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Kousha Navidar: It's The Brian Lehrer Show. I'm Kousha Navidar, keeping the seat warm for Brian while he's on vacation. Thanks for joining us this morning. Let's check in on the state of the economy, because there have been a number of indicators over the past week that have been a cause for concern. Last Wednesday, the Federal Reserve voted to keep interest rates at their current rates. They're the highest they've been in over two decades. Then on Friday, the Bureau of Labor Statistics released a weaker jobs report than what many expected, with fewer new jobs created and an increasing unemployment rate than what a lot of folks expected. Things didn't get better Monday, which was yesterday, when we saw a big sell off in the stock market. It came to the point where some of the biggest online brokerages reported outages of their trading platforms because so many people were trying to log in and check on things. Maybe some of us listening were among those people trying to log in. We can see that the choppy waters beyond our shores.

In Japan, the Nikkei index, which is an index for the Tokyo Stock Exchange, drops 12%, was its worst performing day since 1987, although it has since rebounded over the past day. Stocks in the US have stayed steady so far today as well, but, you know, it sufficed to say it's been a week, and it's only Tuesday. As we take stock of everything, if you'll excuse the pun, we're left asking if these causes for concern are serious causes for concern.

Are all these indicators a collective harbinger for a recession? Or is this just turbulence on the way to what the Fed hopes is a soft landing on their road to economic recovery that's been unfolding since basically 2020. Here to help us sort through all the data is Justin Wolfers, professor of economics and public policy at the University of Michigan. Justin also co-hosts the Think Like An Economist podcast. Professor, welcome to the show.

Justin Wolfers: Pleasure to be here, mate.

Kousha Navidar: When I think about interpreting economic data, I'm always reminded of that joke about Harry Truman. He asked for a one-armed economist because he was tired of all his economists saying, on one hand, this, but then again, on the other hand, that. Is this data that we've been seeing this week similarly difficult to interpret?

Justin Wolfers: I am going to disappoint you and your listeners, which is I'm going to try and be vehemently two handed because I never want to give you just my view. I want to give you a sense of what the overall debate is. I'm reminded this week of another famous expression, which is the stock market has picked nine of the last five recessions. I think that really gets to the heart of the matter.

The stock market is not that important to yours and my life directly, unless you're a retiree, living off dividends or something. It matters because when people are buying and selling stocks, they're really taking bets on the future, and it's the fact that they're looking forward to the future that makes them so darn interesting. We have a lot of indicators telling us what happened last month, but what's going to happen next year is much rarer. Now the problem is, remember that expression, the stock market has picked nine of the last five recessions.

Stocks sometimes tend to go up and down with flights of fancy and people's imagination and have lots of fits and starts, and they often don't get things right. We don't know the answer yet. I've sometimes given the analogy that the stock market right now is a bit like a toddler, particularly a toddler that hasn't had a good feed recently. It hoots and hollers and screams and yells, and doesn't always make sense. Sometimes even my kids, when they were toddlers, they would actually see dangers that I didn't see, and maybe that's the best way to think about it.

Kousha Navidar: When you think about-- Let's extend the toddler analogy. The stock market has increased. If we put this into context a lot over the past quarter, like a toddler, is this more just like the toddler needing a nap, needing to cool down a little bit after so much growth?

Justin Wolfers: I apologize. I just lost audio for a moment. Could you just repeat the question?

Kousha Navidar: Oh, yes, absolutely. You had made the toddler analogy, and I was trying to put it into context with what we've seen over the past quarter where there's been enormous growth in the stock market, to put this into context for listeners not to overhype, is this stock market activity more just like the toddler maybe needing a nap, I don't know, cooling down after a lot of exertion?

Justin Wolfers: Yes, look, I think that's really important because what it does is it gives us some context for thinking about the whole thing. I joked to a friend last night that the stock market fell 3% yesterday, or another way of saying that, it's up only 9% over the past since the beginning of the year. It's up even more over the past 12 months. Yes, the toddler is really unhappy about having lost 3% of the value of their portfolio, but if your portfolio has gone up 15% over the last 12 months, frankly, you've got nothing to complain about. There's a lot more people doing it tough in the economy out there.

Kousha Navidar: Let's take into account as well the news about the Fed and the jobs report. Maybe you could put this into a top line message for us as far as it's possible, not just the stock market, but all these economic indicators over the past week. What do you make of the data? Are you worried about any of it?

Justin Wolfers: Kousha, that's a really good question. For the listeners, I want you to think about there being two important places, and they're both important but for different reasons. One is Wall Street. There's a lot of people in finance whose bonuses and careers and portfolios depend on what's happening on Wall Street. Wall Street, yesterday, had a pretty tough day. Now, by the way, it's come back this morning, so it was just one bad day.

Financial market indicators matter, but they mostly matter because they're a bet on what's going to happen in the future. Let's go visit Main Street instead, and that's what economists look at instead. Here, folks like me, we study things like the incomes people earn, how many people are in poverty, what spending is like, wages are rising, inflation is falling, employment is growing.

If you look at all of those indicators, they tell you that the economy is doing pretty well. Now it's a somewhat more subtle story than that because pretty well doesn't feel amazing, and you might be confused why. This is where you've got to remember that even in 2024, this is an economy still recovering from the COVID shock. COVID was the deepest recession since the Great Depression. What happened was we fell in a really big hole, and then the economy flew as it bounced back. It's like you jumped onto a trampoline and you bounced really quick and really high. That's what led to tremendous growth rates through 2021 and 2022, and even 2023.

What's happening now is the economy is doing exactly what I would have hoped back in the bad old days of 2020. It's getting back to normal, and normal is glorious. It's gloriously boring and dull, but it means we get none of those fireworks, the spectacular growth rates. What we saw on Friday was a job's report that suggested the economy is just puttering along, but puttering in a healthy way. That was less than people were used to, and so that led people on Wall Street to really fundamentally reevaluate things, and that was the spark that led to the big sell off.

Kousha Navidar: In your mind, it is still within context, kind of dull, and for you, dull is delightful. Is that fair?

Justin Wolfers: Dull is absolutely delightful. Kousha, I want you to hold in your memory how you felt. Literally, try and hold in your memory how you felt in March of 2020. There was a public health crisis, for sure. As an economist, though, I felt terrified. We were shutting down the entire economy. We didn't know for how long. We didn't know if people, everyone we knew around us was losing their jobs, and we didn't know if we would be able to get them back to work. At that moment, if I were a religious person, I would have prayed for boring, but boring is where we're at right now, which is unemployment is at 4.3%, which is far lower than it's been on average for decades. It's fairly close to a 50-year-low. Not precisely there but fairly close.

Inflation. We had a real problem with inflation two years ago. Pandemic shortages led to price rises. It was very painful. Inflation got as high as 9%. It's now down to a little bit above 2%, maybe 3%, maybe two and a half. We can argue about that. Real wages are rising. Incomes are rising. Employment's rising. Inequality is falling. Oh, my goodness. The economy's not delivering for everyone, but what macroeconomists look at is how it's doing overall, and overall, it's doing far better than one could possibly have expected, and it's one of the better economic periods of yours or my lifetimes.

Kousha Navidar: Listeners, how do you feel about the economy, especially since the stock market shifted over the past week? Are you worried? Are you adjusting your behavior in any way? Or do you have a question for our guest, economist Justin Wolfers? Give us a call or send us a text. We're at 212-433-9692. That's 212-433-WNYC.

Justin, I want to go into the Fed for a little bit, because last Wednesday, they had the Federal Reserve Chairman Jerome Powell hold a meeting with reporters. Can you give us a quick recap of their perspective, what he said, how they've responded since the past week?

Justin Wolfers: Yes. Just by way of background, the Fed's main job for the past couple of years has been trying to reduce inflation. What it did was it had fairly high interest rates and it left them high. Those interest rates were appropriate while we needed to reduce inflation. Now, the thing is, inflation has now come down from 9% to close to the Fed's target but not all the way there.

There is some argument, does the Fed have more work to do or not? It depends on whether you think close enough is good enough. There was an argument leading into Tuesday and Wednesday's meeting whether the Fed should cut rates, and it elected not to, but it really signaled pretty hard that, okay, we didn't cut rates this meeting, but we're going to do it next time.

Kousha Navidar: Sorry. Go ahead. Go ahead. Yes.

Justin Wolfers: Fast forward, two days and one new set of jobs numbers came out, and they were a little bit disappointing, probably disappointing enough that if he gave Chairman Powell a chance to do it all again, he'd go back and he would have cut interest rates by a quarter of a percentage point. That's what led to people on Wall Street freaking out. They didn't get their interest rate cuts when they wanted it.

Now, what's utterly clear is the Fed will cut rates in one month's time. I want to just point out to listeners, it's important to remain calm at a moment like this. Even if you thought the Fed had made a mistake, you think it's got interest rates a little bit higher than they should for just a couple of weeks. Let me tell you, a little bit higher for not very long doesn't much affect the economy, and so I still have great faith that we're going to continue on this glide path towards boring, which we economists sometimes call a soft landing.

Kousha Navidar: How are the Fed measuring the health of the economy? Is it different than what you or I or the average worker may be looking at? Are they looking at the stock market when they think about the healthy economy, or is it something much different than that?

Justin Wolfers: The answer is they're looking at everything. There's a thousand PhD economists within the Federal Reserve, and there's been several careful studies of the ability of that collective to predict the future of the economy. It turns out they're better than anyone on Wall Street, any talking head on TV, or even any professor being interviewed on WNYC.

They have a pretty good way of looking forward, and you might say, do they care about the things that you and I care about or that your listeners care about?

The answer really is yes. They care about inflation, and high prices have been a real problem. They care about unemployment. One of the things that's got their attention is concern that unemployment may be drifting up. They care about a lot of other things, but the Fed doesn't have the ability to affect things. For instance, it's impossible for the Fed can't directly do things like reduce the poverty rate. What it can do is keep the economy growing, which would reduce poverty. They're looking at all the things that you and I might care about, but they can't necessarily directly affect them all.

Kousha Navidar: Let's go to a caller, Jeff in Long Island City. Jeff, how do you feel about this talk?

Jeff: Well, I'm very pleased to hear your guests because they are the appropriate person to have on now. They're very measured and they're saying all the correct things. I think this talk of inflation is really just the media doing what the media does, which is being implied by your guests. He's just being perhaps a little polite in that. To have a recession, you have to have two quarters of negative growth, and we haven't even had one quarter of negative growth. We've had some mixed reviews or some lukewarm job number. Reports come out as your guest just said, if Jerome Powell could do it all over again, he probably would have cut rates this past meeting. They're going to cut rates in September.

No disrespect to you, but I think it's really just the media hyperventilating, looking for a story, looking to hype. The next thing is the economy tanking, and it's not, this is what the economy does. There are ebbs and there are flows, but we're not, we're not in a recession. We're not headed towards a recession. It's way too premature to discuss that. Frankly, anybody that knows anything about macroeconomic, macroeconomic forecasts, macroeconomic factors would know this and would tell you this. If they didn't tell you this, then they would just be looking to sort of puff themselves up to get on air and to try and make a name for themselves. That's just how macroeconomics works. It's, it's not a day to day, one report to one report thing. It really is over quarters. It's really over.

Kousha Navidar: Totally hear you, Jeff. Thank you so much for that call, giving that perspective. Sounds like Jeff is agreeing with your take on this, about how the actual need of a recession would look different if this were indeed a recession. Also saying that maybe the media is overblowing this as one factor into what all the fervor is about. We've got Duke in Brooklyn. Hi, Duke. Welcome to the show.

Duke: Hi. Thanks for taking my call. I just feel like we are all feeling the inflation. I just feel like prices are much higher than they were, and I'm just wondering, is it real? Is there a reason why we're paying so much in general, or is it just corporation and big businesses just charging us more because we're used to paying so much after the pandemic?

Kousha Navidar: Duke, thank you so much for that call. Definitely feeling the pressure, it sounds like, of this inflationary period. Justin, what would you say to him, to Duke?

Justin Wolfers: I think both Jeff and Duke raised something really important, which is how people feel. A recession is when the economy starts to shrink, and we've had a tremendous amount of talk and worry about a recession over the last three years, actually.

There's a wonderful economist by the name of Kyla Scanlon, who invented a new term in economics, and she calls it a vibe session. Yes, the economic numbers look good. Yes, people are working. Yes, they're getting pay rises. Yes, incomes are rising, but the vibe's off. People are feeling pain, or they feel like they're feeling pain. One of the things Jeff spoke to is the role of the media in that. I studied this quite closely, and I have a little indicator I like to use, which is how often do people search on Google for the word recession?

Now, it turns out, if you look at this, since the year 2000, when we had the global financial crisis, which everyone told us was a once in a century downturn, the number of searches skyrocketed a recession. Then when we had COVID, another once in a century downturn, I know we had two of them. The number of people searching for recession skyrocketed.

Then in 2022 and 2023, when the economy was really strong and kept recovering and was really doing well and was absolutely going gangmasters, I would get calls from journalists every day saying, why does everyone think we're in a recession? In fact, I made one of the biggest calls of my career, which was the easiest, which is I said, "We're not in a recession. Just look at the numbers."

It turned out, people were searching for the word recession during those periods at a higher rate than they had been during either the global financial crisis or the COVID pandemic. Something changed in the way we have our economic conversations or the role the media plays, where suddenly we could have a recession scare even when no such recession existed. Now, I checked this indicator this morning, and I just tweeted it, if anyone wants to see the graph. And the amount of interest in recession is back up at record levels again. Something's going a bit fishy here where people are freaking out even when things are actually kind of okay.

Kousha Navidar: Like you said, the vibes are kind of off. Can you attribute those vibes to anything? Why are they off?

Justin Wolfers: I think, look, Kousha, what you need to do is stop this WNYC gig and drop out and write a wonderful doctoral dissertation, figuring that out. I don't think we know yet. I do think that we're in an era of tremendous partisanship. The way that people answer surveys now is sort of absurd, which is as soon as you know whether they're left wing or right wing, you know whether they think the economy is fantastic or terrible. Two people in similar jobs, living next to each other, are seeing the economy in completely different ways, and it's all about whether they're team red or team blue, and I think that's a big part of what's going on.

Kousha Navidar: Well, if I ever take you up on that, you might have to be my thesis advisor [laughs]. Before we wrap up, let's go to one more caller who I think is going to have an important contribution here, Kevin from Brooklyn. Hi, Kevin. Welcome to the show.

Kevin: Hi. I love this show. Thank you so much for all of them. I had one question that harkens back to, is it Martin, who said at the very beginning that-- Oh, I'm sorry, that you shouldn't really worry so much about the economy because of what happened over the last couple days, unless you are near retirement and investing in dividends. Well, what is the danger there? That's it, pretty much.

Kousha Navidar: Kevin, thank you so much. Justin, like Kevin is saying, there are a lot of folks out there who are investing in dividends past retirement age. What's it like for them right now, do you think?

Justin Wolfers: Well, it depends how they think about this. This is actually, I think, much more a question of psychology and economics. Remember I told you that US stocks fell 3% yesterday, and you could say, well, they rose 1% this morning, so they're already part way back, but they're up 15% over the year, even after having fallen back down. If I were a retiree and I'd made 15%, I feel pretty fabulous, frankly.

Now, if I were a retiree, and I read the paper, and it says, I just lost 3%, I'd feel pretty miserable. Here's the advice. Stop reading the paper. I'm not really being that funny. The thing is, if what you did was checked in on your stocks just once a year, most of the time you discover that you'd made money and you feel pretty good about it. But it's when you look at the day to day look, the truth is the stock market rises 51% of the days and falls 49% of the days. If you're checking every day, you're going to be miserable about half the time. Realize these are investments for the long run. Obviously think hard about whether you want to take the risks, but realize if you do take the risks, you get these extraordinary returns, like stocks having risen 15% over the last 12 months.

Kousha Navidar: I'd like to read some more of the text that we're getting in here because we're getting a lot of views from folks talking about their own personal experiences. Here's one. It says, I worked in tech, 2020 to 2023, was a boom time for me. I've now been unemployed for almost a year. When people say things are going well, I feel so gaslit. That's Camille in Crown Heights.

We've got another one, Elizabeth from Queens, saying companies are taking advantage of people thinking there's a recession, so they're manufacturing inflation post-COVID, because they can. Ridiculous. Have to fact check that, but that's at least what Elizabeth from Queens feels.

We have another caller here that says, "I agree with the caller. It's just news noise. I'm looking at the clock, Justin. There's so many different ways to interpret this data, like what we were talking about at the very beginning with Harry Truman. You're the host of a podcast. It's called Think like an Economist podcast. In situations like these, with data that's potentially disquieting, how does someone think like an economist?

Justin Wolfers: I think you have to take seriously what the risks are that are out there. An advice that I give people is to always make sure that you've got to work, to make sure that you've got a rainy day fund that could keep you spending healthy if you end up out of work for 6 or 12 months. It's painful. While I can tell you that the economy, as a whole, is doing well. There absolutely are a lot of individuals with heartbreaking stories because our economy, it may be productive, but it's also cruel, and it doesn't act the way we necessarily want it to. Be a little defensive, think about what could go wrong, and try and prepare ahead of time. I think that's the simplest advice.

Kousha Navidar: Well, it is an advice that I am sure is not going to fall on deaf ears of many people listening. We appreciate you for giving it. We have to leave it there for now. I've been talking to Professor Justin Wolfers from the University of Michigan. Professor, thanks so much for coming on.

Justin Wolfers: My pleasure, Kousha.

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