Our economic future is a black box

Overview

This episode explores the challenges of economic forecasting in the face of unprecedented policy changes, including tariffs and immigration restrictions. It also delves into the ripple effects of these policies on industries like furniture manufacturing and food services, the resurgence of adjustable-rate mortgages, and shifting consumer behaviors influenced by weight-loss drugs.

Notable Quotes

- We compete pretty well when you give us a chance, but if you keep changing the rules, it’s awful hard to plan. — Alex Shuford, on the challenges of navigating tariff policies.

- It’s kind of like giving a patient 10 aspirin instead of one—you just don’t know what’s going to happen. — David Kelly, on the unpredictability of current economic models.

- How many great days are there in the future? — Juani Romero, on the mood of economic uncertainty.

🧠 The Complexity of Economic Forecasting

- Winnie Cisar of CreditSights highlighted the difficulty of predicting economic trends due to a lack of modern historical precedents for recent policy changes, such as tariffs and deregulation.

- David Kelly from J.P. Morgan noted that traditional econometric models struggle with unprecedented scenarios like the Trump administration’s immigration and tariff policies.

- Seth Carpenter of Morgan Stanley emphasized the limits of historical analogies, explaining that while past data can guide predictions, the scale of current policies requires going by feel and constant revision.

📦 Tariffs and the Furniture Industry

- Alex Shuford, CEO of Rock House Designer Brands, described 2025 as a year of chaos for his business, citing fluctuating tariffs and economic uncertainty.

- While tariffs provide a short-term boost to domestic manufacturing, Shuford warned of long-term harm to the retail furniture sector, which relies on price-sensitive customers.

- He also expressed concerns about the lack of skilled labor in the U.S., making it difficult to scale production domestically.

🍴 GLP-1 Drugs and the Food Industry

- The rising popularity of weight-loss drugs like Ozempic and Wegovy is reshaping consumer habits, with companies like Coca-Cola and Olive Garden testing smaller portion sizes.

- Kristen Schwab reported that restaurants are experimenting with protein-focused menus to cater to GLP-1 users, but smaller portions alone may not offset fixed costs.

- The broader cultural shift toward better nutrition and smaller portions is influencing not just users of these drugs but their families and social circles.

🏠 Adjustable-Rate Mortgages Make a Comeback

- Adjustable-rate mortgages (ARMs) now account for nearly 10% of mortgage applications, driven by their lower initial rates compared to 30-year fixed mortgages.

- Michael Fratantoni of the Mortgage Bankers Association explained that ARMs are particularly appealing in high-cost markets, though they carry risks if rates rise further.

- Kara Ng of Zillow cautioned that many borrowers may not fully understand the implications of ARMs, focusing more on immediate affordability than long-term financial stability.

🎰 Las Vegas as an Economic Microcosm

- Visitor numbers in Las Vegas have dropped, reflecting broader economic insecurity. Ray Lujan, a waiter and real estate agent, noted declining tips and home sales.

- Entrepreneur Juani Romero discussed the paradox of falling rents creating opportunities for expansion, even as consumer sentiment remains low.

- Jeremy Aguero of Applied Analysis warned that economic instability is impacting tourism-dependent regions like Las Vegas, Orlando, and Maui, as households cut back on discretionary spending.