Episode summary
We Asked Jim Paulsen Why 87% of the Economy Is Flatlining
Excess Returns
· · Hosts: Jim Paulsen · Guests: Jim Paulsen
Summary
Jim Paulsen argued that the U.S. economy is much weaker beneath the headline data than it looks, with roughly 87% of the economy close to flatlining while a narrow new-era segment tied to AI and other tech spending still drives most of the growth. He called this a “bust booming” setup: one part of the economy is booming, but the older, broader economy is stalled near stall speed. In his view, that helps explain weak Main Street sentiment even as the S&P 500 and the MAG 7 hold up.
He said the recent Iran conflict matters mainly because it can lift oil prices through supply disruption, not because the Fed raises or cuts rates. Paulsen argued that this is not a 1970s-style inflation problem driven by excess demand; instead, it is a supply-side shock layered on top of already weak growth. He expects growth concerns to overtake inflation concerns, forcing the Fed toward easing later this year.
On markets, Paulsen thinks tech can keep underperforming without collapsing, while broader U.S. stocks, international markets, and long bonds may benefit if policy shifts toward supporting growth. He also said AI may eventually create big economic benefits, but so far the gains are concentrated and not clearly lifting the rest of the economy yet.
Key takeaways
- Paulsen thinks about 87% of the U.S. economy is near stall speed, with growth concentrated in a narrow new-era tech segment.
- He argues the Iran/oil shock is a supply problem, so higher Fed rates will not meaningfully lower oil prices.
- Paulsen expects the Fed to ease later this year if slowing growth becomes the dominant risk.
- He sees tech and the MAG 7 underperforming broader market areas rather than collapsing outright.
- He thinks a shift from inflation obsession to growth support could help small caps, value, international stocks, and long bonds.
Notable quotes
“Our policy officials are just missing what's going on in almost 90% of the United States economy”
“I think we're going to get easy. I do. And I think the bond yields will come down as well”
“I think that could change this year. And if that finally changes, that will be the really the first time it's in five years”
“We have been fixated and obsessed with inflation for 5 years in this country”
How the episode opens
So, here we got the Fed saying they may raise rates again. Why do you think that's going to bring down the price of oil? I don't think it's going to.
In fact, oil's not going to come down till they get some kind of agreement on the the war or find a way to open the straight. Has nothing to do with how high the Fed funds rate is. Our policy officials are just missing what's going on in almost 90% of the United States economy because all we get is headlines about AI and how great the MAG7's doing.
We have been fixated and obsessed with inflation for 5 years in this country. Okay? And that's created a certain environment for everything, economy, stock market, bonds, everything.
I think that could change this year.
Jim, it's great to have you back on. — It's always good to be be with you guys. Thanks for having me.
Yeah, as always. Um, so you've spent decades helping investors, I think, kind of step back from the noise and try to understand and get their arms around the bigger sort of economic picture and the things at play. And lately you've been writing about and framing the US economy in a pretty unique way as this bust booming type of scenario or economic backdrop.
And that's kind of going to be one of the things we're going to talk about today among a number of other things. The Fed inflation and sort of how the markets are um I guess evolving and developing from from your perspective. All of the content that you always see here when Jim's on with us comes from his Substack.
Um Jim's kind enough to share some of the charts and some of the things that he's focusing on and writing about, but please go over to Substack.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- stall speed economy
- fed rates
- oil risk inflation
- market concentration mag 7
- ai spending
Companies and tickers mentioned
- NVDA
- Nvidia
Watch the episode
Watch “We Asked Jim Paulsen Why 87% of the Economy Is Flatlining” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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