yes,
so I want to talk about inflation this past year
before we talk about what we're expecting next year. What
we anticipated this year was that after the Liberation Day
tariffs prices with skyrocket. That hasn't quite happened, but inflation
(07:32):
is still weighing on people.
Speaker 1 (07:33):
Right.
Speaker 3 (07:34):
This is so interesting because, yes, this is exactly why
all the recession fears really took off after Liberation Day.
There was this idea of, oh, no, if we're taxing
imports from China at fifty percent, like that is going
to immediately trickle down to store shelves. That has not happened.
I mean, inflation is still a little bit higher than
(07:55):
we want. It's just over three percent, but not anywhere
near I think what we feared it would be. I
think there are a few reasons for that. Harvard has
a great it's called the Pricing.
Speaker 2 (08:04):
Lab, led by Alberta Cavallo.
Speaker 3 (08:06):
Yeah, Cavallo has studied this a lot, and what he
found was there's often a lag between when tariffs are imposed,
companies will often hesitate to raise prices. They don't want
to lose customers. They don't want to raise prices before
the competition. But Cavallo did say he thought price rises
were coming. Also, though the tariffs have changed a lot
(08:28):
since Liberation Day, they're here, they're gone, So a lot
of the tariffs didn't end up happening or are still
kind of in debate or in a gray area.
Speaker 2 (08:38):
Well, let's talk about how consumers are behaving in today's economy.
Consumer sentiment is low, but spending hasn't really slowed. The
top ten percent of earners are driving nearly fifty percent
of the spending. There's this bifurcation going on. How are
consumers feeling and how are they acting? And why does
that matter to me?
Speaker 3 (09:00):
That's maybe the most important economic story of the year.
People will often refer to this as the K shaped economy,
just meaning that one part of the economy, the upper
leg of the K, is like kind of getting wealthier
and wealthier and wealthier. These are people who have money
in the markets. Then there's a part of the economy
that isn't necessarily super invested in the markets that is
not invested in AI. Just look the regular working person.
(09:23):
That is the leg of the k that's going down,
and for those workers things are pretty rough. I mean, yes,
inflation isn't so bad, but if you look across to
when the pandemic started, food is more than thirty percent
more expensive than it was. Rent is hugely more expensive.
Electricity costs are forty percent more expensive. So we're in
(09:47):
a situation where a lot of people in the economy
are just feeling really squeezed. This is not a healthy,
stable situation. You want everyone in an economy doing better
and better. You don't want just one part of the
economy doing better. That's really unstable. It's a bad recipe.
Speaker 2 (10:05):
Well, so, I mean, what is the outlook for the
consumer heading into twenty twenty six? You painted a pretty
grim picture, But what is the data telling us about
how this might evolve next year or deepen?
Speaker 3 (10:16):
Well, this is the thing about the Alice in Wonderland economy.
Consumer sentiment is terrible. It's like near the lowest levels
it's been in decades. People are feeling horrible about the economy.
I think a lot of that's the job market. So
when the holidays spending season happened, especially Black Friday, which
is this big measure, I thought it was going to
be a real disaster for retailers. A lot of them
(10:38):
make a third of their money around this time. This
is a big, big deal. Retail sales did great, they
looked great. Somehow we feel terrible. We're spending more than ever.
Speaker 2 (10:47):
Yeah, this is just like it's confounding.
Speaker 3 (10:50):
It's confounding, it's through the looking glass. Yes, it is
the cognitive dissonance that is the twenty twenty five economy.
Speaker 2 (10:58):
After the break, the tailwind that's been keeping the US
economy growing, and what could happen next year if the
winds shift.
Speaker 3 (11:18):
I think AI has saved our bacon.
Speaker 2 (11:21):
Artificial intelligence. Stacey Vnixsmith, the host of Bloomberg Businessweeks Everybody's
Business podcast, says, the companies developing AI, the chips they're buying,
the data centers they use for power, it's all driven
the stock market. In twenty twenty five.
Speaker 3 (11:37):
I saw this great chart. It was basically the SNP
four ninety three, meaning the S and B five hundred
minus what they call the Magnificent seven stocks. Those are
the stocks really driving the economy right now. All of
them are very interwoven with AI. It's Google, Amazon, Apple, Meta, Microsoft, Nvidia,
and Tesla. And if you take them out and you
(11:59):
look at what happened, the S and P five hundred
subtracting the Magnificent seven is essentially flat Wow, basically single
handedly responsible for all of the market growth we saw
this year. But AI's a little tricky because right now
it's creating a lot of jobs because of data center construction.
Because AI is notoriously like really thirsty, it needs a
(12:20):
lot of juice, so data centers are going up, and
also companies are kind of expanding. What Mark Xandy said
to me was he was like, we're walking a really
fine line. He's like, if AI replaces as many jobs
as quickly as people are sort of dreaming it will,
then that's going to cause the crisis in the job market.
And if it doesn't grow fast enough or it doesn't
(12:42):
live up to those promises, the markets are going to panic.
So there is a fine line, a soft landing of
AI that needs to happen.
Speaker 4 (12:53):
There's a kind of a narrow needle to thread.
Speaker 2 (12:55):
Moody's Analytics Chief economist Mark Zandy.
Speaker 4 (12:58):
Again, I think we're going to be able to do it.
Speaker 1 (13:00):
But that's why recession risks start so high, because it
is a narrow path that we have to make our
way through without a downturn.
Speaker 2 (13:06):
I mean, what might happen to tip the scale either
way to bring the economy closer to a potential recession
or to really stabilize it and bring it closer to
that fifteen percent number.
Speaker 1 (13:17):
Well, the kind of the risk that's kind of top
of mind is the runaway stock market. The surge and
AI stock prices and particular valuations are very high.
Speaker 4 (13:26):
Now.
Speaker 1 (13:27):
I'm on board with the idea that AI is a
big deal. It's going to raise productivity growth, and we
are going to see gains and profitability that will support
higher stock prices, but it just feels like stock investors
are kind of over their skis, and it feels like
speculation starting to creep into the market.
Speaker 4 (13:42):
What I mean by that is that.
Speaker 1 (13:43):
Investors are starting to purchase these stocks simply because they've
risen in price in the recent past and have concluded
therefore a rise consistently going forward, and that generally when
you get into that kind of a market.
Speaker 4 (13:56):
It's at risk of correcting.
Speaker 1 (13:58):
That's not my baseline, but I think think if you
had you said, you know, what would be the most
likely downside scenario where we could go into recession that
you know. The other thing to point out is, you know,
the run up in stock prices has been critical to
growth because it drives up wealth, and through wealth effects,
the consumers that are very well to do and own
the stocks are outspending. So if you construct a scenario
(14:19):
where price is correct, then that wealth effect goes from
positive and negative, and that knocks one of the legs
out from the economy's growth and thus the higher risks
of recession. So that's the downside risk.
Speaker 2 (14:31):
But Mark also laid out the potential upside things that
could push the recession risks lower.
Speaker 1 (14:37):
We've got a lot of stimulus coming, deficit finants, tax cuts,
you know, that's one the one big beautiful bill Act,
you know, cuts taxes for businesses through accelerated depreciation, and
we're going to get some individual tax cuts, lower taxes
on tips, over time, salt deduction, that kind of thing,
and it's all deficit finants just so that it provides
(14:58):
you know, near trom stimulus so obviously raises our deficits
in debt, but it does support growth and that could
be more of a tailwind in twenty twenty six that
I'm anticipating, and we get a better year than I expect.
Speaker 2 (15:09):
So, you know, say we dodge another bullet, we don't
have a recession next year, But what are the concerns
about an economy that continues in the trajectory that it's
been going.
Speaker 1 (15:20):
Right now, I've been at professional commis for thirty five
years and I've been following the fiscal situation for that
period of time, and I look at three indicators to
gauge the fiscal aalth of the nation, debt to GDP,
deficit to GDP, and interest payments at a percentag GP.
In that thirty five years, I've never had a time
when all three of those indicators at the same time
are screaming we got a big problem. You know, our
(15:42):
fiscal situation is really problematic and the direction of travel
is very disconcerting. If we don't change policy and stay
on the same path, then are all these these indicators
are going to keep moving in the wrong digression. At
some point it's going to lead to much higher interest
rates and be already corrosive on the economies. So that's
one key thing that we need to address. And at
(16:05):
some point there will be a cliff event. It will
boil over and be a serious problem inst racial spike.
It could be a year from now, it could be
twenty five years from now, but it feels like if
we don't change something, that's going to be the case.
It doesn't mean we're going to recession next year, but
it does mean at some point there's going to be
some form of day reckoning. In fact, that go far
as to say, Sarah, I'm not sure we'll ever generate
(16:26):
the political will necessary to make these hard choices unless
we actually do have a cliff event, we have a
spike in interest rates and have a crisis to catalyze
the political will necessary to make these changes. So that's
something you know, I think we're going to grapple with.
I don't know that that's a twenty twenty six event,
but that's an event in our future if we don't
change something.
Speaker 2 (16:45):
On a lighter note, to wrap up here, if you
were the US economy, what would your new year's resolution be?
Speaker 4 (16:55):
My New year's resolution?
Speaker 1 (16:57):
I mean my New Year's wish, it would be, you know, hey, guys,
could we just you know, come together and solve this
immigration problem, because there's no better thing than we can
do to address our both near and long term economic
problems and coming up with a rational immigration plan to
(17:17):
allow for more immigrants into the country. Goodness knows, we
need immigrants of all skill levels, low skilled, medium skilled,
high skilled. We need immigration form, we need a rational
immigration policy. Let's just come together. That would be my
new Year's wish for twenty twenty six. And I think
if that happened, then I think, you know, we'd be
in a much better place in twenty twenty six. And
(17:37):
in twenty thirty six.
Speaker 2 (17:39):
I asked my colleague Stacy the same question, any economic resolutions.
Speaker 3 (17:44):
So if I were the US economy, my new Year's
resolution would be everything in moderation. I would just be like,
you know, just don't overdo it. Slow and steady, just
like toe the line, toe the line. Yes, go back
through the looking glass back where like jobs numbers makes sense,
with the markets, makes sense, with consumer spending, where it
(18:07):
all looks like, yeah, go back to normal.
Speaker 2 (18:09):
We're hoping for clarity and stability in twenty twenty six.
Speaker 3 (18:13):
Yes, Yes, clarity instability sound amazing. Let's do that.
Speaker 2 (18:23):
This is the Big Take from Bloomberg News. I'm Sarah Holder.
To get more from the Big Take and unlimited access
to all of bloomberg dot com, subscribe today at Bloomberg
dot com slash podcast offer. Thanks for listening. We'll be
back tomorrow.
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:09):
It's that time of December. We're taking stock of the
year that was and looking forward to the upcoming year.
Problem is, trying to describe the state of the US
economy in twenty twenty five isn't exactly a straightforward task.
Still we try.
Speaker 3 (00:25):
We're journalists, we're storytellers. We're always looking for a story
in the data.
Speaker 2 (00:29):
Stacy Vanismith is a financial journalist and the host of
Bloomberg Businessweeks Everybody's Business podcast. She says, when she tried
to reflect on the year that was, the data just
didn't translate into neat narratives.
Speaker 3 (00:44):
I just couldn't find one that held together.
Speaker 2 (00:47):
From jobs numbers and consumer sentiment polls to stock valuations
and inflation indicators. Everything has been topsy turvy.
Speaker 3 (00:56):
Right now in the economy. There are parts that are
so strong and so good. I mean, obviously the markets
setting records all the time, there's all this really exciting
growth and expansion with AI. At the same time, the
job market is so stagnant. It feels like it's in
(01:16):
a deep freeze. It's just a hard economy to get
your head around. Every time I sort of identify a
narrative thread, it goes away. What I ended up landing
on was Alice in Wonderland. No, I'm because that is
a place where nothing makes sense. When Alice goes into Wonderland,
(01:37):
she follows the rabbit and like is in this strange world,
her perspective is always getting thrown off.
Speaker 4 (01:43):
How very curious.
Speaker 3 (01:44):
She's big, she's little.
Speaker 4 (01:46):
Much of the gains wiped out as investors sold off
after the rally.
Speaker 2 (01:50):
People speaking gibberish North Korea has used cryptocurrency to evade sanctions.
Speaker 3 (01:55):
She thinks she's getting a handle on what's going on.
She doesn't have a handle on what's going on.
Speaker 2 (01:59):
There is growing uncertain over the economy again as President
Trump renews a possible hike in Chinese goods.
Speaker 3 (02:08):
And that's how I feel what I look at the
economy like none of these numbers are lining up. We
are in a through the looking glass economy.
Speaker 2 (02:14):
To me, I'm Sarah Holder, and this is the big
tick from Bloomberg News Today. On the show Bloomberg, Stacey
Vano Smiths and Moody's analytics Mark Zandy help us understand
(02:34):
what this year's wonky economy can tell us. As we
head for twenty twenty six, Good things stabilize or are
we still seeing recession risks down the rabbit hole? For
several years in a row, economists, market watchers, and everyday
(02:54):
people have looked at the US economy and saw warning
signs of a recession. Remember when yield curve inverted in
twenty twenty two, and when the unemployment rate triggered something
called the Psalm rule in twenty twenty four. These have
historically been reliable recession predictors.
Speaker 3 (03:10):
A few years ago, all of these economic indicators were
saying one hundred percent chance of a recession, ninety percent
chance of a recession. All of these really respected, venerated
institutions that study the economy very seriously. We're all saying
a recession's coming, and then here we are. It just
never came.
Speaker 2 (03:29):
And there were also recession fears this year, right what
what do you think was kind of the peak of
our recession fears in twenty twenty five.
Speaker 3 (03:37):
Oh, Liberation Day in April Liberation Day, when President Trump
unveiled the chart, you remember the chart on the White
House lawn with all of those double digit tariffs on
dozens of countries all over the world. It was shocking.
I mean, here at Bloomberg, I think our economists recession
predictions went up from twenty percent to forty percent, I believe,
(03:58):
and everybody just thought, this is going to throw such
a huge wrench into our economy, into economies around the world.
This is going to do it. A recession is going
to come. It didn't come. Here we are end of
twenty twenty five, no recession. In fact, the economy has
been growing at a pretty strong pace, like over three percent.
Speaker 2 (04:18):
That doesn't mean there aren't still fears of an economic
contraction as we head into twenty twenty six. Analysts surveyed
by Bloomberg put the odds of recession next year around
thirty percent. Mark Zandy, the chief economist at Moody's Analytics,
said his team has it even higher.
Speaker 1 (04:35):
Well, to be precise, forty two percent probability recession over
the next twelve months. It's based on a model that
we've created that looks a lot of different data. I mean,
and that's very consistent with my intuition. So if you said, hey, Mark,
you know, what do you think the probability recession is
over the next year, I'd say forty to forty five percent.
So at this point in time, both the model and
(04:56):
Zandy say they're roughly the same thing.
Speaker 2 (04:58):
It's not quite a coin flip, but it's close. And
Mark things these odds are uncomfortably high in a healthy economy.
He says that number should be closer to fifteen percent.
Speaker 1 (05:10):
We're growing, but it's a very fragile growth. You know,
everything's got to kind of stick to script here. The
way I think about what's going on in the economy
and where it's going to be over the next year
is it's being buffeted by these very two powerful crosswinds.
One is deglobalization, Tariff's immigration policy or part of that.
Speaker 4 (05:27):
There's other aspects of that as well.
Speaker 1 (05:30):
And the tailwind is AI And these two forces are
really buffeting each other to a draw. But if anything
changes to alter that balance between those headwinds and tailwinds,
then we got a problem.
Speaker 2 (05:43):
And those headwinds are strong. Mark says tariffs and immigration
crackdowns are already impacting sectors like manufacturing.
Speaker 1 (05:52):
That's a very trade sensitive part of the economy that's
in recession. It's you know, we're losing jobs and industrial
productions going nowhere fast and c manager surveys are indicating
contraction transportation distribution, also trade sensitive that's contracting that's in recession.
Speaker 2 (06:08):
Transportation distribution, meaning like the trucking industry.
Speaker 1 (06:11):
Yeah, like trucking because there's just a lot less trade,
you know, going through the ports and through the rail
system and through the trucking systems. Also housing construction broadly
outside of data centers, you know, AI, it's in deeper session,
you know, contracting. But at the end of the day,
you know, the key to whether we go into recession
or not is whether businesses begin to lay off workers
or not.
Speaker 2 (06:32):
Stacy Vennixsmith says it's the labor market that worries heard
the most too.
Speaker 3 (06:37):
The job market is in a really strange place. Fewer
and fewer people are quitting, and fewer and fewer people
are hiring.
Speaker 2 (06:43):
This deep freeze that you're talking about.
Speaker 3 (06:45):
Deep freeze, yes, And I think the problem with that
is what it's showing is a job market where everybody's
kind of clinging onto the job they have, and that
puts people in weird positions. If you don't feel like
you've got options as a worker, that means are you
going to ask for a promotion? Are you going to
ask for a raise, Are you gonna, you know, take
a chance. Probably not. You're just kind of waiting it out,
(07:08):
waiting to until things get better.
Speaker 2 (07:10):
And in the meantime you are still having to buy things,
still having to get groceries, still having to pay rent. Yes,
so I want to talk about inflation this past year
before we talk about what we're expecting next year. What
we anticipated this year was that after the Liberation Day
tariffs prices with skyrocket. That hasn't quite happened, but inflation
(07:32):
is still weighing on people.
Speaker 1 (07:33):
Right.
Speaker 3 (07:34):
This is so interesting because, yes, this is exactly why
all the recession fears really took off after Liberation Day.
There was this idea of, oh, no, if we're taxing
imports from China at fifty percent, like that is going
to immediately trickle down to store shelves. That has not happened.
I mean, inflation is still a little bit higher than
(07:55):
we want. It's just over three percent, but not anywhere
near I think what we feared it would be. I
think there are a few reasons for that. Harvard has
a great it's called the Pricing.
Speaker 2 (08:04):
Lab, led by Alberta Cavallo.
Speaker 3 (08:06):
Yeah, Cavallo has studied this a lot, and what he
found was there's often a lag between when tariffs are imposed,
companies will often hesitate to raise prices. They don't want
to lose customers. They don't want to raise prices before
the competition. But Cavallo did say he thought price rises
were coming. Also, though the tariffs have changed a lot
(08:28):
since Liberation Day, they're here, they're gone, So a lot
of the tariffs didn't end up happening or are still
kind of in debate or in a gray area.
Speaker 2 (08:38):
Well, let's talk about how consumers are behaving in today's economy.
Consumer sentiment is low, but spending hasn't really slowed. The
top ten percent of earners are driving nearly fifty percent
of the spending. There's this bifurcation going on. How are
consumers feeling and how are they acting? And why does
that matter to me?
Speaker 3 (09:00):
That's maybe the most important economic story of the year.
People will often refer to this as the K shaped economy,
just meaning that one part of the economy, the upper
leg of the K, is like kind of getting wealthier
and wealthier and wealthier. These are people who have money
in the markets. Then there's a part of the economy
that isn't necessarily super invested in the markets that is
not invested in AI. Just look the regular working person.
(09:23):
That is the leg of the k that's going down,
and for those workers things are pretty rough. I mean, yes,
inflation isn't so bad, but if you look across to
when the pandemic started, food is more than thirty percent
more expensive than it was. Rent is hugely more expensive.
Electricity costs are forty percent more expensive. So we're in
(09:47):
a situation where a lot of people in the economy
are just feeling really squeezed. This is not a healthy,
stable situation. You want everyone in an economy doing better
and better. You don't want just one part of the
economy doing better. That's really unstable. It's a bad recipe.
Speaker 2 (10:05):
Well, so, I mean, what is the outlook for the
consumer heading into twenty twenty six? You painted a pretty
grim picture, But what is the data telling us about
how this might evolve next year or deepen?
Speaker 3 (10:16):
Well, this is the thing about the Alice in Wonderland economy.
Consumer sentiment is terrible. It's like near the lowest levels
it's been in decades. People are feeling horrible about the economy.
I think a lot of that's the job market. So
when the holidays spending season happened, especially Black Friday, which
is this big measure, I thought it was going to
be a real disaster for retailers. A lot of them
(10:38):
make a third of their money around this time. This
is a big, big deal. Retail sales did great, they
looked great. Somehow we feel terrible. We're spending more than ever.
Speaker 2 (10:47):
Yeah, this is just like it's confounding.
Speaker 3 (10:50):
It's confounding, it's through the looking glass. Yes, it is
the cognitive dissonance that is the twenty twenty five economy.
Speaker 2 (10:58):
After the break, the tailwind that's been keeping the US
economy growing, and what could happen next year if the
winds shift.
Speaker 3 (11:18):
I think AI has saved our bacon.
Speaker 2 (11:21):
Artificial intelligence. Stacey Vnixsmith, the host of Bloomberg Businessweeks Everybody's
Business podcast, says, the companies developing AI, the chips they're buying,
the data centers they use for power, it's all driven
the stock market. In twenty twenty five.
Speaker 3 (11:37):
I saw this great chart. It was basically the SNP
four ninety three, meaning the S and B five hundred
minus what they call the Magnificent seven stocks. Those are
the stocks really driving the economy right now. All of
them are very interwoven with AI. It's Google, Amazon, Apple, Meta, Microsoft, Nvidia,
and Tesla. And if you take them out and you
(11:59):
look at what happened, the S and P five hundred
subtracting the Magnificent seven is essentially flat Wow, basically single
handedly responsible for all of the market growth we saw
this year. But AI's a little tricky because right now
it's creating a lot of jobs because of data center construction.
Because AI is notoriously like really thirsty, it needs a
(12:20):
lot of juice, so data centers are going up, and
also companies are kind of expanding. What Mark Xandy said
to me was he was like, we're walking a really
fine line. He's like, if AI replaces as many jobs
as quickly as people are sort of dreaming it will,
then that's going to cause the crisis in the job market.
And if it doesn't grow fast enough or it doesn't
(12:42):
live up to those promises, the markets are going to panic.
So there is a fine line, a soft landing of
AI that needs to happen.
Speaker 4 (12:53):
There's a kind of a narrow needle to thread.
Speaker 2 (12:55):
Moody's Analytics Chief economist Mark Zandy.
Speaker 4 (12:58):
Again, I think we're going to be able to do it.
Speaker 1 (13:00):
But that's why recession risks start so high, because it
is a narrow path that we have to make our
way through without a downturn.
Speaker 2 (13:06):
I mean, what might happen to tip the scale either
way to bring the economy closer to a potential recession
or to really stabilize it and bring it closer to
that fifteen percent number.
Speaker 1 (13:17):
Well, the kind of the risk that's kind of top
of mind is the runaway stock market. The surge and
AI stock prices and particular valuations are very high.
Speaker 4 (13:26):
Now.
Speaker 1 (13:27):
I'm on board with the idea that AI is a
big deal. It's going to raise productivity growth, and we
are going to see gains and profitability that will support
higher stock prices, but it just feels like stock investors
are kind of over their skis, and it feels like
speculation starting to creep into the market.
Speaker 4 (13:42):
What I mean by that is that.
Speaker 1 (13:43):
Investors are starting to purchase these stocks simply because they've
risen in price in the recent past and have concluded
therefore a rise consistently going forward, and that generally when
you get into that kind of a market.
Speaker 4 (13:56):
It's at risk of correcting.
Speaker 1 (13:58):
That's not my baseline, but I think think if you
had you said, you know, what would be the most
likely downside scenario where we could go into recession that
you know. The other thing to point out is, you know,
the run up in stock prices has been critical to
growth because it drives up wealth, and through wealth effects,
the consumers that are very well to do and own
the stocks are outspending. So if you construct a scenario
(14:19):
where price is correct, then that wealth effect goes from
positive and negative, and that knocks one of the legs
out from the economy's growth and thus the higher risks
of recession. So that's the downside risk.
Speaker 2 (14:31):
But Mark also laid out the potential upside things that
could push the recession risks lower.
Speaker 1 (14:37):
We've got a lot of stimulus coming, deficit finants, tax cuts,
you know, that's one the one big beautiful bill Act,
you know, cuts taxes for businesses through accelerated depreciation, and
we're going to get some individual tax cuts, lower taxes
on tips, over time, salt deduction, that kind of thing,
and it's all deficit finants just so that it provides
(14:58):
you know, near trom stimulus so obviously raises our deficits
in debt, but it does support growth and that could
be more of a tailwind in twenty twenty six that
I'm anticipating, and we get a better year than I expect.
Speaker 2 (15:09):
So, you know, say we dodge another bullet, we don't
have a recession next year, But what are the concerns
about an economy that continues in the trajectory that it's
been going.
Speaker 1 (15:20):
Right now, I've been at professional commis for thirty five
years and I've been following the fiscal situation for that
period of time, and I look at three indicators to
gauge the fiscal aalth of the nation, debt to GDP,
deficit to GDP, and interest payments at a percentag GP.
In that thirty five years, I've never had a time
when all three of those indicators at the same time
are screaming we got a big problem. You know, our
(15:42):
fiscal situation is really problematic and the direction of travel
is very disconcerting. If we don't change policy and stay
on the same path, then are all these these indicators
are going to keep moving in the wrong digression. At
some point it's going to lead to much higher interest
rates and be already corrosive on the economies. So that's
one key thing that we need to address. And at
(16:05):
some point there will be a cliff event. It will
boil over and be a serious problem inst racial spike.
It could be a year from now, it could be
twenty five years from now, but it feels like if
we don't change something, that's going to be the case.
It doesn't mean we're going to recession next year, but
it does mean at some point there's going to be
some form of day reckoning. In fact, that go far
as to say, Sarah, I'm not sure we'll ever generate
(16:26):
the political will necessary to make these hard choices unless
we actually do have a cliff event, we have a
spike in interest rates and have a crisis to catalyze
the political will necessary to make these changes. So that's
something you know, I think we're going to grapple with.
I don't know that that's a twenty twenty six event,
but that's an event in our future if we don't
change something.
Speaker 2 (16:45):
On a lighter note, to wrap up here, if you
were the US economy, what would your new year's resolution be?
Speaker 4 (16:55):
My New year's resolution?
Speaker 1 (16:57):
I mean my New Year's wish, it would be, you know, hey, guys,
could we just you know, come together and solve this
immigration problem, because there's no better thing than we can
do to address our both near and long term economic
problems and coming up with a rational immigration plan to
(17:17):
allow for more immigrants into the country. Goodness knows, we
need immigrants of all skill levels, low skilled, medium skilled,
high skilled. We need immigration form, we need a rational
immigration policy. Let's just come together. That would be my
new Year's wish for twenty twenty six. And I think
if that happened, then I think, you know, we'd be
in a much better place in twenty twenty six. And
(17:37):
in twenty thirty six.
Speaker 2 (17:39):
I asked my colleague Stacy the same question, any economic resolutions.
Speaker 3 (17:44):
So if I were the US economy, my new Year's
resolution would be everything in moderation. I would just be like,
you know, just don't overdo it. Slow and steady, just
like toe the line, toe the line. Yes, go back
through the looking glass back where like jobs numbers makes sense,
with the markets, makes sense, with consumer spending, where it
(18:07):
all looks like, yeah, go back to normal.
Speaker 2 (18:09):
We're hoping for clarity and stability in twenty twenty six.
Speaker 3 (18:13):
Yes, Yes, clarity instability sound amazing. Let's do that.
Speaker 2 (18:23):
This is the Big Take from Bloomberg News. I'm Sarah Holder.
To get more from the Big Take and unlimited access
to all of bloomberg dot com, subscribe today at Bloomberg
dot com slash podcast offer. Thanks for listening. We'll be
back tomorrow.
Hosts And Creators
Sarah Holder
Saleha Mohsin
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