Episode Summary: "Are We Heading Into a Recession? J Scott Breaks It Down"

Podcast: BiggerPockets Money Podcast
Hosts: Mindy Jensen and Scott Trench
Guest: Jay Scott, Real Estate Expert and Economic Analyst
Release Date: July 29, 2025

Introduction to Economic Confusion

Mindy Jensen kicks off the episode by highlighting three perplexing headlines that reflect the current economic ambiguity:

1. Weak Economy Boosts Military Recruiting
2. Amazon Prime Day Sales Down by 41%
3. GDP Growth Exceeds Expectations

These contrasting indicators set the stage for the central question of the episode: Are we heading into a recession, or are we missing one altogether?

Defining a Recession

Scott Trench delves into the complexities of defining a recession. He explains that there is no universally accepted formal definition. Traditionally, a recession is identified when the GDP decreases for two consecutive quarters. As of the episode's release, Q1 has shown negative GDP growth, and Q2 data was pending, leaving room for speculation.

However, Scott prefers viewing the economy on a spectrum, focusing on whether economic indicators are improving or deteriorating rather than fitting into a binary recession/no-recession framework. This approach allows investors to strategize more effectively.

“Instead of thinking about, are we in a recession, Are we not in a recession? I actually prefer to think about the economy as a spectrum.”
— Scott Trench [01:42]

Indicators Pointing Towards Economic Softening

Jay Scott expands on the recession definition by outlining additional economic indicators such as rising unemployment, reduced consumer spending, and increasing bankruptcies. He emphasizes the subjective nature of these metrics and the uncertainty surrounding the official declaration of a recession.

Scott Trench responds by analyzing key data points:

• Unemployment Rate: Currently around 4.1-4.2%, indicating a strong job market. Wage growth is outpacing inflation, allowing real-term income increases.

• Labor Participation Rate: A worrying decline with 700,000 people exiting the job force recently, possibly due to retirement, disillusionment, or other personal reasons.

• Unemployment Claims: Rising, reaching levels not seen since 2021, suggesting that those who lose jobs are struggling to find new ones.

• Consumer Spending: Growth in consumer spending has decreased by 60% from Q4 to Q1, with Q2 showing a slight contraction. Although spending remains positive, the slowdown is significant.

“We're starting to see consumers starting to pull back, starting to spend a lot less than they were.”
— Scott Trench [07:16]

Jay further discusses the rise in bankruptcies, particularly among small businesses, attributing this to sustained high-interest rates that strain debt-dependent enterprises.

Impact of Gig Economy on Unemployment Data

Jay Scott raises a critical point about the gig economy's influence on traditional unemployment metrics. The surge in gig and self-employment means many workers aren't captured accurately in official unemployment rates. These workers often leave the gig economy within six months due to insufficient earnings, masking true employment instability.

“These people are not going to be able to file for unemployment. They're just going to lose these income streams that are coming in or see their income decline and it's not going to show up on those reports.”
— Jay Scott [17:18]

Scott Trench concurs, highlighting that gig workers' underemployment isn't reflected in the data, making it challenging to gauge the real state of employment.

Questionable Economic Data Reliability

Scott Trench criticizes the reliability of government-collected economic data, citing increased reliance on imputed data—estimated figures used when actual data is unavailable. He points out that 35% of inflation data in June was imputed, raising concerns about the accuracy of reported figures.

“It's possible that the data we're getting is not even as good as it was a couple months or a couple years ago.”
— Scott Trench [26:52]

Jay Scott questions how significant tariff-induced cost increases aren't reflected in inflation metrics like the CPI or PPI, suggesting either flawed data or consumer behavior adjustments (e.g., reduced spending leading to lower prices).

Interest Rates and Federal Reserve Dynamics

The discussion shifts to the potential impact of political moves on interest rates. Jay Scott explores the scenario where a new Fed chair might lower interest rates, potentially spurring economic growth but also risking increased inflation.

Scott Trench provides a nuanced view:

• Theory: Replacing the Fed chair could lead to immediate rate cuts.
• Reality: Interest rate decisions are determined by the entire Federal Open Market Committee (FOMC), not just the chair. A unilateral rate cut by the chair is unlikely.
• Future Dynamics: With upcoming FOMC member turnovers, predominantly Trump-appointed members may influence future rate policies, but large shifts are improbable.

“It's unlikely we're going to see rates come down just because Powell is replaced.”
— Scott Trench [30:39]

Artificial Intelligence's Dual-Edged Impact on the Economy

Both hosts discuss the transformative role of Artificial Intelligence (AI) in the economy:

• Productivity Gains: AI enhances efficiency in various sectors, potentially lowering operational costs and prices.
• Employment Risks: AI poses a threat to white-collar jobs, leading to higher unemployment rates without reflecting in official data.
• Innovation and Disruption: AI could empower startups to challenge established giants, fostering competition but also risking large corporations' profitability.

Jay Scott envisions AI driving deflationary trends, benefiting consumers but challenging investors, particularly in real estate, due to falling property values.

“We could see businesses get hurt, we could see the equity markets get hit.”
— Scott Trench [40:37]

Conversely, Jay Scott posits that AI could spur the emergence of new companies and drive costs down, benefiting consumers through increased competition and innovation.

“I think we're going to see explosions coming out of nowhere from a lot of companies and we're going to see the ability to compete with the big boys.”
— Jay Scott [42:38]

Public Perception vs. Academic Definitions of Recession

The hosts explore the discrepancy between academic definitions of a recession and public perception:

• Academic View: Focuses on broad economic indicators like GDP, unemployment rates, and consumer spending.
• Public Perception: Influenced by individual financial experiences, such as job security and personal financial health.

Scott Trench notes that the middle class's diminishing size complicates public sentiment, as diverse economic experiences scatter opinions on whether a recession is occurring.

“Generally, when we talk about recession from an academic standpoint, we're talking about the economy as a whole.”
— Scott Trench [47:11]

Jay Scott shares survey insights showing a divided opinion among listeners, with roughly 35% believing the U.S. is in a recession, 46% saying no, and 18% unsure.

“I'm not necessarily ready to say whether I think we will be in a recession in the next 6-12 months.”
— Jay Scott [47:11]

Strategies for Navigating Economic Uncertainty

In their concluding discussion, the hosts emphasize the importance of diversification in investment portfolios to mitigate economic risks. They advocate for spreading investments across various asset classes to balance potential downturns and capitalize on growth opportunities.

“If you can't handle the uncertainty of what's going on in the economy, you diversify.”
— Jay Scott [53:23]

They reference recent podcast episodes and expert advice, reinforcing diversification as a key strategy in uncertain economic landscapes.

Final Thoughts

Mindy Jensen and Scott Trench wrap up the episode by acknowledging the complexity and uncertainty surrounding the current economic climate. While official data doesn't yet confirm a recession, numerous indicators suggest potential economic softening in the near future. They urge listeners to stay informed, remain cautious in their financial strategies, and consider diversifying their investments to safeguard against unforeseen economic shifts.

Notable Quotes

• “Instead of thinking about, are we in a recession, Are we not in a recession? I actually prefer to think about the economy as a spectrum.”
  — Scott Trench [01:42]

• “We're starting to see consumers starting to pull back, starting to spend a lot less than they were.”
  — Scott Trench [07:16]

• “These people are not going to be able to file for unemployment. They're just going to lose these income streams that are coming in or see their income decline and it's not going to show up on those reports.”
  — Jay Scott [17:18]

• “It's possible that the data we're getting is not even as good as it was a couple months or a couple years ago.”
  — Scott Trench [26:52]

• “It's unlikely we're going to see rates come down just because Powell is replaced.”
  — Scott Trench [30:39]

• “We could see businesses get hurt, we could see the equity markets get hit.”
  — Scott Trench [40:37]

• “If you can't handle the uncertainty of what's going on in the economy, you diversify.”
  — Jay Scott [53:23]

Conclusion

This episode provides a comprehensive analysis of the current economic indicators and their implications for a potential recession. With insights from both hosts and guest Jay Scott, listeners gain a nuanced understanding of the complexities in defining and predicting economic downturns. The discussion underscores the importance of staying informed and adopting strategic financial planning to navigate uncertain economic times.