TRANSCRIPT
Dick Pryor: This is Capitol Insider - taking you inside politics, policy, and government in Oklahoma. I'm Dick Pryor with Quorum Call publisher, Shawn Ashley. Our guest is Dr. Robert Dauffenbach, professor emeritus at the Price College of Business at the University of Oklahoma. Bob, as always good to have you with us.
Dr. Robert Dauffenbach: Great to be with you as well.
Shawn Ashley: Dr. Dauffenbach, now that the federal government shutdown is over, we're finally getting some jobs data. What were the most significant findings from the latest report?
Dr. Robert Dauffenbach: The delayed September report showed a gain of 119,000 jobs, significantly surpassing Wall Street's expectations of 50,000. However, the overall labor market is mixed and softening. The unemployment rate ticked up one-tenth of a percent to 4.4%. Still, this remains near the 4% full employment benchmark. The labor force participation rate rose, adding nearly a half a million workers. An encouraging sign of worker confidence. Continuing jobless claims rose to nearly two million, reaching a four-year high. Weekly initial claims remained steady at 220,000. Unemployment rates for both black workers and the young are rising disproportionately beyond historic norms. So, the job market appears to be softening, characterized by rising continuing claims and demographic disparities, but headline job growth remains strong. Enough to keep the market from being categorized as recessionary.
Shawn Ashley: The last time you were here, we talked about the change in leadership at the Bureau of Labor Statistics. And then we've had the shutdown. When you look at this data, how confident are you in its validity?
Dr. Robert Dauffenbach: I'm fairly confident that the professionals that do the BLS's work have these long running programs that have been consistently tweaked over time, but I can't help but imagine that there aren't better ways of gaining this information. I mean, companies and corporations are required to produce a lot of data for the federal government. And why not require them to produce their job holdings, which that's been a problem, is the low response rate to the BLS data. So that's a little tweak I would make, and I think that would make a big difference.
Dick Pryor: How is the Oklahoma economy fairing as we head into the holidays?
Dr. Robert Dauffenbach: The Oklahoma economy continues to demonstrate significant strength in job creation. With recent data, as of August, anyway, the data are a little, a little lagging here because of the government shutdown, is showing performance well ahead of national figures. Year-over-year job growth surpassed the national average statewide and across the Oklahoma City and Tulsa metro areas. In the post-COVID performance area, you know, I like to think in terms of how we've done since that COVID era, Oklahoma has outperformed the nation, growing 9.0% versus 8.3% nationally.
The Oklahoma City metro leads with 11.1% job growth, followed by Tulsa at 9.2%. However, the success is contrasted with income trends. Oklahoma's per capita personal income, PCPI, currently stands at 88% of the U.S. average, down significantly from 100% parity achieved during the 2014 energy boom. The Oklahoma City metro is closer to parity with a PCPI ratio rising to 98%. This figure is supported by the metro's favorable cost of living and strong housing affordability compared to the national average. So, while the state is performing well on the employment front, personal income growth remains modest, indicating the economy is successfully holding its own, but requires further improvement to regain income.
Shawn Ashley: Inflation concerns remain. Do you see Federal Reserve policy addressing that in the coming months?
Dr. Robert Dauffenbach: Despite inflation remaining well above the Fed's 2% target, and we're more looking closer to the 3%, the Federal Reserve is signaling a gradual path toward easing short-term rates. The market anticipates three quarter-point reductions between December and early next year, though the probability of a December cut remains a little in question. The possibility of a new, more aggressive Fed share post-May when Chairman Powell retires could accelerate tax cuts. President Trump has made it clear that he wants lower rates. Fed policy, however, has little direct control over 10-year and longer treasury rates without resorting to tools like yield curve control. Well, what is that? It is a continuous purchase of long-term bonds by the central bank to suppress rising yields, commonly known as quantitative easing.
As seen during the COVID area, such policies can be highly inflationary. Inflation is likely to be problematic because the underlying fiscal strategy appears to be running the economy hot to manage the massive debt-to-GDP ratio. So, consider these astounding fiscal facts driving long-term rates. The $38 trillion federal debt is 120% of GDP, surpassing the ratio seen in World War II. And dramatically up from 35% in the mid-1970s. Annual debt service costs are $1.7 trillion, now exceeding the entire defense budget. The deficit is projected to remain at 6% of GDP deep into the 2030s by the Congressional Budget Office. The structural federal debt ensures long-term rates will likely remain high, barring another QE cycle, A sustained 10-year yield. The foundation of mortgage rates will continue to restrict activity in the housing market.
Shawn Ashley: Could inflation, once again, get out of hand.
Dr. Robert Dauffenbach: I'm not sure that inflation is going to get really out of hand in a big way. Let us hope that we will continue to have vigilance on the part of the Fed. But the problem is we may have both rising unemployment and rising and very high inflation, in which case the Fed is in a lot of trouble for how. What do they choose to fight? They have a dual mandate, full employment and price stability. But with that kind of problem, which we call stagflation, you would have a very difficult choice to make.
Dick Pryor: Bob, there's continuing uncertainty about tariffs. They go up, they go down. Do you see tariffs causing inflation?
Dr. Robert Dauffenbach: The U.S. is engaged in a major trade war with China. China has control of 92% of the rare earth minerals. These minerals are very critical to both industrial production and defense. Following recently China's imposition of export restrictions, the U. S. responded with 100% tariffs. Although a one-year truce was negotiated, the long-term geopolitical struggle continues. Current tariffs average 18% rates and are expected to generate $325 billion in revenue in 2026, and we certainly need the money. But these tariffs are a regressive tax, disproportionately affecting low-income consumers. Tariffs are likely to cause a one-time shock to inflation but are not expected to cause sustained spiraling inflation.
Shawn Ashley: This may surprise you, but this morning I was reading an article about Artificial Intelligence. How do you see the rise of Artificial Intelligence affecting the economy?
Dr. Robert Dauffenbach: Artificial Intelligence holds promise of dramatically increasing productivity. Now, productivity is foundational to rising standards of living. However, the immediate consequence could be widespread job displacement, increasingly impacting white collar roles. Several major technology and finance corporations have recently announced large-scale workforce reductions, often reaching tens of thousands of jobs. The full scale of this disruption, similar to the introduction of desktop computing and software applications, will take time to materialize, but it is inevitable. The current AI enthusiasm has created a K-shaped stock market, the Magnificent 7 and AI related companies performing exceptionally well, while the rest of the market lags. There's a significant risk that this AI hysteria could trigger a market correction if the expected returns on massive AI investments fail to materialize.
Dick Pryor: What other concerns do you have about the economy looking toward 2026?
Dr. Robert Dauffenbach: Well, they don't call economics a dismal science for no reason. I have concerns beyond those already mentioned. There is, of course, stagflation potential, rising unemployment rates and high and rising inflation. Which battle does the Fed actually end up fighting? A weakening consumer. We're looking at the lowest consumer sentiment readings in 20 years without a recession. Consumer credit, we're looking at high debt levels and rising delinquency rates. Student loans are at the $1.7 trillion level. The distribution of income. The top 10% of earners account for 50% in consumption expenditures. Dysfunctional federal government. Need I say more than what we have recently witnessed? No one has a crystal ball as to where all this is headed, even me. The U.S. is still the best place to be, the envy of the world, and we will remain so.
Dick Pryor: And I know you will continue watching and we will be still talking to you as we head into 2026. Bob, thank you for joining us today.
Dr. Robert Dauffenbach: Glad to be here.
Dick Pryor: That's Dr. Robert Dauffenbach, professor emeritus at the Price College of Business at the University of Oklahoma. For more information, go to quorumcall.online. You can find video of Capitol Insider segments on the KGOU You Tube channel. Audio and transcripts are at kgou.org and look for Capitol Insider where you get podcasts. Until next time, with Shawn Ashley, I'm Dick Pryor.
Announcer: Sources and methods, the crown jewels of the intelligence community. Shorthand for How Do We Know What's Real? Who Told Us? If you have those answers, you're on the inside, and NPR wants to bring you there. From the Pentagon to the State Department to spy agencies, listen to understand what's really happening and what it means for you. Sources and Methods, the new National Security Podcast from NPR.
KGOU produces journalism in the public interest, which is critical to an informed electorate. Listeners like you provide essential funding for Capitol Insider. Make your contribution at KGOU.org.
