Peter Linneman On AI And Why The Economy Is Healthier Than It Appears

At the end of 2025, Peter Linneman, economist and former professor at the Wharton School of the University of Pennsylvania, said economic data showed signs of a possible slowdown, with the economy potentially on the cusp of losing 1 million to 2 million jobs. 

Last week, however, at the University of Miami’s Real Estate Impact Conference in a conversation with Walker & Dunlop CEO Willy Walker, Linneman said today’s economic data instead paints a picture that looks rather “blippy.” 

This should be giving people a sense of optimism, he said. However, many remain uncertain of where the U.S. economy is headed. 

“There’s always things that can happen, but I became optimistic because I got a better picture of the pattern,” Linneman said. “Right now, as we speak, I think people are too pessimistic.” 

Last year, the U.S. economy added 181,000 new jobs. This is by no means a record-shattering number, but Linneman suspects the actual number may be slightly above this figure. Why is this? Small businesses may not be reporting like they used to due to recent federal immigration crackdowns, he said. 

In today’s climate, if someone from the government sends out a survey or shows up to a business and asks for employment data, some businesses may decline to participate, particularly if they have undocumented workers, he said.   

When a company ceases to report their employment numbers, algorithms may interpret that as a business closure or increased unemployment, Linneman said, leaving more room for algorithms to fill in the gaps. 

Lineman also pointed out that gross domestic product grew by 2.2% in 2025, saying that kind of growth does not support the notion of a stagnant labor market. Unemployment insurance claims stayed low and flat, which also contradicts the notion of flat employment growth. 

“The picture it paints notably shows slow job growth versus two years ago, that I believe,” he said. “But I also believe we still have positive job growth. Can I prove it? No, but I can establish a pattern to be supportive.”

Artificial intelligence was another key part of their conversation.

Walker said many people have fears when it comes to artificial intelligence. They are afraid that AI will either replace their jobs or take away future opportunities for growth.  

Linneman, however, doesn’t believe AI is as big of a threat to people’s jobs as some may think. 

“All of history says the more technology we have, the more employment we have,” he said. “This has been true for the past 125 years, and every time somebody says, ‘But this time is going to be different,’ it's not different. It’s not different for one fundamental reason: When you have something that increases productivity, it creates wealth. When wealth gets created, people don't burn it.” 

Some sectors may hurt more than others, Linneman said, but overall, the people who have that newly created wealth are either going to invest it or spend it. 

People spend a lot of time worrying about whether AI will take their jobs but often don’t think about the future job opportunities it may create, he said. 

“Walking behind a plow horse has disappeared,” Linneman said. “Young people bending metal is a thing of the past. These jobs are gone, but there's a whole bunch of new jobs that nobody ever dreamed of. That's what an economy is, and that's what I believe [AI] will be.”

In one breath, people predict AI will increase productivity, Linneman said. In the next breath, they predict it will destroy the economy, which is logically inconsistent, he said. 

“You can't have one belief and have the other,” he said. “I would love nothing more than to see AI raise productivity from 1.5% a year to 3% or 4% a year. Why? For the same reason I'm glad we have tractors instead of walking behind plow horses.”

Walker pressed Linneman on the topic of interest rates, particularly as a new Federal Reserve chair will take over within the next few months. He asked Linneman to predict where rates will be by year-end.  

Linneman said interest rates are currently too high relative to inflation and that cuts totaling 75 basis points are “absolutely” certain to take place. If interest rate cuts reached 100 basis points, Linneman said he wouldn’t be surprised.

“I think they'll do one [rate cut] probably before the middle of the year, and again, probably two at the end of the year,” he said. 

Walker joked that the audience should listen to Linneman and go make a bet on his prediction, given that for the past two years, his projections on interest rate cuts have come to fruition. 

Over the past five years, however, not all of Linneman’s predictions for the U.S. economy have come true. He said his biggest “miss” was in how quickly people returned to the office. 

“The cognitive literature showed you're better off working in a group than alone for a variety of reasons,” he said. “I thought by late 2022 they'd be back, and hence, office would be back. What happened was they didn't come back, or they came but much more slowly. In the meantime, office got hollowed out, and that led capital to just flee.”

Linneman and Walker briefly touched on the U.S. housing sector, with Linneman saying that, in addition to regulatory hurdles, cultural adjustments and preferences are partly why the average age of the first-time homebuyer is nearly 40 years old. 

About 50 years ago, the average age for a woman to have their first child was around 22 years old. Fast-forward to today, this number has gone up pretty dramatically, reaching almost 28 years old on average. Fifty years ago, Linneman said, people needed to have a house and backyard for their kids to play in at 30 years old. These needs have changed.

“By the age of 30, you didn't do DoorDash, you didn't take a ski trip, you didn't take a Caribbean trip, you didn't go to Europe because you committed to the little rugrats and you need money for the down payment,” he said. “Today, you get married at 30, and you have two to three years until you have a kid. When do you need a backyard and schools? When you're about 38 to 39 years old.”

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This article was produced in collaboration between Walker & Dunlop and Studio B. Bisnow news staff was not involved in the production of this content.

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