MICHEL MARTIN, HOST:
Global stocks edged up mildly today after a major sell-off triggered by fears of a U.S. recession. Yesterday, the S&P 500 had its worst day in nearly two years, losing 3% of its value, and the Nasdaq plummeted by 3.4%. We've called Mark Zandi, the chief economist at Moody's Analytics, to get his take on what's going on here. Good morning.
MARK ZANDI: Good morning, Michel.
MARTIN: So let me ask about those recession fears. Is there a valid basis for them?
ZANDI: There's a basis. Yeah, the economy is slowing, but I don't think we're anywhere close to a recession. For me, it's about jobs, and we're creating a lot of jobs. You know, we got a disappointment last Friday for July. Job growth was on the soft side, but, you know, abstracting from the vagaries of the data, I think underlying monthly job growth is about 150,000. And that's good by any historical standard.
So yeah, the economy is slowing. Yeah, there's reasons to be nervous, particularly if the Federal Reserve doesn't get going here and cut - start cutting interest rates. But at this point, I think recession risks are still low.
MARTIN: So look, in the wake of the sell-off, some economists are urging the Federal Reserve to slash interest rates, possibly even before its scheduled meeting in September. So first, let me ask - would they do that? And I want to ask your opinion about whether you think they should do that or whether they've waited too long to cut interest rates.
ZANDI: No, I don't think they'll do that. They - well, if they cut in between meetings, that is generally the result of a crisis. The financial system's not working. The markets aren't functioning properly. You know, think pandemic. We're not in that kind of a ballgame, so I'd be very surprised.
I do think they should start cutting interest rates. You know, I think they're late to the game. I think they misjudged the slowdown in the economy, and they - you know, they put their foot on the brakes, and they need to start taking them off and allowing the economy to grow more quickly. At the September meeting, I'd be very surprised if they don't cut rates and they don't cut rates aggressively.
MARTIN: So the Labor Department said Friday that the jobless rate hit its highest level in nearly three years - that's 4.3%. How much of this market turbulence is about those jobs numbers?
ZANDI: Yeah, I think, you know, folks are focused on that. That's a - you know, 4.3% unemployment, Michel, is very low by historical standards, but it is up a lot. It's up almost a percentage point over the past year. So the trend lines really feel uncomfortable here.
Now, the thing is, a lot of that increase in unemployment is due to increased labor supply. Labor force participation is, you know, back close to its record high, and we've got a lot of immigrants coming into the country, you know, applying for work and getting work. It's less about labor demand. I'd be much more concerned if it - you know, if we saw a lot of layoffs, and we haven't seen that yet. But, you know, nonetheless, you know, the Federal Reserve, you know, should have been cutting rates before now. They should get going here to just make sure that I'm right and we avoid that recession.
MARTIN: So let me get your read on how the U.S. economy is faring, in broad terms, right now. And, of course, part of the reason I'm asking that is the stock market - the best barometer for how well the economy is doing.
ZANDI: Yeah, well, you know, we got to take a step back. You know, the stock market's down in the last week, but it's still up 15% from a year ago. It's up 40% since President Biden took office. It's up 60% since the pandemic, you know, hit. So these are really extraordinary kind of returns. So not surprising that when the market comes a long way in such a short period of time - this is, right now, what I would call a garden-variety correction. You know, it feels uncomfortable, and nobody likes it. Nobody likes to see red on their screen, but, you know, in the grand scheme of things, this is - you know, this happens every one, two or three years.
MARTIN: So why do we react the way we do to it? Is it just that red on the screen? Or why do we react the way that we are doing?
ZANDI: Well...
MARTIN: The broad we...
ZANDI: Yeah.
MARTIN: ...The royal we - not just you and I.
ZANDI: (Laughter) Yeah, I got you.
MARTIN: But I'm saying the big we.
ZANDI: Yeah. Yeah. Well, I mean, no one likes red on the screen. You know, everybody wants to see green. So if you see a lot of red, you got a problem. And, you know, we're in a tough political environment, and everyone's looking through - at the economy through their own prism, and I think that's adding to the angst.
MARTIN: All right. That is Moody's chief economist, Mark Zandi. Mark, thank you so much.
ZANDI: Anytime, Michel. Transcript provided by NPR, Copyright NPR.
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.
