Solutions Economic and Market Watch

Hello, and welcome to the Economic and Market Watch podcast for the week of April 27, 2026. This is John Suter of CFC.

Unexpected shocks and the resulting impact on real GDP growth is our topic today. The U.S. economy has had several of what I would describe as major economic shocks since 2020, but economic growth has remained resilient, with average post shock growth above the historical trend rate of 2%, which is quite amazing.

Shocks usually impact demand or supply in some way. Shocks are a concern because these events disrupt major economic variables and outcomes like unemployment, inflation, and business and consumer spending. They can be caused by disruptions in financial markets, shifts in policy, changes in technology, or geopolitical events.

For cooperatives, it's easy to point to the supply chain disruption that caused difficulties in price run up for equipment during the COVID pandemic. This would be an example of a supply shock.

The impact of a shock is often determined by where it happens, how large it is, and how long it lasts.

Because markets and industries are interconnected in the economy, large shocks to either supply or demand in any sector of the economy can have a far reaching macroeconomic impact. Economic shocks can be positive -- helpful -- or negative -- harmful to the economy. Though, for the most part, economists and normal people are more concerned about negative shocks and mitigating their effects.

Negative shocks have the potential to push the U.S. economy into recession, which is never a great thing because people lose their jobs as unemployment rate rises. For example, during the COVID pandemic, which was first a supply shock and then demand, the economy lost 22.1 million jobs and unemployment spiked to 14.8 percent.

There have only been 12 recessions since World War II, so while negative shocks may occur, they rarely result in a full-blown recession. This is an important note because there have been far more than 12 shocks occurring over this same period. Here are some examples of major economic shocks that have slammed into us since 2020 in the order of occurrence and whether they impacted supply or demand.

Number one: The COVID pandemic in January 2020 involved shutdowns, supply chain logistics -- -- that would be a supply shock -- and then stimulus, pent up consumer demand -- demand shock.

Number two: Russia's invasion of the Ukraine in February 2022. Energy, food, fertilizer, again, supply shock.

Number three: The start of the Federal Reserve monetary policy tightening in March 2022. Rising borrowing costs, which suppress consumption and investment -- demand shock.

Number four, the generative artificial intelligence boom with the public release of ChatGPT in November 2022, CapEx surge -- demand shock.

Number five, the bankruptcy of Silicon Valley Bank in March 2023, credit availability -- demand shock.

Number six, Liberation Day and the levying of tariffs in April 2025, higher input prices -- supply shock -- and then lower consumption investment -- demand shock.

And finally, United States Israel bombing of Iran in February 2026 with the energy price spike, example of a supply shock.

Let's take one example of each, a demand shock and a supply shock, and address some of the disruptions.

Demand shocks happen when there is a sudden and considerable shift in the pattern of private spending, either in the form of consumer or investment spending from business. A prime example today is the investment in artificial intelligence, or AI.

While the historical norm for software and IT equipment investment for US GDP is around 4%, the AI boom has driven this figure to record highs. For example, IT equipment and software investment, increasingly driven by AI, reached a record 4.5% of GDP in early 2026. The AI boom has reshaped market valuations, driven large investments and record bond issuance to finance data centers, and heavily influenced gross domestic product, especially in early 2025. Google, Amazon, Meta and Microsoft are expected to spend a whopping $650 billion in 2026 on AI technology. Many analysts wonder if this is a period of AI boom or a bubble waiting to pop. The infrastructure investments are huge and the financial arrangements are circular in nature, which some fear could lead to a domino effect if one of these large IT companies happens to fail. History has shown that over investment has been a common theme when there is a technological advancement that will transform society. As of today, that transformative technology happens to be AI.

But, here is the ironic part. History shows that economists and researchers have been terrible at predicting the effects of new technologies on work and workers, so don't take any forecast too seriously.

A familiar example is Kodak and digital photography. The error was that despite creating the first digital camera, Kodak underestimated the pace at which digital would replace film. Personal computing is another example where experts grossly underestimated the market demand for computers, viewing them as massive industrial machines rather than consumer products.

Shifting gears, a supply shock is an event that makes production across economy more difficult, more costly, or impossible for at least some industries. A rise in the cost of important commodities such as oil can cause fuel prices to skyrocket, making it expensive to use for business purposes.

In my previous list, there were two excellent examples of supply shocks. Number one, Russia's invasion of the Ukraine and the United States / Israel bombing of Iran. In both cases, a spike in energy prices created problems for the U.S. and the world.

Energy not only fuels our cars and businesses, but it also fuels inflation, which makes the Federal Reserve's job of maintaining price stability even harder.

With regard to the Middle East conflict involving the United States and Iran, the shock is similar to the Russian invasion in that it involves higher energy costs and inflation fears. But this conflict adds additional risks such as financial market volatility and recession concerns, and also heightened geopolitical risks and war uncertainty are there as well. None of these things bode well for U.S. and world economic growth.

Narrowing the scope further, the rural electric industry has also had its share of challenges since the COVID pandemic of 2020. With higher demand for electricity across the country, the supply of equipment needed to maintain or build more power plants has not kept up. Then there's the skilled labor shortage to get the job done and tariffs on imported materials. All these things add up to delayed energy projects at increased costs, effects that are now being compounded by AI driven electricity demand.

Our future has gotten a lot more uncertain, and while both demand and supply shocks can occur, economists believe that the U.S. is more likely to be prone to supply shocks rather than demand, according to Fed speeches and IMF and OECD risk outlooks. While the post-COVID period saw a mix of both, structural changes -- including geopolitical tensions, energy transitions, and supply chain reshoring -- indicate that future disruptions are more likely to arise from supply side constraints, such as shortages of critical inputs or production bottlenecks, rather than sudden shifts in aggregate demand. That's it for today.

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