The Economy Is Stronger Than You Think—And Worse Than You Think

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John Bickley (0:59)

With midterms fast approaching, the economy is top of mind for voters. According to a July study from the Pew Research Center, 29 percent of Americans surveyed said the economy is the issue they most want to hear about. That's followed by cost of living at 15 percent.

Georgia Howe (1:15)

Meanwhile, the stock market has continued to climb, driven by strong earnings, particularly from AI technology-related companies. While some say that paints a rosy picture for investors and the US economy at large, others are sounding the alarm about a bubble.

John Bickley (1:30)

In this special Labor Day episode, we sit down with an economist to focus in on what matters in the metrics and how decisions in DC and Wall Street are impacting the average American on Main Street. I'm Daily Wire executive editor John Bickley with Georgia Howe. This is a special financial wire edition of Morning Wire.

Joining us now is Scott Lincicome, Vice President of General Economics at the Cato Institute. Great to have you on.

Scott Lincicome (1:57)

Thanks for having me.

John Bickley (1:58)

So we've had some really good corporate earnings this year, the stock markets through the roof. And a lot of people are really excited about that and saying it points to a rosy future for the markets in general. But we wanted to look at this too, in terms of some of the fears around this. Some people are scared there might be a bubble, particularly because of AI.

How do you see things right now? How healthy is the stock market and the economy in general?

Scott Lincicome (2:25)

Yeah, I mean, I think the stock market is perfectly fine. But the economy in general is a bit more complicated. The reality is right now, we have a bit of a two-track economy. And that really does play into the stock market as well. You have AI and then everything else. Anything that touches AI, whether it is big tech companies, services, manufacturing, all of those things are doing quite well. And in fact, we've had a manufacturing expansion for the last eight months or so that is almost entirely being fueled by AI-related industries that aren't facing a lot of tariffs and are having that massive capital expenditures from this big AI boom. But everything else is a little more complicated. Some industries are doing fine, but really not doing great. Other industries are actually struggling a bit. And then for consumers, you have again a mixed bag. Wage growth is okay, but prices are still up.

Home prices are still high.

And a lot of the things that we really care about, gas prices and food costs, well, gas is way up because of the Iran War. And food is not terrible, but it certainly hasn't gone down. And so I think for consumers that are seeing more modest wage gains, I think those are concerns. And then you throw in the bond market and treasury rates, which those affect things like mortgages and credit cards, those are still quite high with mortgages around 7%.

So I think, overall, you have some sectors that are just doing gangbusters, and that's a huge tailwind for the US economy and the stock market. But everything else is pretty tepid.

John Bickley (4:20)

So AI, anything that touches AI, you said, is doing well. What are some other industries that are looking very healthy right now?

Scott Lincicome (4:30)

Well, I think you really see some buoyancy in aerospace. That's another area. Whether that's for back-ordered Boeing jets, defense-related production, that industry is going really well. Boeing had a bunch of back-ordered jets, and that's really been cranking the aerospace industry for a while, along with things like SpaceX and defense. Energy is another area that's really going well right now.