Dan Altman (00:00)
has been a huge issue for a couple of years now. You know, we came off a period of extremely high inflation. And inflation, though it has gone down, it really hasn’t gone down to where we like to see it at the Federal Reserve’s target of around two percent per year. We’ve still been in that three and a half percent range.

Shelley E. Kohan (00:43)
Hi everybody, and thanks for joining our weekly podcast. I’m Shelley Cohan and I’m excited to welcome back Dan Altman, chief economist and best-selling author. Hi Dan.

Dan Altman (00:55)
Hey Shelley, how are you?

Shelley E. Kohan (00:57)
I’m doing great. And the other thing is that one thing I love that you do is your high yield economics newsletter. I think everyone should be reading it because you make it sound very simple in terms of, you know, some complicated economic things, especially for students or, you know, younger people in the industry. So I love your newsletter. I think it’s great. It’s very rich and it’s always on point with the most relevant things that are happening in our industry.

Dan Altman (01:26)
Thanks very much. Yeah, we’re up over four thousand subscribers now and it’s free every week on the Fridays on LinkedIn.

Shelley E. Kohan (01:34)
It’s great. Okay, and you are also you are coming out with a new book, which we’re going to talk about at the end of this. I think it’s going to be a best-selling book. Not surprising because you already are a best-selling author, but I think your book about the best decisions you’ll ever make, An Economist Guide to Saving Time, Making Money, and Living Well. So we’ll just kinda give a little push for that at the end of today’s conversation, if that’s all right.

Dan Altman (01:59)
Appreciate it, yeah.

Shelley E. Kohan (02:01)
Absolutely. Okay, so we have a lot to talk about today. There’s a lot of macroeconomic forces that are happening. the in the inflation report just came out recently. So let’s start with give us kind of a rundown of what’s happening in terms of inflation, affordability.

Dan Altman (02:18)
Yeah, affordability

has been a huge issue for a couple of years now. You know, we came off a period of extremely high inflation. And inflation, though it has gone down, it really hasn’t gone down to where we like to see it at the Federal Reserve’s target of around two percent per year. We’ve still been in that three and a half percent range.

And as a result of that, consumers are still suffering and still complaining about what’s going on with prices. It’s an interesting situation right now because

Even though it seems like there’s a little bit less on pr pressure on prices from the natural forces that we usually see in the economy, we have prices being pushed up by other things which are a little more unusual.

Shelley E. Kohan (02:58)
What are some of those other things that are pushing prices up?

Dan Altman (03:01)
Well, tariffs number one, we saw it with Liberation Day tariffs, which were ruled illegal, but the administration is rushing to get new tariffs in place. And with all that uncertainty, businesses are really planning for tariffs to be higher again, and that means incorporating some of those costs into prices. We saw the pass through to consumers occurring sort of in a coarsed fashion, industry by industry. apparel was one of the last to capitulate, but when it did, prices really went up there.

And in addition to tariffs, we’ve got the war on Iran, which has been pushing fuel prices up. That ends up percolating through to everything that rides on a train or a plane or a a truck. Everything has to pay for fuel, jet fuel, diesel fuel, whatever it is, and that cost gets passed through to consumers as well.

And the third thing which is unusual that we’ve had is this enormous boom of AI-related investment, building data centers, sucking up more energy. And that means that construction materials, circuitry, all those things that go into that type of construction are in high demand.

And it makes it more expensive to get them for other things. We’ve seen microchip prices go way up and that’s driven up the price of cell phones. So there’s a lot going on right now that’s really unusual and it’s just contributing to those enhanced pricing pressures.

Shelley E. Kohan (04:22)
So, one thing I want to ask you about is when we think about these pricing pressures and increases, we’ll talk about apparel for a second. So, in apparel, like the prices have gone up. We see we get the sales results from the you know US Census viewer too, but it’s kind of like a net net. We’re not really having higher sales if you take away the price increases. So, what do you think consumers are doing? Do you think they’re just living with less things? Do you think they’re looking for more high-quality garments?

Dan Altman (04:50)
Yeah, I think there’s definitely a push to keep budgets under control. We’ve seen it in apparel, we’ve seen it in durable goods, which have actually taken a big hit in terms of demand. It makes sense for people to delay purchases of durables if they think prices are gonna go down or their incomes will go up, then it’ll be more manageable. But those delays have continued. We still have a lot of durable purchases being postponed. With apparel, like you said, prices have gone up and demand has gone up slightly, but they’ve sort of canceled each other out in real terms. People aren’t

actually buying more stuff. And I think it’s partly keeping budgets under control. And it’s partly this movement to move away from fast fashion and disposable goods and and really try and keep things for the longer term, which is a cultural moment that really coincides very well with the financial moment.

Shelley E. Kohan (05:36)
Yeah, I almost think the financial moment is what pushed pushed the cultural moment. ‘Cause we’ve been talking about this kind of slow fashion for many years, but I think we’re finally kind of seeing it.

Dan Altman (05:47)
Yeah, I mean there are popular blogs on Substack and other platforms where people are talking about, you know, the one item that will last you for ten or twenty years or or even buying nothing for years at a time. and and it’s something that people are trying to plug into because they’re scrimping and saving wherever they can.

Shelley E. Kohan (06:05)
So

can we talk a little bit about the war in Iran and that implications on supply chain on prices and all the other tentacles that kind of come out from that war?

Dan Altman (06:17)
Yeah, absolutely. one of my old professors would get angry at me if I didn’t say Iran, so I’m gonna try and pronounce pronounce it correctly. but

Shelley E. Kohan (06:25)
Mm.

Dan Altman (06:26)
anyway, the the war on Iran is is really having a a twofold effect. One is just the direct effect on fuel prices, because there’s not as much fuel transiting the Gulf, and as a result of that lower supply, you get higher prices. that’s something that we can’t do very much about. The prices tend to go up and down as expectations for the war change.

Change and that leads to more uncertainty. It’s harder to lock in contracts when you got that kind of pricing uncertainty. But there’s also a sort of generalized uncertainty about what this is going to mean in the long term. You know, are we dealing with permanently higher prices? Are we going to deal with permanently different trading routes, different insurance rates?

Tax rates, tariffs, all of this stuff has been wrapped up in the Iran question because there are so many dimensions along which the negotiations are going right now. You know, we don’t know if ships are gonna have to pay big tolls to get out of the Gulf. and it’s not just for fuels, it’s also for fertilizers and other industrial products, which get rolled into a lot of the things that we use. So the question is not just the sort of near-term effect on fuel prices, but that very long-term effect on trading routes and trading patterns and trading prices.

right now, honestly, it it’s a huge source of uncertainty and I think it’s something that has caused business activity in those non-AI sectors to slow down a little bit as people wait to see what happens.

Shelley E. Kohan (07:49)
Yeah, and we’re going up, of course, as you know this into our biggest selling season just around the corner. It’s kind of already started last month, but you know, with holiday, what do you think the impact is going to be on holiday sales in terms of all these macroeconomic things that are happening on the outside?

Dan Altman (08:06)
Well, retailers try not to shock consumers too much if they can avoid it. And knowing that consumers are already hurting, I don’t think they’re gonna be pushing up prices too high for this holiday shopping season. I think they’re probably gonna try and wait it out and see if they can last until prices come down. Because as I said, some of those natural forces in the economy that push up prices, the shoe leather costs, are are coming down a little bit. That’s at least what the last couple of reports from the government suggest. But there is a danger here as we go into the winter months, which is if we have a particularly cold winter.

Heating oil prices are going to spike because heating oil and diesel are basically made from the same raw materials. And we already have shortages of diesel and very high prices from diesel, which have gone up higher than regular gasoline as a result of the war on Iran. And if heating oil is in high demand as well, those things are going to spike together. That is going to lead to pricing pressures that will probably be irresistible for a lot of retailers.

Shelley E. Kohan (09:03)
Okay, so let’s switch gears. Let’s talk about the Fed. I know you have a lot of opinions about what’s going on with the Fed and the Fed chair. So tell us, give us kind of a bird’s eye view of what you’re seeing over there.

Dan Altman (09:15)
Yeah, so we have a new Fed chair, Kevin Warsh, who took over from Jay Powell. And he came in talking tough, a lot of swagger, talking about the fact that the Fed had not gotten inflation down to its target over the past five years or so, and saying that he was gonna do it and we were gonna get back down to two percent, which is a pretty far distance from where we are now. and then in his first couple meetings he did nothing, basically. there hasn’t been an interest rate hike to try and control inflation. And now it looks like, yeah, you know, maybe inflation’s coming down a little bit.

it that that makes this job a little easier. it’s a very tough time to be sitting in that chair because when we have shocks like the war on Iran, which shocks supply

It means that not only do you get a decline in business activity and hiring, but you also get prices going up. So it’s sort of, you know, the devil you do, the devil you don’t, which one are you gonna take on first? Are you gonna try and get prices down at the risk of hurting the labor market even more? You’re gonna try and push employment up at the risk of pushing prices up even more. it’s not an easy situation to be in.

And so Warsh has kind of waffled and said, well, you know, interest rates are going up anyway, though it’s not for anything he did. so maybe the market is basically hiking rates on its own. he’s got five task forces that he’s launched to try and fix how the Fed works, change how it makes policy and analyzes data. And so he said he’s sort of waiting for some feedback from them about what they should do.

but right now there’s a lot of dissent on the Federal Open Market Committee, which is the one that sets interest rates at the Fed. there are three

People voting on there out of 12 who do think that rates should be higher. I don’t know if they’ll continue to think that at the next meeting in September. But right now, everything’s kind of in flux. And that is another thing that tends to drive up expectations for inflation because people say, hey, you know, if these guys aren’t serious about fighting inflation, maybe inflation’s actually going to be higher in the future, which is the opposite of the way Warsh has been talking, but that’s the way the markets interpret it.

Shelley E. Kohan (11:13)
So Dan, seriously, when’s the last time you saw inflation at two percent?

Dan Altman (11:18)
Huh, yeah, that would have been pre-COVID. you know, we we had some times where inflation was even a little bit lower and we were able to have very low interest rates at the same time. you know, it can happen for a variety of different reasons. One of the things that can lead to very low inflation is a boom in productivity, right? If each worker can make more stuff in an hour, then it means that not only can you pay that worker more because they’re producing more output, but you can also take a little away and

And lower prices a little bit. It gives you room to maneuver and do both of those things. So everybody’s been hoping for a big AI-driven or robotics-driven productivity boom, which would get prices down and help wages to go up at the same time. It’s the Goldilocks scenario. But there’s not that much evidence that that’s happening yet. So when we look for things that could bring inflation down pretty forcefully, I don’t know if I’d put all my chips on that.

Shelley E. Kohan (12:14)
And Dan, I think you’re the one that had mentioned in your newsletter, you know, when you have higher productivity and you have higher wages, you also get more taxes, right?

Dan Altman (12:23)
Yeah, you get more tax revenue, which would help to close this enormous budget gap that we have, which is just getting bigger. you know, we’ve had this administration talk tough about cutting spending, really hasn’t done that much of it, and they’ve cut taxes as well. So, what happens when you have more spending actually from the war and all the other things they’re doing, and less tax revenue? Well, you’re just getting bigger budget deficits and more debt. And that’s one of the things that’s driving long-term interest rates up because the markets are worried that the US is carrying too much debt. So

You know, it is the Goldilocks scenario to get those productivity gains. We just haven’t seen the evidence yet that it’s really happening.

Shelley E. Kohan (13:00)
So the other thing I want to ask you about is this shrinking shrinking labor supply and what what you think both the government and company should be doing in terms of getting using you know AI to help with menial tasks and entry-level jobs and all of that. That’s all great, but we also don’t wanna have a huge displaced workforce either.

Dan Altman (13:22)
Yeah, we run this sort of tremendous risk right now that what happened with globalization and technological change through the eighties and nineties to blue collar workers could happen again to white-collar workers with generative AI. You know, that people won’t necessarily be unemployed, but they’ll be displaced from the good paying jobs that they had and and they’ll be in jobs where they feel like their living standards aren’t quite as high anymore. and and that has led to economic ruptures and I think social ruptures as well. So what if we did that?

Know for all the desk jobs too. I think that that’s something our society doesn’t really want to contemplate. So dealing with that transition, which we really failed at last time, would be a big plus this time around. But in the meantime, we do have a pretty strong challenge facing the labor market right now, which is that labor supply is dropping steadily. It’s partly people who are deciding to leave the labor force, it’s partly people being deported and and and opting not to come here to work. And as a result of that,

Even though there’s not many jobs being created, the the labor market’s kind of in balance. But the problem with that is if you have fewer people working, then the economy is not as strong. There’s not as much income in the economy, not as much tax revenue. The US as a whole becomes less strong as a global power because its economy is not growing as quickly. And so, you know, this is something that

we’re gonna have to deal with sooner or later, especially as we pay the pension benefits of the baby boomers. we just don’t have as many people working. the easy solution to this is is to allow more immigration again. even if you had a ton of babies now, you wouldn’t really see them in the workforce for twenty years. So, you know,

Shelley E. Kohan (15:01)
That’s right.

Dan Altman (15:02)
it it’s something that’s kind of an urgent issue.

and I don’t think that Washington has really taken it on yet. I think that we talk about attracting people back to the workforce, but what’s really gonna do that is higher wages. and right now the prospects for that are still, you know, hang hanging your hat on productivity.

Shelley E. Kohan (15:23)
So

where do you think we’re headed over the next year? Are we gonna stay in this kind of K shaped economy?

Dan Altman (15:29)
It’s looking more and more likely. You know, we see income and spending both being more and more concentrated at the top of the distribution. i you know, there’s a guy named Mark Zandi at Moody’s, one of their top economists, who tracks how much of consumption is

attributable to the top, let’s say, twenty percent of earners. and that has been going up quickly. Even if you don’t totally agree with his methods, how he calculates it, the trend is obvious that the concentration is increasing. And what that means is that

There’s enough spending going on at the top to drive the economy forward for the economy to grow. It’s just not being shared in by most of the people who are working and consuming in our economy. I think for retailers and and and other businesses, it means that they’re going to continue to try and cater to that top level. and the people at the bottom won’t get the same product variety, they won’t necessarily get the same advantageous prices, and it really leads to a kind of split.

in our society between those people who are able to operate at that high level and the people who are not. I don’t see an easy solution to that right now, especially with the labor market being kind of stagnant. And honestly I don’t see what’s going to fix it in the near future either.

Shelley E. Kohan (16:48)
So do you have any advice for retailers today as they’re looking into going into twenty twenty seven? Do you have any words of wisdoms to impart on them?

Dan Altman (16:59)
Well there is a lot of uncertainty, like I said, and so

One of the most important things you can do is be diversified in your supply chains, be diversified in terms of how you make your money and your business, your revenue. you know, when you start a business, obviously it’s easier to to specialize, get really good at doing something. But right now, you know, different industries and different products can almost be shut down from day to day because of pricing pressures and tariffs, things like that. so diversification is important. And, you know.

If you’re gonna s really target those high-income consumers, I I’m I’m loath to encourage it because I see what it’s doing to our economy and our society, but that’s where the money is right now. And so people have to think about how they’re gonna capture a little bit of that.

Shelley E. Kohan (17:45)
Yeah. Okay, so let’s talk about so you have a new book coming out, The Best Decisions You’ll Ever Make, your guide to saving time, making money and living well. So tell us just a little bit about the premise of the book.

Dan Altman (17:57)
Yeah, so you know, in my career as an economist for almost thirty years now, I feel like I’ve kind of incorporated a lot of what I know and how I think about economic concepts into daily life and how I make decisions. And there have been moments where it has really helped, especially some of those bigger decisions like buying a car or buying a house. and I thought that sharing these tools, which come from some of the most foundational

Tool c sor some of the most foundational ideas in economics could be really valuable to a lot of people. So I wanted to bring that to as broad an audience as possible. And I start out with some very simple decisions like what to make for dinner or how much to buy in bulk at the supermarket, and then work your way up to things like cars, houses, insurance, annuities, retirement, even bequests, and really trying to build.

your economic toolbox as we go. And so it allows you to analyze decisions quickly and efficiently, choose the right mechanisms for making those decisions, and then execute. And so I think it’s going to help people in two ways. It’s going to help them to avoid decision paralysis where something just seems overwhelming or they don’t know where to start. And it’s also going to help them to get a bit more from their time and money every day.

Shelley E. Kohan (19:14)
I think what’s gonna happen, Dan, is I’m gonna read your book and I’m gonna say, my god, I’ve been doing this all wrong.

Dan Altman (19:21)
Well, there’s some things that are kind of counterintuitive. I was talking to a friend about one part today that he had heard about, which was that when you’re looking for a doctor, one of the strategies you can use is to look for a doctor with a successful practice who has a lousy bedside manner.

And he said, well, why would you want to do something like that? Well, you know, if you analyze it from an economic point of view and you understand what information you have access to and what information you don’t, like, for example, we as consumers are not very good at evaluating quality of care, then you can see why you might make a choice like that to use the information that you do have to try and derive the information that you don’t.

Shelley E. Kohan (20:01)
That’s amazing, Dan. So I’m gonna tell you a quick story that’s probably gonna mortify you. Every time I have to get a new doctor, I interview like six of them.

Dan Altman (20:09)
That’s great. You

get as much information as you can. It’s an important decision.

Shelley E. Kohan (20:13)
Yeah.

okay, so I I just want to go back to one more thing you said earlier and tie it into the best decisions book that you’re writing. So mortgage rates, you know, a lot of consumers who might be trying to buy a house right now, but trying to figure out none of us can, you know, when those interest rates are gonna rise, right? And of course, on a retail side, when people buy houses, that helps our home furnishings industry and furniture industry, right? So what it what what would you say to people when when you’re sitting here and you just don’t know what’s gonna

happen with the interest rates. Do you buy now? Do you wait? Do you play? Do you gamble?

Dan Altman (20:49)
Yeah, so a side note, Home Depot and and other companies that specialize in providing people for with supplies for DIY and home renovation have been doing really well because a lot of people are sort of staying in place rather than buying a new home because of mortgage rates, and so they’re renovating their existing home instead. so that’s been a a positive for that kind of business. but yeah, if you’re looking right now and saying, should I wait

To buy a house because mortgage rates might go up or they might go down. I would say if you found the house of your dreams, don’t wait. Because once you do lock in your mortgage, you have some option value. That means that you have the option in the future to get a lower rate by refinancing. You may have to pay some closing costs, but of course, if you’re staying in that house for a while, it’s going to pay you back and then some in terms of lower mortgage payments. And if rates go up, then hey, you’ll have a lower rate and you’ll be happy with that.

So there’s not a huge cost to locking in right now. It’s just that potential refinancing closing cost that could come down the road.

And it’s very hard to predict where interest rates would go. There’s not an obvious reason why they would be lower, especially with inflation being a problem and the bond market being very worried about long-term fiscal picture. So yeah, I don’t think waiting necessarily makes that much sense. But I’ve actually gone into this in much more detail on my Substack, which is also called the best decision. So you can read the whole thing there.

Shelley E. Kohan (22:16)
Awesome, thank you, Dan. it’s always a pleasure having you here. Is there any topic I should have asked you about that I didn’t today?

Dan Altman (22:25)
no, I mean, more questions about the book are always welcome, but maybe we’ll have another chance to talk about that another time. It’s

Shelley E. Kohan (22:31)
Absolutely, when’s it coming out?

Dan Altman (22:33)
coming out on November 10th, but if people want to pre-order now, that would be really great. I learned, here’s an interesting retail point for you. I learned that on the best seller lists, all of the pre-order sales count towards the first week’s sales for a

Shelley E. Kohan (22:46)
That’s amazing.

Dan Altman (22:47)
Yeah, for a bestseller. So if you order now, then you’re really giving me a great shot in the arm and I appreciate that.

Shelley E. Kohan (22:54)
I

love that. Well, thank you so much for being on today and kind of giving us a macro view of what’s happening in our i environment today. So thanks so much and look forward to having you back.

Dan Altman (23:04)
Been my pleasure, Shelley, all the best.

Shelley E. Kohan (23:06)
Thank you.