(Welcome to the “Most Important Story of the Week”, my bi-weekly strategy column analyzing the most important (but often not buzziest) news story of the last two weeks. I’m the Entertainment Strategy Guy, a former streaming executive who now analyzes business strategy in the entertainment industry. Please subscribe.)
No one can predict the future.
Wild statement, right? I mean, it’s objectively true, but have you ever read the press? Just take a gander at these headlines:
The problem with those headlines? Well, they’re from 2023. For the next two years, the economy kept roaring along. The warnings and predictions of economic doom in 2022, 2023 and 2024 never panned out.
This happens all the time. One of my all-time favorite pundits, Kevin Drum, after looking at the inverted yield curve, predicted a recession for years, and it still hasn’t arrived. (I should note that Kevin Drum passed away earlier this year, and man, this yearly update on the economy will not be the same without his excellent analysis.) Earlier this year, countless pundits, left, right and center, predicted a recession thanks to Trump’s tariffs. And again, said recession still hasn’t arrived, possibly because Trump keeps turning those tariffs off and on. (Then again, as I’ve been writing all year, the theme of the Trump presidency for business leaders is…uncertainty.)
But this inability to predict the future isn’t new. Every November, I write an article on the economy, mainly because I’ve been annoyed at people’s overconfidence in predicting recessions since 2022!
As for this year, well, get ready for “Entertainment Nuance Guy” to make an appearance. I can (and will) make the case that the economy is at least doing fine, if not very well, especially compared to how many people thought it would fare this year; perceptions of the economy don’t match reality. That said, I can also very easily make the case that our economy is severely broken. (Both things can be true!) Compared to past editions, I’m way, way more bullish on a possible recession, if not a gigantic bubble.
Quick side note: Am I outside of my lane here? What does this have to do with Hollywood? As I write every year, business execs should know the state of the American economy. More importantly, they should understand uncertainty when making decisions. This exercise also helps me look at broader economic trends to ground my thinking in the long-term data.
Let’s dive right in and sort through everything.
The Upside Case: The Economy Is Doing Well!
There are thousands of economic indicators that you could look at to judge the US economy, but if I had to pick the five most important, most-talked-about economic indicators, I wouldn’t overthink it. It would be some combination of…
- GDP
- Employment.
- Wage growth.
- Inflation.
- The stock market
Why does this matter? Because we should set a baseline somewhere. People often predict economic doom because, even when the economy is at its very, very best, you can find bad economic news somewhere. No economy is perfect. But the more obscure the economic indicator, the more likely it’s offering noise, not signal.
These five economic indicators, on the other hand, are the ones that everyone talks about most, so let’s start with GDP…
As Noah Smith wrote when he shared that chart, American economic growth has slowed, but it’s still solid. Same for the unemployment rate:
Even better, the prime-age employment ratio (Paul Krugman’s favorite employment indicator) is still very high!
Finally, inflation isn’t below 2% yet, but for now, it’s below 3%.
What about workers’ wages? Both Matthew Yglesias and Paul Krugman recently shared that wage growth has actually outpaced inflation!
As for the stock market, I don’t have to tell you that it’s way, way up this year!
If you want the bull case for the US economy, it’s that GDP, the stock market, and wages are all very solid, while inflation has cooled and unemployment is down.
But what if you just can’t trust any of this data anymore?
The “You Can’t Trust the Data” Case Against the US Economy
One of the most consequential decisions of the Trump administration (which will likely be ignored by 90-99% of voters) is that Trump fired the head of the Bureau of Labor Statistics, Erika McEntarfer, in August after her department released a jobs report he didn’t like. And thanks to the shutdown, all major economic data has been delayed, and now it might not come out at all for the month of October.
I want to make it very, very clear: if you don’t trust the US’s economic data anymore, or don’t trust it as much, I don’t blame you! That’s a fair objection to the case I just made that the US economy is doing fine. After Aug-2025, much of this data is now suspect. Maybe I’m being hyperbolic, but don’t blame me: I didn’t fire the head of the BLS!
Republicans committed an own-goal on this one. There’s a chance that the US economy keeps doing well, but no one buys it, because of the political machinations. After McEntarfer’s firing, Planet Money did a great episode on Argentina’s corrupt inflation data. The problem with corrupting trustworthy economic data is that, even when there’s good news, people are still skeptical.
The Downside Case for the US Economy: Job Openings and Inequality
According to the five major economic indicators I shared up above, America is doing well, but job openings are way down this year. Here’s job growth since 2022:
I think many pundits/analysts cherry-pick bad news, but “job openings” belong on the Mt. Rushmore of useful economic statistics. And the number of new jobs falling almost every month this year is a strong indicator of a coming recession.
But my real concern is wealth inequality.
I’ve written about this twice now for The Ankler, including just yesterday: our economy is now a “K-shaped” economy, with the bottom 90% struggling and the top 10% doing just fine, thank-you-very-much. Bloomberg’s article with the provocative headline says it all: “Top 10% of Earners Drive a Growing Share of US Consumer Spending”. According to Moody’s Analytics, the top 10% now make up 50% of US spending:
That’s spending. Here’s total wealth (with the note that this chart is from 2024):
Is this the central political issue of our time that will only get worse over time without a response? Absolutely.
I mentioned stock market growth up above. But what’s powering that growth? Mostly tech companies. Five companies—Nvidia, Microsoft, Apple, Alphabet and Amazon—make up 30% of the entire S&P 500 now. 30%! The “Mag 7” accounted for half of the stock market’s growth in 2024 according to Citigroup. My favorite fact is that the Wilshire 5,000—which tries to track all stocks and, as the name indicates, started with roughly 5,000 companies—now only tracks 3,400 companies.
I’m actually somewhat sympathetic to some center/center-left pundits who criticize the Neo-Brandesians/pro-market antitrust-types’ focus on corporate size/power, but then you read statistics like this and wonder why every pundit isn’t concerned about size, power and concentration!
The Perception vs. Reality Case for the US Economy
Up above, I made the case that you might not be able to trust US economic data, but you know what I trust even less? Consumer sentiment. How do people feel about the economy? Horrible! Like absolutely horrible.
It’s even worse for young people! Check out this chart which went viral a few weeks ago:
Seriously, though, look at that chart. People feel worse about the economy today than in 2009.
No, that’s silly.
I lived through that era. So did my editor/researcher. He literally lived through that job market and economy as a recent college grad. Obviously, the economic conditions were much, much worse than today. Perception doesn’t match reality. And as Derek Thompson wrote today:
“According to the best figures we have, today’s young people—and this will feel like a surprise or an outright insult to various readers—are meaningfully richer than previous generations.” [Emphasis mine.]
Why do you think Derek is so nervous about backlash? Social media…which provides a clue to this viral chart. Let’s take that chart and do what so many people should these days: add an arrow showing the advent and adoption of social media.
Huh, what do you know? That factor perfectly explains the decline in consumer sentiment.
Scott Alexander recently highlighted two passages from the book, I’m Starting to Worry About This Black Box of Doom (you can listen to an interview with the author on Sonny Bunch’s podcast here), in which a character convincingly argues that we live in the greatest time in human history, yet, thanks to social media/the internet, people are more miserable than ever. That’s what’s happening here.
Unless…the issue is income inequality! Sure enough, if you divide the response data into different income levels, it’s clear that lower-income Americans feel much worse about the economy than the rich:
I think two things are true. On the one hand, income inequality is killing Americans’ perception of the economy, but also, social media is turbo-charging doom and gloom.
The “Future is Dark” Case Against the Economy
I’ve been doing this exercise for four years now, and it’s safe to say that I’m more worried about a pending recession than I’ve ever been before. First, like many, many, many people, I was worried about Trump’s tariffs tanking the economy, but let’s be fair: they haven’t killed the economy yet. (Again: predicting the future is tough!) That said, I’ve always been sympathetic to the idea that the tariffs’ impact would take six to nine months to show up in the economic data.
Paul Krugman, in an article explaining why the tariffs’ impact has been minimal so far, makes a good case for the real reason why I’m worried about the economy:
AI.
Or more precisely…
An AI bubble.
This is hardly news. Just check out this eye-popping WSJ chart that made the rounds a few months ago:
And here’s the percentage of economic growth attributable to CAPEX on LLMs:
Just like the stock market is dominated by tech stocks, increasingly, the entire economy is being propped up by spending on LLMs’ data centers. And recently, Ed Zitron showed that OpenAI’s revenue might be much, much lower than people think. Bloomberg also shared a very viral chart on Nvidia and OpenAI’s financing entanglements, which they called “circular deals”.
But here’s the thing: who knows when this bubble will pop? In 1996, Alan Greenspan warned that the stock market was overheated, five years before that bubble burst. In 1928, Charles Merrill (of Merrill Lynch) fame warned of a bubble, then the stock market boomed by 90% right before the crash.
And every bubble is different. In this case, the massive AI bubble is being propped up by big techs’ giant (mostly monopoly) profits…so perhaps the downside risk isn’t huge? They do have cash to spend, even if they’re wasting it. Sure, the economy isn’t as efficient, but the systemic risks might be smaller than past bubbles.
Maybe! But I wouldn’t bet on it. I think way more tech companies are financing data center expansion via debt than people realize, plus there are other mini-bubbles (like Tesla’s stock price, Bitcoin/crypto, honestly, probably Netflix) that could pop if Big Tech catches a cold.
But Really, Hollywood Is Already in a Recession
I’ll close this article the same way that I started this series three years ago:
Hollywood is probably in a recession.
“Paramount Skydance had 1,000 layoffs last week, alongside cuts at Amazon Studios, Fifth Season and Disneyland; FilmLA numbers that show a 20.7 percent year-over-year decline in TV’s Q3 2025 shooting days in L.A.; unemployment rates in L.A. that way outpace the national figure.”
In terms of job losses, the entertainment industry went from 142K jobs in 2019 to 168K in 2022 (peak bubble) and is now at 123K. Anecdotally, if you live in LA, you’ve probably seen this firsthand.
Plus, the box office has never fully recovered, and streaming doesn’t seem as profitable as the old linear cable bundle. Now it looks like YouTube will be even less profitable than streaming! (Though no one really talks about that.) If AI can live up to some of its hype—I don’t think it’s causing job losses yet, but could impact dubbing and VFX—that’s more losses.
It might be tiring to hear me say “Called it!” on this, but yes, months before the 2023 writers’ strike, I warned about a content bubble. For years, I argued that streaming wasn’t a good business model, and that might mean smaller revenue for everyone. (Even as many Netflix bulls literally argued the opposite.)
Again, a sober analysis of the national economic data is mixed, with a lot of good news, some very worrying bad news, especially on inequality, and a lot of flashing red warning lights…
…but Hollywood’s economy is definitely grim.
