Morning Wire - The Economy Is Stronger Than You Think—And Worse Than You Think

Episode Date: September 7, 2026

What does the U.S. economy actually look like heading into the midterms? Economist Scott Lincicome joins Morning Wire to discuss the strength of the stock market, the AI boom, the housing affordability crisis, rising Treasury yields, and the outlook for inflation. He also explains what Washington’s debt, tariffs, energy policy, and Federal Reserve decisions mean for Americans on Main Street. Get the facts first with Morning Wire.- - -Ep. 3078- - -Wake up with new Morning Wire merch: https://bit.ly/4lIubt3- - -Today's Sponsors:ZocDoc - Find and book high-quality, in-network doctors without the phone tag. Visit https://Zocdoc.com/WIRE to get started and check that appointment off your to-do list.- - -Privacy Policy: https://www.dailywire.com/privacymorning wire,morning wire podcast,the morning wire podcast,Georgia Howe,John Bickley,daily wire podcast,podcast,news podcast Learn more about your ad choices. Visit podcastchoices.com/adchoices

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According to a July study from the Pew Research Center, 29% of American surveyed said the economy is the issue they most want to hear about. That's followed by cost of living at 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 in the U.S. economy at large, others are sounding the alarm about a bubble. 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 D.C. and Wall Street are impacting the average American on Main Street. I'm Daily Wire, Executive Editor John Bickley with Georgia Howl. This is a special Financial Wire edition of Morning Wire. Joining us now is Scott Lincocombe, Vice President of General Economics at the Cato Institute. Great to have you on. Oh, thanks for having me. So we've had some really good corporate earnings this year, the stock markets, you know, through the roof.

And a lot of people are really excited about that. and saying it, you know, 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? 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 where we have a bit of a two, 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 know,

you have some sectors that are just doing gangbusters and that's a huge tailwind for the U.S. economy and the stock market. But everything else is pretty tepid. So AI, anything that touches AI, you said, is doing well. What are some other industries that are looking, you know,

very healthy right now? 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. You know, we don't like high oil prices and gas prices, and gas prices as consumers, but as producers, that's a good thing. And those high prices, of course, encourage more investment, more production, along with favorable regulatory policy from the Trump administration.

And it's good days if you're working for big oil. Yeah, the Venezuela deal, how much is that, I would think, that would be sending positive shockways throughout the industry. Is this correct? Yeah, I think it's a little bit more complicated than that for two reasons. One, there's just still a ton of uncertainty about this deal itself. There's questions about the legal authority to create this kind of quasi-state-owned company because the federal government's taking like a 35% stake in that via the Pentagon.

There's a little question there. There's questions about the durability of the deal because, of course, it's with the Rodriguez regime that is not the democratically elected regime. And then really wonky logistical question. The other thing, though, is that this entity might actually compete with a lot of large American energy producers. So it really depends on what side of the deal you're on. If you're a refiner that might be suddenly getting cheap Venezuelan crude, you're probably pretty excited. But if you're a primary producer, while you might actually be looking at a new state-owned competitor.

And what about some of the industries that are struggling a little bit? You mentioned it's up and down depending on the sector. what industries do you see having real problems? Yeah, really, construction outside of data centers and a few pockets of manufacturing is struggling. You know, again, with mortgage rates roughly around 7%, with home prices having been an issue for many years, owed a lot to regulatory barriers

and construction materials, tariffs, and those types of things. You know, home construction has been depressed for quite a while. And even outside of residential construction, the situation just really isn't great. If you're building a data center, though, or anything, again, related to that, related to electricity, product generation, that everything, everything's going quite well. Other sectors that are kind of limping along retail-facing industries, kind of restaurants as well, because, again, you know, costs are higher. and labor costs are higher.

Minimum wages have pushed labor costs higher. Tariffs have pushed food costs and other things higher. You put all that together and you have Americans that are already pressed with tighter budgets. And that's just not an industry. Anything that's really consumer-facing is not doing too great. Now, I do have to say, though, a lot of those industries got big fat tariff refund checks because of the Supreme Court's ruling against the Trump administration's emergency tariffs. And they're having a nice quarter that's boosting some of those earnings.

But in the long term, it's not looking great right now. There are certain phone calls that somehow stay on the to-do list. The dentist, the annual checkup, finding a new doctor after you move or change insurance. You keep thinking, I'll call tomorrow. Then tomorrow becomes next week. And when you finally call, you get a voicemail, a phone tag, or an appointment three months from now. There has to be an easier way. This episode is sponsored by Zoc Doc.

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say, average earners and their ability to access a home? Yeah, I'd say it's still a pretty tough market if you have to take out a mortgage, which, let's face it, most of us do. You know, mortgages, mortgage rates, even for, you know, a 30-year fixed mortgage is going to be close to 7%. And that means you have a much larger payment for the same house you may we were looking at five years ago or don't even get into, you know, like 2021 or 2020. And so I think that that's still going to be tough. The other thing, though, is that home prices have plateaued, but they haven't dropped. So even though, you know, you're seeing more inventory on the market from people who maybe

want to sell, maybe baby boomers looking to retire, it's still not at a price point that allows a lot of, what I'd say, true middle income earners to afford, and of course to save up with a big down payment as well. You know, there's some things that are helping on the margins. Some cities and states have actually enacted great reforms to boost housing supply. A few things the Trump administration is doing as well to try to encourage deregulating the housing space, because so much of this relates back to zoning and permitting and those types of things that happen at the state and local level.

There have been some good things in some pockets. But I think overall nationwide, it's still a pretty tough home buyer market, even with a little more supply being available. Right. HUD just took some action on this, right, to deregulate. Is this correct? Yeah. And I think, you know, the law that was just passed, that was this bipartisan housing law, had a few good things, particularly on things like manufactured housing. We think of that as a mobile home and a trailer park.

But in reality, there's a lot of manufactured housing out there today. that can be more affordable, it can be mass produced. And it's totally unlike what you think of when you think of was a manufactured house. The problem is, before this law was passed, there were some really dumb old regulations that required like a fixed chassis on a manufactured house, which again doesn't make sense for some of these new products. And so that type of additional supply, anything that can unclog the supply side of the residential market is a good thing, whether it comes again from state and local regulation

or federal law as well. You mentioned the bond market, and a lot of people, you know, instantly fall asleep when you mentioned bonds. But this is important, right? This actually can impact folks on Main Street. Yeah. Can you explain that? What is the health of the bond market? How does that impact the average person? Yeah, so the bond market is basically the market for mainly U.S. debt, so treasuries. and it can go in certain increments. The one that we care most about when we're talking about American consumers is probably the 10-year Treasury bill, because that is really closely related to mortgage rates. Basically, they rise and fall together.

Treasuries are set in a mostly private market, and meaning that it's a supply and demand issue. And investors today are demanding a higher price for treasury debt. And that stems from two main things. One, the U.S. fiscal situation. The fact is, you know, we now have $40 trillion in federal debt. And that makes buying that federal debt and holding it a little more, a little riskier. And so you're going to demand a better interest rate on that debt. And that's going to push up your 10-year treasuries and then, again, affect things like mortgages and some auto loans and other things like that.

And so that stems from. again, the U.S. debt situation, which let's face it, is an issue. And one that's a very long-term systemic issue driven by a lot of things like entitlements and other government spending that we really do really need to get under control. The other one, though, is that investors have other options in the bond market that aren't government debt. And right now, for example, AI-related companies are issuing a lot of debt themselves to build all these data centers. And that's creating some competition for treasuries and pretty safe bet that these tech bonds are going to be safe. So again, you're seeing that maybe push up yields a little more.

But the big driver is, unfortunately, this big debt issue. Yeah, which we just passed the $40 trillion mark on. It's massive. Yeah. High cost of living, a job market that's up and down, as you've mentioned, major issues for the American. Americans. What is the outlook for inflation in particular in the coming months? Yeah, I mean, I would expect inflation to continue to trend down, but still not be where the Fed wants it. And that's important because the Fed wants inflation to be at around 2% per year.

We're still at around 3% per year. So we've come down from the Biden years. That's good. But we're still not where the Fed wants it. And that's owed to several factors. Some are short-term factors, tariffs, gas prices, things going on in Iran as well, that's going to push up prices a bit temporarily. But others, again, relate to federal spending that drives kind of, you have more dollars chasing not enough goods, and that's going to push up prices and Fed policy, monetary policy. And so the issue with that is that the Fed is going to have to consider actually raising interest rates to get all the way down to that 2% benchmark.

And that could mean, again, higher credit card rates for us, consumers and the rest. But I do expect, if you listen to Fed policymakers, especially the new chairman Warsh, they're aware of all of this. And they do seem to be laser focused on getting inflation to continue trending down, on looking through these temporary things. And I'd expect it to continue to trend down, just not as fast as you and I want. And the other thing we have to always remember. Normal humans, not economists, actually want full-on deflation.

We want to go back to those wonderful old price levels of 2019 and even in early 2020, right, back when a burrito cost seven bucks, says the big controversy. Don't bring up burritos. What are you doing? Yes, burrito gate, we all remember. The reality, though, is that typically policymakers don't actually want full-on deflation because that can cause other big economic problems. The goal is to just get inflation to really slow down to a crawl, have wages outpace inflation, and then we get richer over time.

But again, American voters, normal people, we want to actually go back to $7 burritos, and that's just something that unfortunately just ain't going to happen. Well, Scott, a lot to take into account here. Thank you so much for summing up all of this complicated data for us. We appreciate it. My pleasure. That was Scott Lincocom, and this has been a financial wire edition. of Morning Wire. Happy Labor Day. Real Canadian Superstore has everything you need this back-to-school season.

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