The U.S. Economy Is Teetering. Here Are Three Industries to Watch

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Danny Lewis (0:32)

Hey, What's News listeners. It's Sunday, April 12th. I'm Danny Lewis for The Wall Street Journal. This is What's News Sunday, the show where we tackle the big questions about the biggest stories in the news. On today's show, the US economy has made it through a lot in recent years without rolling over. The COVID-19 pandemic, inflation, and tariffs, to name a few. But many of the sectors that have powered recent growth are also vulnerable amid new shocks. We talked to three journal reporters about some of the factors that could determine which way the teetering economy goes. Will AI continue to boom or go bust? How healthy is the private credit sector? And what could happen to oil prices amid the conflict in the Middle East? Wall Street Journal reporter Joe Wallace has been covering the Iran War's impact on oil prices, which surged to near record highs last week before plummeting after President Trump announced a temporary ceasefire before once again rising. It's been volatile, to say the least. I asked Joe how this moment compares to previous oil shocks.

Joe Wallace (1:35)

The biggest change, if you're comparing the present day with the 1970s when there were the mother of all oil shocks following the Arab oil embargo that started in 1973 and then ironically the Islamic Revolution in Iran is that the world economy and in particular the US economy has become much less dependent on oil. Not just because of changes in the makeup of the economy and the decline of some fuel heavy industries and the growth of others that aren't so energy intensive, but also because of changes that followed those crises in the 1970s. If you think back to the classic post-war American cars, they were gas guzzlers and those just vanished after the oil shocks. And also the world built up some really important buffers. The members of the International Energy Agency, which include the US, are required to hold a certain number of days of exports in reserve to release when the time comes if there's a big shock to supply.

Danny Lewis (2:35)

Joe says the oil shock stands to benefit some countries more than others. The US is a net exporter of crude oil and even Iran is trying to make light of a bad situation, attempting to turn the Strait of Hormuz into a tall booth. I asked Joe how all this volatility could affect the economy.

Joe Wallace (2:51)

Even if the strait does reopen, it's not like flicking a switch. Kickstarting all of that infrastructure will take time and be expensive and in some cases the oil fields may never return to their pre-war production rates. Governments that release oil from their reserves will at some point need to replenish them and the market knows that and so you might expect higher prices for longer because there's going to be that demand in the market from governments. So if you take that as your starting point, higher oil and gas prices for longer, that effectively acts as a tax on consumers. There are also interactions with the other vulnerabilities in the economy. So for example, do high energy prices lead to more defaults by vulnerable borrowers from the private credit industry and does that lead to some blow up in the financial system? How does this affect the incredibly energy intensive AI industry which has been such a motor for growth but also has led to concerns about a financial bubble? So, yeah, we'll find out.

Danny Lewis (3:46)

That was Wall Street Journal reporter Joe Wallace. Coming up, the AI industry has begun to look frothy to some investors. And the Wall Street firms behind private credit are under new pressures. We'll dig into those after.

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Danny Lewis (4:29)

After the break. You may have heard the phrase private credit more often lately. It's an area of the financial system where firms raise money from investors in order to make loans to companies that have historically had a hard time getting bank loans. But while the sector has been growing rapidly in recent years, The Wall Street Journal's lead financial reporter, AnnaMaria Andriotis, says investors are getting spooked by rising deferrals and delinquencies. AnnaMaria, why is this happening? And can you give us a sense of just how big private credit is?