SOTS 2nd Hour: Moody's Chief Economist, United CEO, & More Private Credit Concerns 3/24/26

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Sara Eisen (1:05)

Good Tuesday morning, welcome to Squawk on the Street. I'm Sara Eisen with David Faber. We are live, as always, from Post 9 of the New York Stock Exchange. Carl Quintanilla has the morning off. Coming up this hour, United Airlines CEO Scott Kirby joins us first on CNBC after the company said it would cut flights to deal with the surging fuel prices. Plus Moody's chief economist Mark Zandi with us warning that a recession is a serious threat, even before the disruption from the Iran War. And we'll talk about the latest red flags in the private credit world as Aries and Apollo limit withdrawals. But David, today I'm focused on a kind of wonky topic.

David Faber (1:40)

We talked about it before. What's different today than every other day, Sara? Sorry.

Sara Eisen (1:44)

But there's new data on productivity. So I thought it was a good excuse to really dive into productivity because it is a story that a lot of economists are excited about. So we got the business productivity 1.8% in Q4. That was a revised number lower. It was only lower because GDP growth was lower in the fourth quarter, which we kind of knew about already, and that also meant unit labor costs, wages, basically, the cost that businesses have shot up because of that lower productivity. However, that's a volatile kind of number. We knew there was a shutdown in the fourth quarter. If you look overall and smooth it out of what we're getting on productivity, it's a really good story. So you can look basically at the year as a whole. So we saw basically 2.5% year over year increase in Q4. So for all of 2025, productivity increased 2.2% from the prior year. And that's better than the 1.7% average rate that we've had over the last 20 years. And better than the rate of the last decade of 1.9%.

Evercore did a really deep dive into productivity. They say the best is still ahead because of AI. And here's a good chart. It really started during COVID. I mean, COVID was a positive productivity shock. Why? Because companies figured out to how to do more with less. And they figured out how, I mean, the digital trends were already in place, like cloud computing and everything like that. But it really benefited companies, which was, I think, a huge surprise as we all sort of went off.

David Faber (3:10)

Yeah, well, as somebody who was very much against people working remotely, I always thought that productivity would be increased. I mean, perhaps other things that are harder to measure, but certainly that as well as a result of people being together. But maybe that was not the case.

Sara Eisen (3:24)

The post-pandemic trend, as you just saw in that last chart, is super strong versus say the trends around the 2010 era. And then we're now, as Evercore points out, annualizing 2.2% since the start.

David Faber (3:38)

And this is not including real productivity gains from the user of artificial intelligence.

Sara Eisen (3:42)

Yeah, and that's kind of the point of this, which is the best could be yet to come.

David Faber (3:46)

Well, we certainly expect that it will be given everything that is being invested in AI, particularly for the enterprise, to actually become more efficient.

Sara Eisen (3:54)

Yeah, and that's what...

David Faber (3:54)

That may mean job losses, which, of course, is a conversation we continue to have.

Sara Eisen (3:58)

For sure, the disruption. But productivity booms do occur after periods of big investment and technological progress. And that is what we were seeing in AI. And I do think it's worth noting, David, why we're so, why economists are so obsessed with this. Productivity is kind of considered a magic bullet, right? Where you produce more, you have more growth without having to use more resources. It also could potentially unlock the big dilemma that the Fed deals with and that our economy deals with, which is, you know, usually when you have really strong growth, it's inflationary. Well, guess what? If you have really strong productivity, then businesses can pay their workers more and theoretically wouldn't have to raise prices along with it. So that's why there's a really good story potentially developing here. If, you know, we continue to see these strong productivity gains. But what I wanted to highlight is maybe the reason, you know, people are wondering, why don't we see tariff inflation? We see it in certain pockets, but we're not seeing everyone expected. We'd see overall inflation. Well, we are seeing this above trend productivity and that can help offset it.