MICHEL MARTIN, HOST:
Let's dig deeper on the economic outlook with Mark Zandi. He's the chief economist at Moody's Analytics, which advises corporations and financial institutions on business risks. Mark, good morning. Thanks for joining us once again.
MARK ZANDI: Good morning, Michel.
MARTIN: So we just heard from Scott Horsley that economists predict that employers added between 80- to 90,000 jobs in September. Does that sound right to you?
ZANDI: Yeah, it does. You know, there's a lot of up and down and all around in the monthly data. There's a lot of methodological issues, measurement issues, survey issues. And so, you know, in any given month, it can be up a lot or down a lot. So it was up 160K last month. It was up by, I think, only 20K the month before. So you kind of take the average of those two months, you get 80K. So economists are kind of punting here and saying, look, I - month to month, that's hard to really know. But if you look through all the noise at about 80 - we're producing about 80, 90K per month. That sounds about right to me.
MARTIN: So we're obviously going to get to a number of other issues that are affecting the country's overall sort of economic outlook. But what about just looking at those job numbers? Does that say anything to you about the overall direction of the economy?
ZANDI: Well, you know, Michel, I'm struggling with the right word to describe how I feel about it. I - you know, I - this sounds bland, but it's OK. You know, I'll take it. It's enough jobs to keep unemployment from rising, and unemployment is very low. But just don't lose your job because no one's hiring. Hiring rates are about as low as they've ever been. The number of hours people are working is very low.
And, you know, Scott, I think, put his finger on the right thing. The thing that makes me most nervous is wage growth. Wage growth continues to decelerate. And that's just not - in the context, obviously, of high productivity growth and now very high inflation. So people's after inflation wages are falling. That's just not consistent with kind of a healthy job market, healthy economy. So it's OK. You know, it's enough to keep us moving forward, but not moving forward with any - you know, making everyone feel good about what's going on.
MARTIN: OK. So let's turn to bond yields. The 10-year Treasury bond yield peaked at 5.34% on Thursday. That's the highest since 2002. So I need you to explain why that matters, like, what's driving this trend. But I need you to explain why that matters because not everybody follows the bond yield.
ZANDI: Yeah. OK. Well, there's a long list of reasons why. And we can talk about it. The war is No. 1, but we can come back to that. I mean, why it matters is because, you know, if you owe anything - if you have a credit card loan, if you have a home equity line of credit, if you have a consumer finance loan, if you're a small business with a bank loan - the cost of that - those loans are now rising. You're going to be paying more on that. And you're already paying a lot. Scott - Steve mentioned 29%. Can you imagine? I mean, the typical credit card has an interest rate of over 20%. So that - you know, that's very painful for people who have to take out those credit cards.
And then, of course, if you're out there thinking about buying a home, well, you know, that's now very prohibitive. I mean, the 30-year fixed mortgage is well over 7%, headed towards eight, and, you know, people just can't afford the monthly payment that implies. Auto loan rates are going up. So, you know, if you need to borrow, it's a tough time.
Then of course, you know, the higher rates have a broader economic impact on businesses. A lot of businesses have borrowed money. They're under a lot of pressure when interest rates rise. We see a lot of commercial real estate owners, you know, with mortgages. They're going to have to pay more if they have to roll that debt over. And so we're going to start to see more stresses in the broader economy, which feeds back on the labor market, which feeds back on all of us. So there's, you know, a lot of different channels through which the high rates affect the economy - some direct, some more indirect - but when you add it all up, it's going to be more pain - economic pain.
MARTIN: And what's the main driver of this?
ZANDI: Well, there's a - you know, as you can imagine, Michel, a lot of debate around what's going on, but, you know, my - in my view, the proximate cause is the Iran war. I mean, if you go back the day before the war started, February 27, the 10-year Treasury yield, which is the benchmark long-term interest rate that we're all looking at, was below 4%, and we haven't looked back. It's been straight up since then. So now we're well over 5%.
And that - you know, the kind of the intuition's pretty straightforward. You know, we go to war with Iran. Our oil prices, other commodity prices go skyward. That puts pressure on inflation. That forces the Federal Reserve to start stepping on the brakes, pushing up interest rates, and here we are.
You know, another factor I'll just throw into the mix is our very disconcerting fiscal situation. I - you know, I've been a professional economist a long time and watching the fiscal condition of the nation, and everything is screaming to me. It's about as bad as I've ever seen it. Deficits are large with or without interest payments. The debt load is very high. And, you know, what that means is that the U.S. Treasury has to borrow a lot of money to finance all this. So that means, you know, interest rates are going up. So, you know, there's a list. Those - but I put those two things at the top of the list.
MARTIN: So, you know, it's interesting 'cause the president has had many things to say about - so let's just say oil, like the Strait of Hormuz opening or not being open or open-ish (ph) and saying that, you know, rates are going to come down. Oil's going to come down, which affects all these other things, has a knock-on affect to all these other things. But he hasn't said that lately. And I just sort of wonder how analysts are looking at that. He says, well, as soon as the strait's open, that oil's going to come back down, and then that's going to have a knock-on effect and affect everything and improve prices down the line. But he hasn't said lately when it's going to come open. And it is kind of open, but oil prices are still high. So I'm just wondering how analysts like yourself are looking at that.
ZANDI: Well, you made it nice and clear there. Very difficult to get your mind around it, get a grip on it. I've - actually, some very good economists have given up altogether. I think some of the major bank economists say, we just don't know, so we're not even going to take a crack at it. But that's the key. We got to bring the war to an end and get oil prices back down and other commodity prices back down to get these interest rates back down.
And the longer this drags on, the longer oil flows from the Middle East are impaired, and we're drawing down inventory and, you know, potential shortages developing, and we're talking about export restrictions on diesel, as long as that's going to be the case, you know, inflation's going to be high. Interest rate's going to be high, and the economy is going to be - you know, is going to struggle.
MARTIN: So before we let you go - we have about a minute left here - consumer spending is sort of surprisingly resilient. But with inflation and prices continuing to creep up, how can that continue?
ZANDI: Yeah. I think this is a tale of two consumers. I mean, the folks that are well-to-do and own a lot of stocks, they're, you know, benefiting enormously from the surge in stock values related to artificial intelligence. I mean, if there's one big - you know, from a macroeconomic perspective - good thing happening is AI is driving a lot of growth. Can see it in the investment spending, but you can also see it in the stock market and consumer spending. So if you're well-to-do and own stocks, you're sitting in a pretty good spot. And you're spending.
If you're not, you don't own those stocks - and that's most Americans - this is a real struggle. You're hanging on, but I don't know that you can hang on for much longer if oil prices stay high, inflation stay high and interest rates continue to rise. So, you know, hopefully that war comes to an end, and we can all start to enjoy, you know, real - positive real incomes and all of us continue to spend.
MARTIN: That is Moody Analytics chief economist Mark Zandi. Mark, thank you so much.
ZANDI: Thanks, Michel.
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