LEILA FADEL, HOST:
For more on the economic data out this morning, we've called up Stacey Vanek Smith. She's a reporter for Bloomberg Businessweek, who hosts the podcast "Everybody's Business." Stacey, good morning, and welcome back.
STACEY VANEK SMITH: Hi, Leila. Thank you.
FADEL: So one of the biggest complaints that voters have is the economy, affordability. How is it that the economy can be growing, but consumers say they don't feel it? Things are not affordable for them.
SMITH: Yeah. This is a great question. And I feel like this is something that we've been seeing for a couple years now. I mean, it started out with the name vibecession (ph), but I feel like it's getting almost more and more extreme. I mean, these are really great economic growth numbers, and we all do want to see the economy growing. But this growth is not necessarily trickling down to workers. It used to be that when companies made a lot of money and expanded, they would hire more people. But now a lot of that money is going into AI investment and not necessarily into our wages or our - or the job market. So I think that is a lot of where the disconnect is happening.
FADEL: What would it take for what people make at work to catch up to the GDP growth we're seeing?
SMITH: You know, I don't know. That's a great question. I mean, usually, what - one of the big things that make wages go up is companies competing for workers. But companies really aren't competing for workers now, even companies that are really succeeding. Like, if you look at Microsoft, its profits are up more than 30% from last year. Its stock price is the highest it's ever been. It just offered a buyout to 25% of its workers, 60,000 people. So I - I'm not sure how wages are going to rise. I think, you know, maybe eventually when the job market resettles, but for right now, I don't know.
FADEL: So right now, the growth is just not trickling down. A couple minutes ago, we heard from Mark Zandi, chief economist at Moody's Analytics. He described the growth we're seeing as, quote, "fragile." What's the difference between fragile economic growth and durable growth?
SMITH: I loved that quote. I think that's exactly right because still the biggest part of our economy is consumers buying stuff. That is still 70% of our economy, and we're seeing inflation rising faster than wages for the average American. So that means that 70% of our economy is on kind of a shaky foundation because as things get less and less affordable, even if the, quote-unquote, "top of the K" - the wealthiest people - are able to step up their spending, they're just not going to be able to make up for most Americans. And so when you have the whole economy kind of built on that, it does put us on a shaky foundation if a lot of consumers are finding themselves falling farther and farther behind.
FADEL: Is part of the fragility in GDP growth related to the fact that much of it is driven by just one sector - AI?
SMITH: Yes, yes. 'Cause we really still don't know what - how this is going to play out. We don't know the possibilities of this technology. We're just discovering them. And so a lot of the profits have to do with excitement and speculation and almost dreaming. And so when those dreams wake up to reality of how much money these companies actually make, if that turns out to be less or even if those profits are coming in slower, that could really hammer our economy right now.
FADEL: Now, top of mind for voters, as we've talked about, is affordability - what they can pay for for their lives - and that's showing up in campaigns. The Democrats are running on an affordability record saying, we will fix this. So if you are a Republican running for office and you're trying to defend the economic record of your party, is there enough good news in these numbers to convince voters that actually the economy's doing really well right now. So no matter how you feel at the gas pump and grocery store, don't worry. The economy's good.
SMITH: That is a tricky situation. It's like we were just talking about how a lot of the economic data, the markets and economic growth looks so good. But also workers - I mean, we just got consumer sentiment numbers out. They're the lowest they've ever been, and those numbers started coming out at the end of the Great Depression.
So I'm not sure that saying that the economy is actually in a good shape, you just don't understand it is - I'm not sure - if I were running, I'm not sure I would use that. I think I might try to point to maybe how much growth we can look forward to in the future, how we're in a rough patch right now, but things are going to get better as AI settles into the economy. But I'm luckily not a politician.
(LAUGHTER)
FADEL: What are the implications, if any, for the Federal Reserve as it contemplates what to do next with interest rates?
SMITH: Yeah. The Federal Reserve is in a tough spot. They are really supposed to control inflation, but a lot of inflation is coming from oil prices, which, of course, trickle out into everything. And raising interest rates is really hard on a lot of Americans. So at a moment when Americans are already struggling to afford things, I don't know about raising interest rates, which makes it more expensive to borrow and makes it just tougher on a lot of people. So I think it's - it - I think the Federal Reserve's in a tricky spot.
FADEL: Stacey Vanek Smith is a reporter for Bloomberg's Businessweek. She hosts the podcast "Everybody's Business." Thank you, Stacey.
SMITH: Thanks, Leila. Transcript provided by NPR, Copyright NPR.
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