Claudia Sahm: "There Are Problems Under the Hood"

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**Claudia Sahm** (0:47)
We don't forecast recessions. It's usually because they're very severe and abrupt. The economy is moving long and then all of a sudden, it contracts or move backward. Usually, something and often multiple somethings have to go wrong all at once.
I could see some seeds of a recession.

**SPEAKER_1** (1:13)
Hello.

**Maggie Lake** (1:13)
Welcome to Wealthion. I'm Maggie Lake. Joining me today to discuss the outlook for the US economy and labor market is Claudia Sahm, Chief Economist at New Century Advisors and Founder of Sahm Consulting.

**SPEAKER_1** (1:23)
Hello.

**Maggie Lake** (1:24)
Wonderful to have you on.

**Claudia Sahm** (1:25)
Hi. Great to be here today. Thank you.

**Maggie Lake** (1:28)
Where are you on recession? We have to ask you because you created one of the benchmarks for the Fed that people measure. Are we in a recession? Have we had a recession? Is the US even allowed to have a recession?

**Claudia Sahm** (1:42)
I am not on recession watch right now.
There are concerns to have about the economy. I think there's some big structural shifts potentially happening in the economy. We talked about AI. We talked about all of these, the cost shocks that really can rewire kind of the fundamentals of the economy, sometimes in a very persistent way. That is different than a recession, which is it's a broad based contraction economic activity, but they tend to be short lived. They're temporary. They're not like shifts in the trend, the whole direction where we're headed. They're much more abrupt changes. And right now, the signs that we often have of a recession don't appear. The labor market has been stable. The unemployment rate is not rising. There seems to be growth is good.
It may be more focused on the build out of artificial intelligence and the data centers, but there's a lot of capital investment happening. It's not just data centers. So broadly speaking, the US economy, it's expanding. It's, you know, moving forward. So I don't put particularly high chances on a recession, though I will note that not by definition, but almost by, like, experience, we don't forecast recessions, right? It's usually because they're very severe and kind of abrupt. You know, the economy is moving long, and then all of a sudden it contracts or move backward. Usually it's something, and often multiple somethings have to go wrong all at once. So I could see some seeds of a recession. You know, we have a stock market that's very highly valued. We'd have a lot of expectations behind AI. I think those are probably well founded over the long term, but timing is tough, right? And you could have, and I think the AI is really, it really is like the source of optimism, right? In terms of like the economy, the growth, the capital expenditures.
And that's important, right? And there are times in the past where we've had whatever was the source of our optimism got the legs knocked out from under it, and that contributed to a recession. So I'm not predicting any of this. I don't like, that's not my base case. And I'm not on Recession Watch. But you always got to kind of pay attention to like, what would it take? Like what would have to go wrong? And those things are always out there. It's just, you know, do you really activate all the bad news at once? So I, you know, don't totally rest easy, but I have some concerns about the economy, but recession is not the main one right now.

**Maggie Lake** (4:42)
Not the base case right now. Well, it's such, it's so interesting because we always, and it's great to talk to someone who's sort of in the data and the sort of looking at the fundamentals as opposed to sort of the zeitgeist finger in the air, but it seems that so much of what's happening and what keeps consumers moving is the wealth effect. Is it more important now than it was when you first started looking at the economy or has it kind of always been an element? It's just now where we get headlines about the stock market and everyone's on their phones, day trading. Like is it more important?