Moody's Talks - Inside Economics - Shakespeare in Love

Episode Date: February 6, 2026

In the Oscar-winning film Shakespeare in Love, theater owner Henslowe explains that the theatrical business faces "insurmountable obstacles on the road to imminent disaster," yet somehow "it all turns out well.” It’s a mystery he can't explain. This week's podcast channels that spirit as Moody’s Analytics economist, Dante DeAntonio, joins Mark and Cris to dissect the labor market despite the delayed employment report from the Bureau of Labor Statistics. The team navigates volatility across financial markets and examines the outlook for employment and consumer spending in light of AI adoption and the stabilization of the saving rate. Like Henslowe's faith that the show goes on, they explore whether the economy will find its way through even when the data arrives fashionably late.Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s AnalyticsFollow Mark Zandi on 'X' and BlueSky @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics, and I'm joined by my trusty co-host, Chris DeReedies. Hey, Chris. Hey, Mark. Good to see you. Good to see you as well. And we've got Dante, Dante Di Antonio, a bit of a head fake today, Dante. That's right. Hi, Mark. How are you doing? I'm okay. Yeah, we were supposed to get the jobs numbers today, but I guess the government shut down got in the way. Got in the way, just a little bit. We've got to wait a few more days next Wednesday. Are you going to be on next Wednesday as well? Are we doing this now? Wednesday? No. Oh, we got to wait until next Friday, I guess, to do it. I guess that's what we're going to do. You get CPI next week, too. You get jobs in the CPI in one week. Do we? And when CPI come out? Now it's Friday. It was supposed to be earlier in the week, but now it's Friday. Okay, well, I guess we'll wait till next Friday to record the podcast. A lot of data. Tofer, yeah. Get mad out of here as well. Yeah. Actually, we should talk about what we think those numbers are going to look like. because I think they're going to be pretty ugly.

But we'll come back to that. We're going to talk about jobs. Oh, I meant to ask you guys up there in the northern part of the United States of America. I was talking to somebody's and they said that the Delaware River has completely frozen over. Is that possible? Is that true? I have not heard that. It seems like it's possible.

So back in Washington's day when he crossed the Delaware, did he cross it in a boat or did he kind of walk across? Well, the painting has him in a boat. I was going to say the painting is a boat, right? The painting is a boat. Right. It was much colder back in the day, though, wasn't it? Back 250 years ago? I mean, it could have been frozen, potentially.

It was frozen now. No. When I was a kid in the suburbs of Philly, we, every, invariably, every winter, we was cold enough that we could go ice skating, you know, on the ponds, you know, around the, around my home. I haven't been able to do that in 15 years. or 20 years, maybe 25 years, but I bet you can't now. Yeah, I would think so. Pretty cold out there.

Yeah. Okay. No comment, right, Chris? It's cold. It's cold. It's cold. I tried to do a quick AI search and it said it was icy. It went to Washington, crossed it.

Oh, okay. It wasn't frozen rice, but not, yeah. Can actually walk. Well, I think we need to do a couple things here in this podcast because this is a more intimate group, but Marissa's away, so she won't be joining us this week. One is the labor market. There was, even though we didn't get the job number for the month of January, and this job number is going to be a big deal because we're also going to get the benchmark revisions,

what maybe Dante can explain to us. But there was a lot of labor market data that did come out, and it had a clear, consistent storyline to it. And so we should talk about that. And then the other big news, economic news of the week, is what is what's going on in markets, financial markets, a lot of volatility up and down and all around. Bitcoin, gold prices have taken it on the chin, and I thought we could kind of talk about what's going on in markets

and what the implications are. So that's sound like a good game plan? Yeah. We debated the playing the game, but without Marissa, it feels like the heart of that was like ripped out of the chat, the proverbial chest, right? I mean, this doesn't feel like the same thing without Marissa here. There's always an asterisk.

There's always an asterisk if we don't have her, you know. Right. Okay. So speaking of, do you have a, are you going to reveal your Super Bowl prediction as well? Oh, well, I don't vote. I'm not voting for anybody, but I'm voting against the New England Patriots. I can't. Well.

Agree. Really? Yes. I think the whole country agrees, except for a little dot around Boston, maybe. I mean, who wants New England to win? I mean, they've been in a, they've got the secret sauce, though. They obviously know what they're doing. I mean, they obviously know what they're doing.

They're in that game so many time. But what about you, Chris? Do you have a pick? I don't have a. You're a watching ball player. You don't even watch football probably. What I'm curious about is how many people are going to watch the Super Bowl halftime show? I guess that's gotten quite political.

It has. It has. You got to watch it, though. Now you have to watch it. No, yeah, no, I got to watch it. I've actually called Martin. That's right. It just deuced up my interest and couldn't watch it otherwise.

Although, I'll have to tell you, I know this is a big side track, but one of the best commercials of all time was a Super Bowl back about 15 years ago, FedEx, with these cavemen. Did you see this, FedEx and the cavemen? Well, I, probably not. You should just Google FedEx, K-Men, Super Bowl halftime. You'll go to it. Look at the YouTube.

Tell me if you don't laugh out loud. 15, 20 years later, I'm still, every time I think about it, I'm still laughing. It's hilarious. It's hilarious. Best commercial of all time. But anyway, let's get down to brass tax and the jobs numbers. So I don't know, Dante, where do you want to start? This is a very unusual, right?

Because usually you can dive right into the numbers, but this time you're going to have to shine through here. You've got to add lib a little bit, extemporize. What's the number going to be, right? And tell us what the number is going to be, yeah. Well, I mean, my forecast is 40,000. That's what I had penciled in earlier this week. And I don't know that I have a reason to change it at this point.

So explain, what does that mean? What does that mean? For what? I mean, it's non-farm payroll growth, right? In the month of January. It's going to be 40 January. And that would be more of the same, right? I mean, the last two months, November, December, we're right around 50,000.

So it would be sort of in line with where we've been in the last couple of months. I mean, all the other data that did come out this week, none of it was particularly positive about the labor market. So I don't have, I don't think I have much reason to be more optimistic going into next week. Yeah. So why don't you go through the data that did come out and give us a sense of what you think that they're saying? Sure. I mean, obviously the closest comparison that came out this week to the actual jobs report is the data from ADP and Rivellio, right? So we get sort of similar payroll figures there. ADP reported a 22,000 job gain for January in the private sector. Revelyo, if you back out just the private sector, they had about a 3,000 job gain in the private sector. Their actual headline number was slightly negative because they have penciled in something like a 15,000 job to call. in the public sector. So I mean, both of those are quite weak. And they've actually done a pretty good job lately. You know, month to month, it's always a little volatile. You're trying to compare those

to the BLS numbers. But if you look over the last eight months, if you look since May, BLS private payroll growth has averaged 38,000 jobs a month. The average of ADP and Revellio over that period is 24,000 jobs a month. I mean, they've been pretty aligned here in sort of the second half of 2025. And so again, the average between those two was only 13,000 in January, so it doesn't exactly instill confidence that we're going to see any sort of big job gain to begin the year. And just to remind folks, the ADP is, that number is based on payroll records that the ADP processes for companies. So like our paycheck is processed by ADP, and they do that for how many folks, $125 million or something? I can't quite remember.

I don't remember. But it's a lot of, a lot, it's a pretty large, uh, part of the overall job base that they cover. And then Revelleo is they scrape LinkedIn pages, right?

They use LinkedIn pages as a way to measure, uh, who's coming in and out of the labor market, that kind of thing. That's right. That's right. Okay. And so both are weak.

Uh, actually Revealio, including government was negative for the month of January. EDP was slightly positive, and that's private sector, doesn't include an estimate for government. So if you threw in government, it might actually be close to zero or negative. And you're saying if you take the average of those two month to month, that's been pretty close, at least in recent history, to the actual Bureau of Labor Statistics, monthly estimate of payroll job growth. Very close. That's right. So, and so the numbers together come in close to zero, I guess, or maybe slightly positive.

Is that what you said? Yeah, they come in, yeah, just slightly positive for January. Okay, and that's consistent with your 40K estimate for the payroll number. Yeah, if anything, I think 40K might be a little optimistic for January. I mean, I'm not sure that we even have reason to think that we'll get that many jobs, but. Right, right. And I ask you this every single time, you know, and even if though you don't have the report, what is your estimate of the so-called break-even monthly job growth?

That rate of job growth consistent with stable unemployment. What is that? What are you estimating that to be? I mean, I think it's in the neighborhood of 50,000. I think obviously we'll learn a little bit more next month when we get the new population controls in the household surveys. So we'll get a better sense of where labor force growth and population growth stand going into 2026. 50K. And your estimate of actual, let's call it underlying job growth,

abstracting from the monthly vagaries of the data is what? I think it's between zero and 50. I think it's less than break-even. So my guess is that the unemployment rate sort of creeps a little bit higher here in the first half of 2026. Got it. Correct. Chris, are those consistent with your estimates of break-even and underlying? Yeah.

I mean, certainly. Pretty close. You need to wait for more data here, but based on the current. Right. Information we have those seem reasonable. And do you have an estimate for the, based on everything on the January payroll employment gain when we get that next Wednesday? What do you think that's going to be? Dante says 40K.

Yeah. So that sounds like a reasonable estimate to me as well. I'm color. So Marissa left behind that her thought is going to actually be negative, right? So she's in the past. Did she say that? She said that she's all that going to be decline. Oh, there's going to be a decline.

She say why? She did not. Okay. All right. But then I'll throw another alternative source out there. This is the Bank of America, Bank of America Institute also does an employment study based on their deposits. They look at, they can see payroll deposits into Bank of America accounts. And based on that, they said there was actually a little bit of an uptick in January. So if you want to more optimistic view, it's there. So what number did they give? Do they give a number? They didn't give a number. They just show the year-over-year change. Oh, I see. They said a 0.8% your year-over-year change for January, which is actually pretty sizable. Yeah. If that comes true. So I don't know.

I'd sell 40, maybe we get an upward surprise to 50 based on that information. My gut tells me maybe 30 is a more realistic number. So still positive, but weekly so. I'm not familiar with that B of A. What data source? What do they do? They're looking at their deposit accounts, you said? Yeah.

So they can track deposit. they can see payroll deposits in personal accounts, right? Right. I believe they can also, they also look at the unemployment insurance. I can then see unemployment insurance deposit. So they have an estimate for continuing UI claims, for example, based on that, which are pretty flat. That seems consistent with the labor department data. But this, yeah, so based on the deposits, payroll deposits, they can estimate or correlate that to the BLS.

report. It's pretty noisy, though, I have to say, and they do smooth it out. And that's what I'm doing here. Because, you know, it's, yeah, the things move around with payrolls all the time. I'm sure there's a lot of seasonality, too, in that data. Hard to tease out, you know, they've, they've done their best to certainly adjust or account for all those things. But if you're looking for a signal in the absence, if in the desert of the signals, right? Yeah, yeah, yeah, yeah. That's at least one that actually points in a little bit of an opposite direction than what we're seeing from the other sources, Dante quoted. Got it.

We got two other government data sources, labor market data sources. One was the so-called job opening labor turnover survey joltz, and the other was claims on the church points. Dante, what did those data say? So claims first. I mean, there was a little bit of an uptick in initial claims. They had been holding closer to 200,000 over the last couple weeks,

and they were up to 231,000, I think, for the last week of January. That's elevated a little bit, but it was that high at the beginning of December. That's certainly not a cause for concern, I don't think, and that data tends to be pretty noisy week to week, so I wouldn't read a whole lot into that increase. Layoffs still seem to be quite low by most measures here.

So, I mean, certainly something will keep an eye on, but not a huge concern at the moment. And continuing claims? They were up a little bit. they were actually up a little bit, but they had been down the last like three weeks and then they, they ticked back up a little bit. I mean, they're still elevated relative to like longer run history, but they haven't really gone anywhere in the last few months. Great. And Joltz, the job opening lib return of survey data. Yes, I mean, I would say the biggest story there was job openings, but that's also the piece that I put the least stock in, I think.

Yeah, we had another big decline in job openings. It was the third month in a row that we had a sizable decline. openings are down by over a million just in the fourth quarter of 2025. So that data was for December. So that's now the lowest level of openings. If you, you know, sort of outside of the pandemic, that's the lowest level of openings going back to 2018, which is, you know, obviously a big change from where we have been in recent years. You know, outside of that, there wasn't a whole lot of change. The hiring rate edged up a little bit, which is, you know, if anything, a good sign.

But it's still very low. the separations rate. So, you know, layoffs and quits were basically unchanged. There wasn't a whole lot of action there other than on openings. Got it, got it. One other technical question is around the, I mentioned the benchmark revisions. They get released with this data. Can you just describe to everyone what those benchmark revisions are? Because we have, BLS gave us a sense of what they would do, what they would say. So, you know, just remind everybody. Sure. So, you know, the regular monthly payroll numbers are obviously based on a survey. of establishments, right? So, you know, the sample of establishments is collected from that. They, you know, calculate a growth rate and they apply that growth rate to the level of employment that existed in the prior month. Obviously, over time, that level of employment can stray from what

the true level of employment is in the labor market. So once a year, we get this benchmark, right, where we take data from the QCW program, the quarterly census of employment wages, which is a near census count of employment. And so once a year, they, you know, essentially reset the that level of employment to match what the QCW data says, right? The reason why we don't do that all the time is because the QCW data is much more lagged than the payroll survey is. But once a year we go back and we set that level and it's for the prior March, right? So we'll get a benchmark level for March of 2025, right? So it'll essentially set that level of employment for March of 2025. That benchmark will be applied for the year prior to that, right? So from

April of 2024 to March of 2025, they'll adjust employment levels to align with the QCW data. And then from April of 2025 forward, they'll re-estimate payroll changes, one, based on that new level, but also, you know, they'll update the birth-death model that they use to try to estimate firm openings and closings. So you do tend to get some revisions to, you know, sort of the last three-quarters of 2025 as well, even though they're not explicitly being benchmarked as part of that process. Okay, so you add this all up. It feels like it continues to suggest a very fragile, weak labor market. No? Yeah, correct. I mean, you alluded to earlier, right?

They already gave us a preliminary estimate of that benchmark revision, right? That preliminary estimate was just over 900,000 down. It's a lot. Over the last couple years, it seems like that preliminary estimate has overstated the case a little bit, but even if the true number is minus 700,000, that's, that's, that's, still pretty big in terms of absolute terms, looking back at history, it's very large outside of a turning point, right? So oftentimes if the economy is headed for a recession, you end up getting big revisions because the payroll survey can't capture that in real time quite as well.

But outside of a recession, this would be a pretty large revision. And we also had a fairly large revision last year as well. And then I think all signs point to that sort of post-benchmark period, those numbers likely get revised lower two, right? The birth-death model. is likely to be less optimistic about firm openings, you know, sort of in the back half of 2025. And so my guess is we get, you know, some smaller revisions to those numbers as well. Yeah, it feels like with all this, when all this is said and done, that we could get some consistent negative monthly job numbers, right? And when we get all the revisions in, all these revisions come in. Because, you know, even now, we barely had any job growth in the

second half of 2020. You know, particularly after Liberation Day, it felt like job growth kind of go off the cliff and we've basically created no jobs in the last, you know, six, nine months. And that's pre-revision. So with these revisions that you just articulate and of course, who knows, we'll have to see, but it does feel like we're going to get some negative numbers here that we're actually losing jobs. Would that surprise you if that were the case? Yeah, I mean, I don't think we'll be negative for all of 2025. I think we'll see more monthly negatives. And I think the average job growth in 2025 is, yeah, is set to come much lower. It was already very low to begin with.

And now it's going to be even lower than that, for sure. Right. Because I would put, you know, given what, given all this, I, my sense is that the underlying rate of monthly job growth, abstracting from the vagaries of the data is zero. I just, it doesn't feel like we're creating any jobs. You know, maybe over here in the healthcare sector, but they're being wiped out by job loss in manufacturing, transportation, distribution. that goes to the trade war, and just the uncertainty and AI to some degree in the tech sector and customer support, that kind of thing. And so the net is basically zero. And I do agree that break even, you know, with the rate that's consistent with stable unemployment is probably around

50K, maybe. And we do need to see these household employment numbers and the population controls. I kind of get a better sense of fix on labor force, but that feels about right. And if that's the case, you know, that's not enough to push unemployment up quickly, but that'll push up unemployment. you know, pretty steadily as we move forward here. We're at 4-4, and that feels like we're going to move into the kind of the high fours here, you know, if this doesn't change, you know, pretty soon. Would you agree with all that? Not that you agree with the exact precise estimates, but that the way I described it.

Yeah. Yeah, I would agree. Okay. So your January number is zero? Zero. Yeah. Zero. Yeah, zero.

Okay. Give or take, actually. equally the the risks are asymmetric on either side of that. It could be a little bit higher. It could be a little bit lower, but I'd say zero. Yeah. I mean, my narrative around the job market now is that it's demand, we're getting very weak. It's very weak, very fragile, zero.

That's demand and supply. On the supply side, heavy-handed immigration policy and the impact that's having on immigrant workers and labor force means that the break-even, the labor force growth is slower the break-even job growth is 50K, that's low, but that's not zero. So there's also demand. Demands a week, primarily most directly because of the trade war, and you can just go take a look of a chart of job growth. It literally came off in the period post-Liberation Day back last April. Maybe there's certainly other things going on, but it's hard not to conclude that that has played a big role. Then the uncertainty around policy that goes to the low hiring rates,

You know, businesses are unsure. It doesn't mean they lay off. We haven't seen layoffs, but they will be more cautious in their hiring. We observe that. And then I do think AI has played a small role, kind of third on the list of demand side forces weighing on the job market. But that's going to kick into a higher year here, you know, as we move into 2026. You can kind of feel it. Did you see that anthropic announcement, Chris?

Yeah, absolutely. Yeah, pretty amazing, right? I mean, have all kinds of implications. You can see stock prices come in. We're going to come back to the stock market in a second, but stock prices have come in for SaaS companies because their investors are fearful of what, you know, this new anthropic LLM actually means

for kind of disintermediating out what these companies do. And they employ a lot of people. So, you know, here's the thing that now I immediately go into forecast mode. Why aren't we going to see negative numbers in 2026? I mean, what's going to stop it? I mean, so far, AI has played a bit part in what's going on, and we're not getting any job growth. If it kicks into any kind of gear on terms of productivity and ways on the job market, we get some layoffs in 2026, why aren't we going to see consistent job loss?

we start to see consistent job loss and rising unemployment, isn't that in the context of how weak consumer sentiment is the fodder for a pullback in consumer spending and therefore recession is a real risk? I mean, what am I missing? What is, what am I missing? Chris, how would you push back on that? Do you want to? Okay. That's not our baseline. That's not our baseline. I can take the bulk case. I was, I was shocked to see that Dante this month is actually the optimist. So I'll be curious what he has to think, right, of the four of us, right? Yeah, but you want the bull case. It's going to take some time, right?

The announcement comes out, everybody's hair on fire. You know, this is a major impact, but it's not as though businesses can immediately switch off what they're doing today and turn on these systems and lay everyone off. It's going to take some time, right? So that's one reason why we might not see the job market fall apart so quickly. And then if you want the more optimistic view, it's, well, there's going to be new opportunities that are created by this, by this new technology.

New firms, new businesses will be created. New positions will be created. You'll have prompt engineers. I don't know what. And therefore, the bull case is that, yeah, you'll lose jobs in certain areas, but in other areas you'll actually gain and you'll have, you know, some job group.

It might still be weird. I'm not arguing that we're going to have runaway gangbuster job growth. But you get 50K. so unemployment stabilizes. Yeah, yeah. So, yeah, that's the, that's the, all right, you stated it. I mean, that is the baseline.

Do you believe it? It didn't come on. It didn't feel like you really believe that in your gut, right, Dante? It didn't come from the heart. That came from the mind. I can, yes, I can come up with a bull case, but what didn't feel authentic to me? Is that, really confident in the first part. Which part is that?

That meaning that it takes a lot longer for these things to be adiped and go into effect than we think. Right. You make it. And I think you're even seeing that in the stock market today, the big run up today after declines because, okay, yes. For the moment. For the moment. For the moment. Yeah. Let's see how this ends up. Let's see how it ends up. But I think the thought is, well, okay, these software firms are not going out of business immediately. It's going to take some time. And they will adjust and, you know, maybe we have to give them a little bit. It sounds bad. It's going to take time. for them to go out of business. You're going to go to business more slowly than we think. That sounds like a sell signal to me, man. I'm out of here. You're telling us to sell. Oh, yeah, it's not going to happen this month.

Maybe not, maybe not this year, but you know, next year, who knows? Now it feels authentic. You're sounding more authentic to me now. Oh, interesting. So, Dante, do you buy into that bull case? Boone market case. I'm an answer with a question, right?

Because the thing that I have struggled with is, oh my God. I'm going to ask you a question. You like to ask us questions. I'm going to ask you a question. Far away. Far away. You said you put AI at number three on your list of things that are affecting labor demand right now.

2025. Yeah. Do you think the reaction to AI in terms of fewer jobs being added? Do you think that's an actual response to AI having an impact right now and so I'm adjusting based on that? Or do you think that's a forward-looking, this is what I think AI is going to do in six or nine months. I'm going to start adjusting headcount now to hopefully match what I think will happen nine months from now. Well, I think in the tech sector, that's real.

Those are people losing jobs because the AI is doing the coding, not the coders. So I think that's real. I do think we are losing some customer support or some evidence of that, and that feels real. I mean, AI is taking those jobs. but I do think most of it's around that uncertainty. I meant that uncertainty I said in the context of policy, but there's also uncertainty around AI, especially in a world where stock prices are falling.

Once a company's stock prices fall, just think about what the CEO and CFO are thinking and the board are thinking of these companies. They're thinking, oh, you know, we got to transform, we got to move. And that does, to me, that doesn't auger for well for jobs going forward. That argues, you know, that suggests restructuring, downsizing, and layoffs. Layoffs. That's what it suggests to me.

Yeah, I think that's fair. I mean, I think that's another way to make the bull argument is to say if this sort of labor demand reaction has been anticipatory, right? And you're wrong, right? You think it is going to have a bigger impact very soon than it will. Then firms may have to readjust a little bit and actually hire a little bit more in 2026 than they did in 2020. right if the payoff doesn't come as quickly. I don't feel that.

Do you feel that? I don't feel that. I don't know that I feel that, especially in the face of stock declines, like you said, it becomes an even harder argument to make that we should go and hire more people when stock prices are down. Right. I mean, of course, everything, the way you articulated things,

that's how it plays out over a period of time. But it feels like it's just front and center so fast. You know, it's affecting decisions already. you know, that businesses are making. It's happening quicker than has been the case historically. But that's not the baseline. I hear you, the baseline is this all works out in a reasonable, graceful way. Oh, here's the other thing about that narrative around things working out in a graceful way

that I want to get your sense of. You know, the argument is that the new technology comes, and this is looking at past technologies like the Internet, PC, revolutions. that kind of thing. They come along, they improve productivity. That means at least initially higher profit margins for companies, right? Because by definition, you know, they get the benefit initially. And then competition competes away those margins in the form of less inflation, lower inflation. That's when you see these increase in real incomes, purchasing power. And you get this dispersion of spending that you described, and that creates jobs in places that you otherwise

would not have seen them, new jobs and new occupations, new, new activities. Does that, do I have that right? Does that resonate with you, Chris? I mean, the way I described, is that how you're thinking about that argument you made about, you know, it's going to create jobs over there? We're going to lose jobs over here because of AI, but we're going to create jobs over there. Is that kind of the dynamic and how it actually works and plays out? That's right. That's right. I know where you're going. Now, let me ask you this.

That has happened in times past because you had competitive markets. It feels like these markets are less competitive. In the AI world and writ large throughout the economy, there's been more concentration of market share in companies that gain scale. It feels like competitive. And this kind comes out of the pandemic. You can kind of see it. The pandemic, all the businesses raise prices because of supply chain.

and their margins haven't come in at all. They're still as wide as they've ever been. So it doesn't feel like those competitive pressures will eventually kick in, but what if they don't kick in fast enough? And you don't see the disinflation, lower inflation, you don't see the pickup in real incomes. You don't see the benefits of this going more broadly to consumers. You know, does that concern you at all?

You don't see competition among the AI hyperscalers? Well, I'm thinking not really. they're investing in each other. They're competing to higher margins in scale. They're competing. Who can up the other guy in terms of the amount of investment that they make? And then they go invest in each other. You go invest in each other.

I don't know. But I was more thinking about other companies outside of tech. That's where you get the diffusion. You get these, they adopt the technology. They get productivity gains. Will they pass through, you know, in the form of less influx? or lower prices. Do you think,

you don't think anything has changed in that regard to a significant degree. That dynamic is still going to play out here. Not really. Yeah.

You know, in certain markets and certain time periods, I've seen some concentration, but I still think across industries, it's still quite competitive. How do you explain

how margins are like, if we're looking at the right data, the NIPA data, the national company product accounts, GDP data. Look at the share of national income that's going to business. It's at a record high bar none.

And it shows, it's leveled all. off in the last couple three years, but it's very elevated, very elevated. You haven't seen that come in at all. Doesn't concern you? And you're pointing to certain industries, specific industries, where you think that's the case? Yeah, that's a good question. I haven't looked at it by industry. It feels like that's pretty broad base, though, because it's a pretty significant increase in margin. Dante, do you have a view on this? I mean, I think I'm concerned like you are that that diffusion might not happen quite as quickly as we've seen in other cycles. And I mean, so I guess the argument

there is that it just ends up as higher profits, right? And that doesn't get distributed out nearly as widely as it would as if there was competition and wages rising everywhere. And so, yeah, I think I have some concern that there's more concentration and that you're going to, it's not going to spread. Just because of the amount of investment required, right, it's not as easy to imagine a whole bunch of other companies coming in and being able to compete in the near term if you're talking about the sort of dollar value of investment required to be in the race in the first place. Yeah, and I assume that'll probably come down at some point, but how long is that timeline and does that drag this out a lot longer where firms are in a position to take much larger profits?

Yeah. Okay. Yeah, you can tell I'm worried. I mean, maybe this is my state of affairs, but it just feels like this might be different. You know, this could be different. You know, because we're economists. We go back to history. We say, let's use that as the analog for making our predictions about the future.

And that's what we're doing. back and, you know, that's the dynamic I described is how it plays out and it all works out. Do you ever see that play, that I'm just quick tangent here? Maybe I've asked this before. Have you ever seen that movie Shakespeare in Love? Have you ever seen that movie? Glenn Paltrow. Yeah, a million years ago, but yes.

Oh, it's a great movie. It's a great, you know, it's a great movie. It's about, you know, Romeo and Juliet, how, you know, kind of historical fiction. But there, there's this, uh, Jeff, is it Jeffrey Rush? I think the actor is the director. And there's chaos, drama about how the play is ever going to get completed and across the finish line. They asked Jeffrey Rush, how is it going to happen? He goes, I don't know, but don't worry, it will.

It just does every single time. That's how I feel like we're saying it's like the Shakespeare and Love economy. Oh, I like that. Maybe that's what we should, maybe the name of the podcast. It's going to be your article. It's going to be fine. Don't worry. going to be okay. I don't know. I don't know. Okay. Well, let's switch gears a little bit.

Wow. Let's talk about, you want to say anything more on that? I start kicking your wooden shoes into the machinery and yeah. Sounds like that. Well, it sounds like the same type of acts people have in pretty I think people are contemplating that. I've talked to, interesting, another side tangent. Is it side tangent or should I should say tangent? Another tangent. No side bar.

Side bar. I'm mixing, fixing things up. Tangent. Another tangent. I was talking to a moody salesperson who's got young kids like 10, 12. I go, are they using AI? Because they hate AI. I go, what are you talking about?

They hate AI. They think AI is going to take their jobs. So they're not learning AI. I go, that's not the lesson I would think. But I thought that was pretty interesting. Talk about anecdote. Very interesting anecdote. Anyway, any case.

Dante, am I being too pessimistic on this? It's not the base case, but. I mean, I think there's reason to be pessimistic. I think obviously we've talked about it. I think it's a reasonable scenario that you've laid out, right? I don't think it's, you know, it's not a tail thing that we're talking about here. There's a reasonable probability on something like that happening. Okay.

I want to switch gears. I want to talk about markets. And I promise, I'm going to give you the real bull case, you know, at the end. You know, why you might. It's a short-term bull case, but it's a bit of a bull case. Let's talk about markets. And here, let's talk about, I don't know where you want to begin, Chris. Everything feels like it's like all over the place.

So where do you want to begin on the market action? Well, I think that's the main point. It's been a very volatile week, right? Things are up and down and, right? back up again. So and what's what's truly amazing is it's across markets, right? It's not just the stock markets, not just AI stocks. It's, um, it's really broad-based, right? Crypto has been way down, still quite down. I think it's a bit up today, a little bit of a bounce back, but still well off of its, of its recent peaks. You got gold prices, silver prices, bouncing around

up and down, um, oil prices thrown in there in the mix, uh, given what's going on in Iran. So just the incredible volatility. Just over copper. Yeah. You name it. The commodity complex. Yeah. Right.

That's right. That's right. I think one of the key triggers was AI-related, right? Certainly it was this announcement byanthropic regarding a tool that they are producing to make legal research much more automated. So really making the argument that AI is not just a necessary. necessarily, but actually a replacement, that this legal tool that they produce could actually replace paralegals and others who do a lot of legal research. So I think that got investors mind spinning about other providers of these types of software, the SaaS providers that you mentioned.

So that I think that was one reevaluation, if you will, in terms of the use case of AI. In that regard, did you see Goldman Sachs, the announcement Goldman Sachs had anthropic engineers come in and work on compliance and what was the other thing, compliance and accounting workflows. Did you see that? Yeah, yeah, I did hear that. And I didn't realize this, but these hyperscalers are sending people into these companies to figure out how to use the LLMs to restructure these workflows. I didn't know that that was happening. I mean, it makes sense.

They've got to make some money somewhere, but I find that pretty fascinating. Yeah. Well, on that note, so that kind of connects to the second set of announcements related to I, which is all the investments, right? These hyperscalers had their earnings calls over the last week or so. And all of them have announced huge numbers, right? It seems like a competition, $100 billion more, $200 billion more in terms of KAPX spending this year to build out the AI platform. So that I think also spooked markets in terms of, you know, the additional investments that these companies are making at the same time. their earnings, yeah, they're up, but they're not at the levels that they may have anticipated. So I think that that has led to some of the reevaluation of these AI companies. So I guess to your earlier point, one thing I worry about or think about is the pricing, right? Right now, AI pricing is actually quite cheap. These companies are subsidizing, right? Even sending these engineers in, I'm sure they're not.

Shareholders are in creditors that are subsidizing, right? They're handing over a check. Exactly. And these guys are handing it back to everyone in the form of a subsidized use of an LLM. Yeah. Yeah. So think about just you don't have to go that far back when we were subsidizing the build out of some of these technologies, whether it's the internet technologies or the ride

share technologies. Remember, you could get a ride for $5 to the airport and now it's back up to more of a taxi price level. So I worry that we might also be not fully recognizing the true costs. or firms may not be recognizing the true cost of the AI once it gets built out. And that could have some of those labor market implications that, yeah, right now it looks like a very favorable, no questions asked, invest in the capital, take the AI LLMs. But that's because you're getting it at a very reduced price. Once the full price comes in, maybe the equation might change.

Is that more convincing? Well, I mean, I thought you came over to my side with that all that kind of stuff. It felt like you were reinforcing my angst. It wasn't, but you didn't make me feel better. Is that what you're asking? You made me, you know, I mean, what I find fascinating and all that, there's a lot that's fascinating. But the one thing is investors added towards this investment is shifted.

I mean, go back just a few months ago, you were penalized as a hyperscalor if you weren't investing enough. That was the competition. So now they're all, and I think it was Amazon who said 200 billion. And I think that's, they go, oh, the investors go, oh, my gosh. You know, what does that mean in terms of bonding? issuance and, you know, private credit and, you know, everything else. So that's, that I find fascinating. So the investor's perspective on things is starting to shift. And I think that's really,

really telling. Well, here gets, let me connect, before I do, on the markets, before I kind of connect the dots back to the job market and the economy, another reason why I'm worried. Dante, anything else you want to add on the market action? I know you're a keen observer, you know, of these markets. Chris is our crypto maven. I know you're deep into gold. I think you told me once you had like gold ingots like somewhere. You wouldn't tell me where because you were really nervous that, you know, if that got out,

there would be a problem. Am I right about that? The ingot? I wish I did right now. You have ingot? I wish I did. I mean, I wish I had a old. Oh, so you have Krugerans.

That was the Krugerrand. Something that's not going to make me as much as gold right now. I'll tell you that. But anything else on these markets that you've observed? No, I don't think so. I mean, I think I share the same concern that, yeah, the subsidized cost here is making this look like a much more attractive option right now. And I think I made that point to you that it feels like the entry cost, if you think back

across other technological cycles, right? Like the entry cost today is very low compared to the Internet or PCs. You weren't, people weren't giving away free PCs when they first were invented, right? but you can test LLMs for free everywhere, right? And so everyone's getting this free taste and trying to figure out how to use it, but that's not going to last forever, right? And so the use case has to be strong. The use case doesn't have to be strong right now

because it's basically free to use in a lot of cases. But those use cases have to get much better fast if prices are going to start to rise. Right. Maybe that's one reason why AI does not diffuse as quickly because instead of other technology where the cost would continue to decline, Here, the cost is rising. It's going to be like the streamers, which, you know, Netflix and those guys that keep jacking up the,

making more difficult get access, you know, that kind of thing. But here's the concern I have. It goes back to the equity. It's a long-held concern. I mean, the equity market and equity investors now feel like they're putting up a higher bar, you know, for stock prices to rise. I mean, because it makes sense. Valuations are extraordinary, and they're saying, do I really think we should bid up the value of these stocks any further? And now the recent change has been they're evaluating who's going to get hurt by the LLMs and AI and taking down those stock prices.

So it feels like the stock market is increasingly less likely to continue to push higher here. Maybe it goes sideways. That's our baseline. but it feels like odds are rising that, you know, it may actually go decline, it may actually decline, you know, as all this gets sorted out, because it has come on so fast. And if that's the case, that knocks a key source of growth out of the economy, right? That goes back to the wealth effects. All those shareholders that have enjoyed the run-up in stock values have been much more willing to spend out of their income. Saving rates are low. I mean, the saving rate, I think,

the personal saving rate is three and a half percent. It's been lower, but rarely lower. Last time was in the housing bubble, you know, leading into the global financial crisis. It's very low. And so if the stock market simply goes flat or certainly if it goes down and the well-to-do begin to become more cautious, just a little bit more cautious than spending, don't push spending saving rates lower, keep them the same or push them higher. That takes, you know, some steam out of the economy, right?

I mean, slows growth. and that just reinforces the potential for layoffs and weakness in the labor market and it's all becoming self-reinforcing in a bigger problem. How do you react to that, Chris? How does that, am I overly? What's the bull case there? No, it clearly is on rising. Well, there is a lag, first of all.

So let's say the stock market was flat, doesn't continue rising. There's still some momentum there. So I don't know that, you know, a flat stock market or even a small, decline would really change or disrupt the spending of the higher income households. I think you need something that's more substantial and persistent. Then I certainly would be worried, right? People are going to pull back on their spending. And we're highly reliant on that higher income household group for overall consumer spending growth.

So definitely a risk factor out there. I don't know that, you know, there's a lot of volatility in the market, but it doesn't seem like it's going down and staying. down persistently, at least not yet, but definitely a risk that's out there. Still a lot of cash on the sidelines. You want the bold case, I can make it for you. Right, right. Well, here's the thing that, you know, I hate resting an argument on the saving rate

because that could be revised too and often is revised. Yeah, Scott often tells us. Yeah, yeah, yeah. So we take that as a caveat. But if you buy into the 3.5% saving rate, you're hard to, argue it's going lower. It could, by definition, could go low or it can even go negative if people borrow money to finance spending. But it's hard to argue based on history that's going to go lower. And if it stops declining, the mere fact that it stops declining means that consumer

spending growth is going to slow compared to what it's been by definition, right? And if it normalizes, meaning it goes back to something more consistent with historical norms, let's say, five or six percent, that would argue it doesn't mean outright declines in spending, but that means pretty weak spending, you know, relative to income, right? So, you know, I don't think it takes a whole lot here what I'm saying for the equity in the equity market to have a meaningful impact on the spending by the wealth to do and, you know, ultimately on overall spending and ultimately what it means for the economy. Just to just, again, it's not the baseline. We have the saving rate normalizing very, very slowly over time. So you don't see that kind of drag.

you know, undermining the economy, but nonetheless. And you're not saying the next quarter or two. There's still a lot of head, a tailwind in terms of fiscal stimulus. Are you saying that's, it could happen? Well, I, my sense, I don't, I'm not, I think there's a worry, uh, that the, the wealth effects are asymmetric to the, and work very differently on the upside compared to the downside.

When stock prices are rising, you know, and you have a lot of volatility, and it's based on things as uncertain as AI, you're more cautious in spending out of that wealth of becoming more aggressive and lowering your saving rate. You know, many of the folks that own, that have the wealth that own the stocks are older. You know, they're in their 50s and 60s. And so as their nest egg is expanding because the stock wealth is increasing, they go, okay, that I feel good. That sounds fine.

you know, maybe I'll upgrade to first class or maybe I'll go to that restaurant. I won't go to, you know, that restaurant I typically go or try something different. Maybe I'll take a little trip, you know, take your cruise. Take a cruise, you know, that kind of stuff. That's a dig at you, Dante, just in case you didn't know. Well, I know. I knew where I was directed. That's all that moody stock.

So, but anyway, but if stock prices fall, And again, that's your nest egg. And you start seeing your nest egg shrink again. That feels like that could have a bigger, faster impact on behavior, on spending behavior. It's just, as I said, asymmetric. We've not been able to tease that out of the data, so I don't want to overstate that. But it just feels intuitive to me that that would be the case, something else to worry about. Okay.

All right. What about the, any lesson to be learned? or any broader message from, let's call it the crash in the crypto market. I mean, Bitcoin, here's my nomenclature. I'm curious if you think this is useful. I characterize a decline in asset price of 5 to 10 percent from the peak on a sustained basis, let's say for a month two or three, as a correction, a decline of 10 to 20 percent as a sell-off. And anything over 20 percent, certainly closer to 30% a crash. Is that, what do you think?

I think that's pretty good, don't you? Yeah, I think most people would say that's the case. So if that's the characterization of how you describe what's happened to Bitcoin, Bitcoin has crashed, right? It's down at least a third in value, even with today's bounce back. I think it's down a third in value. Gold prices, that's more of a sell-off, I think. But it has to be sustained, of course.

It has sustained, at least for a month or two or three, so that we have to see how that plays out. But it feels like the Bitcoin has crap. Bitcoin and crypto broadly. Bitcoin clearly has crashed. Crypto broadly has been under a lot of pressure. Gold, silver. Silver prices have crashed.

Copper. All those prices are under a lot of pressure. Any message there, Chris? Any other story there? Anything to take away from that for the broader economy? Or is that just speculation run amok and therefore it's getting rung out? That's what's happening. I think so. I think it's more the

certainly on the crypto side, right? On the gold side, maybe you can make some plausible arguments in terms of central bank buying and maybe a repricing of that asset. But on the crypto side, I think it's your risk off environment, right, triggered by this stock sell off. And now, you know, all of these assets are just under pressure. And I think it's just people reevaluating and saying, oh, I got to take some. money off the table here and these riskier assets. To your point, concerns about the future, AI certainly adds to anxiety about the labor market. So it's time to get out. Maybe if you've had, if you had a good run, you're cashing out. And if you're seeing a pretty substantial decline,

you bought at the top, you also may be, you know, saying no more in cash mail as well. So, yeah, I see that as just a speculative bubble that is popping. But I guess in your normal, I like your nomenclature. It is asset specific, though, what I'd throw out, right? Because crypto has crashed multiple times, right? So how much of an impact does it have on the investors? Well, that's a different story. You can have differential impacts, no doubt.

Because crypto is what? I'm making this up, $3 trillion, $3,4 trillion out in about, now much less than a two. Yeah. The U.S. equity market is, what, $70 trillion? You know, something like that? So these are different markets, you know, in terms of magnitude? Yeah, very different classes of investor types of investors as well.

Yeah. Yeah. The inputs are going to be quite different. Right, right. Okay. Well, here's the bull case. And I think you mentioned it. I didn't call it out because I didn't want to steal from, you know, my bull case.

The thing that is going to say might save the day, tax cuts. You know, you get larger refund checks, at least temporarily. I don't know that's a long-term solution, but at least for the first half of, at least up to the midterm elections. Let's put it that way. You know, you're going to get a lot of juice from individual tax cuts. The refund checks are going to be a lot larger. I think Justin, one of our colleagues, was saying the average refund check could be anywhere from $600 to $1,000 more this year than compared to last year.

And for many lower middle income households, that's a deal. That's a big deal and will be spent. Then you have all the corporate tax cuts. This is all part of the one big, beautiful bill act. Now, it's all deficit financed. So, you know, and it's going to be temporary juice. You know, some of the corporate tax cuts may have longer-term benefits like, you know, the expensing of investment and the R&D tax credits will have some longer-term benefit,

but the cuts to individuals will be temporary. But that could save the day, at least, you know, in 2026. I don't know, you know, longer run, but maybe for the next six, nine months. Does that make sense, Chris? Yeah. Yeah, that's the line narrative. Was that what you were thinking? That's probably provides some time.

to adjust, right? To adjust, yeah. Right. Dante, any other, can you contribute to the bulk case at all? No? I mean, I agree with that. I mean, I think to your point earlier about, you know, what if the labor market goes further south, you know, that tax cut stimulus only really works if the labor market holds

up, right? Like, that's not enough to offset a meaningful decline in the labor market. If people start losing their jobs, you know, an extra $1,000 on a tax refund doesn't do much, right? But if the labor market holds steady and you don't see big layoffs and big job losses, then that obviously provides some juice in the first half of 2026. Yeah, what I'm saying, yeah, I guess you're right. I mean, what I'm saying is that the AI-related layoffs that are weakness that's coming will be offset by the support created by the tax cuts on different industries, you know, consumer-facing industries. And at least for a while while that plays out, it plays to a wash and maybe allows time to adjust, as Chris is saying.

So that would be the bull case. But it just doesn't roll off the tongue for me. I don't know. It just doesn't roll off the tongue. I don't know. I'm increasingly convincing myself that the probability is a recession or higher as a result of all this. But anyway, okay. Anything else, guys, before we call it a podcast?

Anything else that we missed? Anything else you want to call it? Any nuggets? No? No nuggets out there? Christian, no nuggets? Economic nuggets. Give me an economic nugget.

Not a Nick nugget. A nugget. No nuggets. $8 million. $8 million. Ooh. I don't know how economic this is, but If you wanted a number, I give it to you.

And it's timely. It's keeping with the thumb this weekend. Is that the cost of a home that someone just bought? Cost of a... Cost of something. Cost of something, yes. Something related to the Super Bowl. Super Bowl?

30-second spot. Oh, okay. Oh, oh, that's a good nugget. Is that up a lot? Do you know? I don't know. We should, I don't know how much. We should look at the nugget indicator.

The, not the nugget indicator, the Super Bowl ad cost indicator. Dante, any nuggets? I got no good nuggets for you now. No, geez, no good nuggets. A lot of AI companies with ads, apparently. Pardon me? A lot of AI companies are. running ads this year,

Anthropic, Open AI, right? So I don't know if it's right, but there's going to be an ad for the Trump accounts. The Trump account? No, I didn't hear that. What are they, does anyone, do you know what the Trump accounts are? I'm not really, is it like a, what is it exactly? Does anyone know?

I believe it's $1,000 for any child that was born during his administration or will be born during his administration. Anyway, they cede it with a thousand dollars. Although, I don't know if that's, I think there was some talk of some corporations actually. Contributing as well. Or matching it. Interesting. Yeah.

The idea is that this would be an account that. Right. Right. It's over time. You can get it. You can access it when you're 18 for education or to start a business, right? Got it. Got it.

Got it. Which, you know, with the AI, if indeed AI is coming for your job, you should be investing in technology, right? You should be an owner of that technology. Absolutely. There's some logic to it. All right, guys, I think we're going to call this a podcast. Any objections to that? Not hearing none. Okay, dear listener, I hope you enjoyed the conversation. And we will talk to you next week. Take care now.