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First Friday: The Economic Maze We're Navigating Together
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- [00:00]
Paula Pant
The latest jobs report shows that jobs are up, but unemployment is also up. Consumer sentiment is pessimistic with inflation fears running high. We see similar fears in the bond market as well, signaling that investors and consumers are aligned in their thinking. The stock market meanwhile is quite volatile as uncertainty becomes the dominant feeling on Wall Street. AI competition is heating up, homes in D.C. are getting cheaper, we have a new CFTC chair who is very crypto friendly and a new bill in Senate has a framework around stablecoins. A court made a recent ruling related to student loans and I am more than 30 seconds into an opening about the economy without having yet said the word tariffs. There is a lot to cover so we're going to dive right into it. Welcome to the Afford Anything podcast, the show that understands you can afford anything, but not everything. Every choice carries a trade off and this is a show all about how to manage those trade offs. We cover five pillars financial psychology, increasing your income, investing, real estate, and entrepreneurship. It's double I Fire Once a month on the first Friday of every month, we host a monthly economic update, a deep dive into economic and personal finance news from the past month. So welcome to the March 2025 First Friday Economic Update. Jobs are growing. Employers added 151,000 new jobs in February, which is up from 143,000 in January, showing a relatively healthy labor market. The big decrease in jobs came from bars and restaurants, which dropped 27,500 rolls. The big increases came in healthcare, financial activities, transportation, warehousing and social assistance. Healthcare in particular added 52,000 new jobs in February. This is about standard for that sector. It had an average monthly gain of 54,000 jobs per month over the prior 12 months. And those health care jobs are spread out across ambulatory healthcare services, hospitals and nursing and residential care. Financial activities recorded a big gain in February of 21,000. That's well above the prior 12 month average of 5,000. But jobs in that sector are not well spread out. We're seeing commercial banking lose jobs, while real estate and rental and leasing are gaining jobs, accounting for the bulk of that growth. There's also growth in insurance carriers and related activities. There's also historically better than normal job growth in transportation and warehousing, which gained 18,000 new jobs in February. That's well above the average monthly gain over the prior 12 months of 13,000 new jobs per month. While some of that is in air transportation, the bulk of it is in couriers and messengers. Now for the question on everyone's mind, which is how are government jobs doing First, a caveat. The Bureau of Labor Statistics, which compiles the job report, bases their monthly report on surveys that are conducted in the second week of the month. So the February jobs report is based on surveys conducted in the second week of February. Given how rapidly things have changed, there is a strong likelihood that the effect of firings, buyouts and hiring freezes at federal agencies may not surface in the monthly data until later this spring. The March or even April report That said the February jobs report showed a decline of 10,000 jobs among federal government workers. Interestingly, total government jobs actually had a net gain even as federal jobs decreased. So a decline in 10,000 jobs at the federal level was coupled with an increase of 21,000 jobs new jobs at the state and local government level. Again, I want to emphasize that this data was captured in the second week of February, so about four weeks ago. So we will need to look to the March, April and even May report for a more complete data set. The BLS always releases the jobs report at 8:30am Eastern on the first Friday of every month, which is why we always host a first Friday economic update episode. The Fed is meeting in a week and a half. The Federal Reserve is slated to next meet March 18 through 19, and they are widely expected, based on today's jobs report, to hold interest rates steady. The Fed, as you may recall from previous episodes, has a dual mandate of keeping inflation in check while also not letting unemployment run amok. And while unemployment in the new jobs report did tick up slightly from 4% up to 4.1%, it is expected to hold steady at 4.1%. And in a wider context it is hovering just above record lows. We also saw the average hourly earnings for workers are continuing to rise and since mid 2023 have actually outpaced inflation. Which is why, as a side note, if you have not gotten a raise recently, we're going to teach you how to get one. Stay tuned for that at the end of March. Now, as of the time of this recording, the bond markets are pricing in nearly a 100% chance that rates will hold steady, with the federal funds rate remaining at its current range of between 4.25 to 4.5%. Let's add some context here. So the federal funds rate is how the Fed controls short term interest rates, but when it comes to long term interest rates, that's a different story because the Fed Fed's influence on those long term rates depends on whether markets trust them to keep inflation in check. When that trust from investors isn't there. So when investors get nervous about future inflation, they start demanding higher yields on long term bonds, no matter what the Fed does. This is why Treasury Secretary Scott Besant is focused right now on the long end of the yield curve. So in other words, he wants to bring down borrowing costs by focusing on 10 year treasury yields rather than the Fed's benchmark short term interest rate, which the Fed is an independent entity anyway. But his strategy is not about pressuring the Fed directly. Instead he's looking at fiscal and regulatory reforms to convince the markets that inflation is going to be controlled over the long haul. As one example of this, in an interview with Bloomberg, he talked about how energy costs like gas and heating oil are crucial indicators of long term inflation expectations. And so his thinking is that by lowering these energy costs, they can save consumers money and also boost their their economic optimism. Because the issue is if people become too worried about the economy, that can trigger a pullback in consumer spending. And consumer spending is 70% of US GDP. So the challenge that the treasury is facing is how to create reforms that are substantial enough to actually change how the markets feel about future inflation. But they aren't so aggressive that it causes consumers to pull back on spending. And by the way, if you're listening to this and you're thinking, wait a second, why are you talking about energy? I thought energy was excluded from cpi. That's a great question. And the answer is there are a couple of different measures. There's core CPI and there's headline cpi. Energy is included in headline cpi. It is not included in core cpi. And also when we talk about consumer sentiment, most people are not sitting around reading the CPI numbers. Most people are looking at their bills. And there are two very volatile components of a household budget which are food and energy. What you're paying for your food and for your energy has a really big effect on your sentiment as a consumer. Those feelings are going to determine whether or not you're willing to go out and spend more. Are you going to go to the restaurants or take the vacation or not? A lot of that's going to be based on your feelings about the economy. Remember what we said at the beginning of this episode. The restaurant sector lost a lot of jobs in the last month. They were the category leading job losses. So you can see how this circles together. And on that note, the Consumer confidence survey, which is conducted by a nonprofit think tank called the Conference Board, showed that pessimism is back in a big way. US Consumer confidence dropped by seven points in February. What's Interesting about the data that they gather is that they calculate the present situation index which is based on consumers assessment of their current conditions. And they also have an expectations index which is consumers short term outlook. And what they found was that while consumers present situation index fell slightly by 3.4 points, the expectations index dropped dramatically by 9.3 points. In other words, people expect the short term future the upcoming year to be rough. In fact, this decline in consumer confidence was the largest monthly decline since August 2021 as measured by the Conference Board. This is also the third consecutive month over month decline. What they found in their data was that the pessimism was fairly broad based regardless of income, regardless of age cohort. The sharpest worries were for consumers between 35 to 55 years old. But broadly they found consensus across all age groups and income distributions. When people were asked what do they expect inflation to be? The average 12 month inflation expectation jumped all the way up to 6% as of February's data. Now this is a far cry from where it currently is. That underscores the distinction between the present situation versus the expectations of the short term future. What's interesting about the level of pessimism that this study recorded is that the pessimism was also broad based when it came to the topics of an inflation, stock market performance, likelihood of recession, likelihood of higher interest rates, and views on the labor market. So across this wide variety of topics, overall consumer sentiment tracks as increasingly pessimistic. And on the topic of stock market performance, this has been one of the worst weeks for the stock market in several months. It's been an incredibly volatile week. Yet in spite of recent volatility, all of the major indices are still close to record highs. Now part of the reason that we're seeing so much volatility is because big tech companies, which have a disproportionate footprint in the total stock market, are taking particularly big hits. What's a little unclear, what remains to be seen is, is that because investors have become increasingly bearish about the prospects for big tech? Or do investors more generally have broader concerns about the markets and big tech just happens to be taking more of the hit? In other words, is this a sector specific worry or is this a more generalized market worry? We'll have more clear answers as the weeks unfold. But in the meantime, as you know, any long term buy and hold investor, which of course the afforder community is, would do best to not pay attention to short term market noise and continue buying through all the ups and downs as part of a long Term buy and hold broad based index strategy. We're going to take a moment to hear from the sponsors who allow us to bring you this show at no cost to you. And when we return, we'll talk about deep seek, AI crypto, student loans and much more. Before I discovered Quince, I had never in my life worn a cashmere sweater because those are expensive and they're typically. That's typically not something that I would spend a lot of money on. But Quince offers 100% Mongolian cashmere sweaters from $50.50and once I discovered that, I started buying a lot of them from Quints because they're so affordable. So I have cashmere sweaters in blue, green, burgundy, red. I got for the winter a cashmere hat and skin scarf. They're incredibly comfortable. If you watch any of my YouTube videos, you'll see me wearing these cashmere sweaters. If you've never worn one, they're so soft and so, I mean you can just. They're so comfortable. It's a, it's a different experience. It's a slightly more elevated, more luxurious experience. That type of luxury is not something that I had ever purchased for myself prior to encountering quints. All Quint's Items are priced 50 to 80% less than similar brands. This is because Quint's partners directly with top factories, cutting out the cost of the middleman and passing those savings along. Quince only works with factories that use ethical and responsible manufacturing practices. So you have the trifecta. You have luxury quality at super low prices and it's ethical. And if you don't want a cashmere sweater, they also have organic cotton sweaters. They have washable silk tops. They have very comfortable athletic wear. I've started wearing Quince to the gym. So give yourself the luxury you deserve with quints. Go to quince.com Paula for free shipping on your order and 365 day returns. That's Q U I N C E dot com Paula to get free shipping and 365 day returns. Quince.com Paula small business owners State Farm is there with small business insurance to fit your specific needs. Whether you're starting a new venture or growing an existing one, State Farm helps you choose the right coverage to protect what matters most. Working with a local State Farm agent helps you understand your coverage options, offering local support to help you achieve your goals. Focus on turning your passion into a thriving business. Knowing your insurance can change as your business grows. State Farm here to help you succeed with your business. Like a good neighbor State Farm is there. Welcome back. On January 20th, DeepSeek released the Deepseek Chatbot free of charge for both iOS and Android. Within seven days. By January 27, it had surpassed ChatGPT as the most downloaded freeware app on the iOS app store in the U.S. this was at the forefront of everyone's mind at the AI Action Summit, which was held in Paris on February 10th and 11th. The AI Action Summit drew leaders from around the AI industry, including Sam Altman, the CEO of OpenAI. It also drew world leaders, including French President Emmanuel Macron, India's Prime Minister Narendra Modi, and from the US side, Vice President J.D. vance, who delivered remarks that conveyed three primary ideas. One was that the US wants to be the leader in this, but we also want to bring our friends along and have productive partnerships with other nations. That was one major point. The second was that he warned against excessive regulation of AI, which is something that, particularly in Europe, has stifled much AI innovation. And the third was that he warned against cooperating with authoritarian regimes on AI, and that was widely interpreted to be a reference to China. Of course, this again in context, coming on the heels of the widespread popularity of Deep Seek, Vice President Vance's remarks highlighted the AI arms race taking place between the US and China. Without naming China overtly, but it's clear that this AI competition between the US and China is not only going to be about how quickly China catches up to the US in terms of developing foundational models, but it's also about how quickly the broader technology ecosystem can integrate new AI innovation. So we're talking about telecom, social media, search, automakers. We know that Beidou, which is China's largest search engine, is integrating Deep Seq into its search engine, and that Chinese automakers like Great Wall Motor and byd, which is a electric and hybrid car manufacturer, I saw a lot of BYD cars on the roads there. These companies are all working to integrate AI into their product line, though it remains to be seen how quickly all of this can happen. Byd, by the way. So I just looked it up because anecdotally I felt like I saw them everywhere. So I just checked and it is the best selling car brand in China since 2023. In fact, it built more electric cars than Tesla last year. And internationally its footprint is growing, particularly in countries like Australia that don't have an auto industry of their own that they need to protect. So In Australia, Chinese EVs now constitute one third of all electric vehicles sold there, and nearly one in four of those are BYD BYD's cars, however, are not available in the United States due to a 100% import tariff which was put into place by President Biden. We have a new CFTC chair who is very crypto friendly. So the Commodity Futures Trading Commission, or cftc, is the agency that regulates the commodity derivatives markets. So they oversee derivatives like futures, options and swaps. This is the agency that punishes foreign currency schemes or hedge fund fraud. And if you're thinking to yourself, wait a minute, what doesn't the SEC do that? What's the difference? Great question. The SEC regulates the securities market. The CFTC regulates the derivatives market. The SEC is the one that always gets the spotlight, particularly when it comes to crypto. And that's largely because the sec, under former chair Gary Gensler, was trying to regulate crypto as a security. So the SEC for several years had been going after crypto companies such as Coinbase and filing lawsuits against them, alleging that they are offering unregistered securities. Specifically, in June 2023, the SEC filed an enforcement action against Coinbase, alleging that Coinbase violated securities laws by failing to register itself as a broker. And the SEC over the years became increasingly active in its pursuit of cryptocurrencies, filing more actions, more enforcement actions in 2023 than it did 50% more in 2023 than it did in 2022. Now, SEC Chair Gary Gensler stepped down on January 20, and the new acting chair, Mark Uada, is generally much more crypto friendly. And crypto friendly in this context essentially means not classifying cryptocurrency as a security, because securities regulation is rightfully quite strict and stringent. And if crypto is not a security, then it will not be subject to the same types of regulations that security contracts are, meaning it won't be subject to SEC oversight, which is where the CFTC comes in. Because if cryptocurrency or digital assets generally, if they are not securities, well, then they are commodities. And if they're classified as commodities, then they fall under the jurisdiction of the cftc. Which is why it's notable that the US now has a new CFTC chair named Brian Quintess, who is very cryptocurrency friendly. In fact, he was the cryptocurrency policy lead at the venture capital firm A16Z, which is the cryptocurrency arm of Andreessen Horowitz. So it's the CFTC that considers cryptocurrency to be commodities, and it's the CFTC that will be focused on regulating futures and options. Contracts related to crypto. And so all of that with Mark Ueda now as the acting chair of the SEC and Brian Quintess at the cftc. All of that bodes well for the cryptocurrency industry from a regulatory perspective. Homes in D.C. are getting cheaper. Between January and February, the median home value dropped 8.6%. Although the inherent risk anytime you're looking at month over month data is that it is by definition short term. And it remains to be seen what will happen in the upcoming months. Similar to the jobs report, we're not going to have more clear numbers until we see what the consecutive monthly trends are. As we go into March, April, May, the median sold price in the D.C. metro area is up 4% year over year and the average days on market is just a little bit longer than last year at 22 days. Inventory has surged though active listings are up 20% across the region. So in D.C. inventory is rising fast. Homes are sitting on the market longer. But this might be a blip or it might be the beginning of a bigger trend. It's something to watch as the spring unfolds. I should add that there is huge variation between neighborhoods. For example, home prices in the 2009 zip code, which is Dupont Adams Morgan area. Those home prices are climbing rapidly. Whereas by Contrast Home prices in 2000-372015-20002 those zip codes are seeing steep declines. So not only is all real estate local, all real estate is hyper local. There's no such thing as a national market or even a citywide market, a metro area market. There are many micro markets in every zip code. And the key to understanding real estate Once you learn the broad principles of how to analyze a a property, the key to really doing well is deep diving into a small selection of zip codes 1, 2, maybe 3 zip codes and learning as much as you can becoming an absolute expert in those particular zip codes. Because your competitive advantage is information and you can only get an informational edge when you are a hyper local expert in a couple of zip codes. So for anybody who's interested in the D.C. market or in any other market, as you start looking in the data, you will find massive variation between the zip codes inside. We'll take one last break to hear from the sponsors who make the show possible. And when we come back, we're going to talk student loans, we'll go into stablecoins and we'll talk about the cfpb. All of that is up next. 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- [24:41]
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- [25:25]
Paula Pant
Welcome back. There are new developments for any of you who have federal student loans. So if you've been thinking about applying for an Income Driven Repayment Plan, which is the type of plan that ties your monthly payments to how much you make, then you should know that applications are temporarily on hold right now for all Income Driven Repayment plans. Here's what the Education Department decided to pause all applications while they figure out what to do after a recent court ruling. In late February, a federal appeals court expanded a suspension of the SAVE program. SAVE S A V E is an acronym for Saving on a Valuable Education Program. It is a newer, more generous repayment plan, and about 8 million borrowers have already enrolled in it, of which more than 400,000 borrowers had their debts erased. The SAVE plan first came out in the fall of 2023, but two lawsuits last year put a pause on the plan. The lawsuits allege that the previous administration overstepped its authority with this program due to its far reaching economic impact. And while this has been working its way through the court system, the 8 million student loan borrowers who are already enrolled in SAVE have payments that are actually on hold. So if you've been enrolled in save, your payments have actually been on hold since last summer due to all the legal back and forth. But now here's the part that might affect more of you. So the Education Department has now taken down applications for all income driven repayment plans, including the older ones that weren't being challenged in court. So this means if you want to apply for an income driven repayment plan, that option is just not available at the moment. Now, this is a particularly big deal if you're working toward public service loan forgiveness because being on an income driven plan is a key requirement for that program. The good news is that this pause is likely temporary while the Education Department sorts things out. And if you need help in the meantime, reach out to your loan servicer to discuss your options. And of course, keep tuning in to these monthly first Friday episodes where we will keep you updated about what your options are in the world of student loans. There is new bipartisan legislation in both the Senate and House around stablecoins. Stablecoins are cryptocurrencies that are designed to maintain a stable value. So stablecoins are typically pegged to the US Dollar or something similar. So if you've invested in crypto before, you might be familiar with USDC or tether. Both of those are examples of stablecoins. And right now, there's new bipartisan legislation that is trying to create a clear federal framework for regulating these stablecoins. So in the Senate we saw at the beginning of February, Senator Bill Hagerty from Tennessee introduced something called the Genius act, and that stands for guiding and establishing national innovation for US stablecoins. And then a few days later, a couple of representatives in the House released a discussion draft of stablecoin legislation and they called it the Stable Act. So for those of you keeping track at home, that's stable genius. But both of these, the aim for both is to create a really predictable regulatory environment that could legitimize stablecoins, which would then ultimately lead to broader adoption. And if that's the case, if these are passed, it could be a significant step towards mainstream adoption of cryptocurrencies. Now, the bill, the Genius bill specifically in the Senate prohibits the issuance of a payment stablecoin by any person that is not a, quote, permitted payment stablecoin issuer. So in other words. It creates some guidelines around who is authorized to create stablecoins and who is not. It also defines a stablecoin as a digital asset that maintains a fixed value by being backed by fiat currency or some other type of secure reserve. So the bill mandates, for example, that stablecoins must be fully backed on a one to one basis with US Dollars or some other approved high quality liquid assets like treasury bills. It also I mentioned restricts who can issue stablecoins. To dive into that a little bit more deeply approved stablecoin issuers would have to comply with certain standards like maintaining fully backed reserves, having a segregation of those reserves from their operational funds, avoiding rehypothecation, which is the use of those reserves for any purpose other than backing the stablecoin. They have to satisfy certain capital and liquidity requirements. There's a prohibition on mingling customer funds with the firm's own assets. They must have specific enhanced cybersecurity measures. They need to file monthly audited compliance reports. But the bill also notably amends federal securities law to make it very clear that stablecoins are not securities. So you remember the discussion that we just had about what the sec, what's under the purview of the SEC and what is not. The SEC oversees securities and this bill makes it clear that stablecoins are not securities and must be treated as payment instruments rather than as investment products. Okay. It is now 1:30pm Eastern on First Friday, March 7. Two news stories are breaking right now. It looks as though President Trump may sign an executive order later today which will exclude certain student loan borrowers from the Public Service Loan Forgiveness program, which we literally just talked about a couple of minutes ago. As of the time that I'm recording this, this is a breaking story and all I really know is that one headlines. But stay tuned because by the time that this episode airs, I'm sure there will be more developments on that. That's more news for student loan borrowers. It looks as though certain borrowers, and I don't know who, will be excluded from public service loan forgiveness. Also, Fed Chair Jerome Powell about an hour ago just wrapped his afternoon remarks about the latest jobs report and inflation data. And he says that the Fed is awaiting, quote, greater clarity on any change in policies before making the next move. So as expected, he has, without saying so directly, more or less confirmed that the Fed is not going to be moving interest rates when they meet on March 18 and 19. These are the last remarks that he is allowed to make prior to the meeting. The Fed always has a Couple of blackout dates where they cannot make any comments to the media prior to going into any session. That's standard. But he has said, quote, we do not need to be in a hurry and are well positioned to wait for greater clarity. So he's sending a very clear signal that the central bank is going to take a wait and see approach which is exactly in line with what investors already expected. And those are the latest updates about the economy in this March 2025 First Friday episode notice. And this was, this was intentional, with the exception of a brief mention of President Biden imposing 100% tariffs on BYD. With the exception of that, I made it through this entire episode without actually talking about tariffs. And that was intentional. That was by design. It's because, number one, we have dedicated episodes to tariffs in the past. We will link to those in the show notes if you want to hear them. There was one in particular that we did where we unpacked what is a tariff? How do they work? Walk through the history of it. So we'll link to that in the show notes if you want a background primer, deep dive into the subject matter of the concept of a tariff itself when it comes to what's happening right now. First, I know that you are oversaturated in tariff related discussion from the mainstream media, so there's no reason to add to that cacophony. You're already hearing about it enough. And second, what is happening is shifting so quickly that they're on, they're off, they're imposed, they're paused. There's a deal, there's not. It's all shifting so quickly that frankly, just like Fed Chair Jerome Powell, I'm also awaiting greater clarity. I think we all are. And in the absence of having that clarity, all we can do is speculate and speculation. Particularly in a time where the broad zeitgeist is pessimism, speculation typically just leads to anxiety, which is not productive. So what I'd like to do is avoid prognostication, avoid filling airtime with mindless speculation, which is what a lot of the 24 hour networks do. And as Chair Powell said, be well positioned to wait. And once that clarity arrives, once we know what's happening, we can assess accordingly. Chair Powell also said that the Fed is, quote, focused on separating the signal from the noise as the outlook evolves. And I think that is the key takeaway in a much broader context that I would like to leave you all with. Focus on separating the signal from the noise. Thank you so much for tuning in. If you enjoyed today's episode. Please share this with the people around you. Share this with your friends, family, neighbors, colleagues, your barista, your Uber driver, your workout buddy, your mail carrier, your hairstylist, your kid's soccer coach, your fantasy football league, your therapist, your ex, your therapist's ex, and your neighbor's cat. Share this with all the people in your life. If you want to find even more people who are talking about this, go to affordanything.comcommunity where you can chat with other people inside of this community about whatever is on your mind. Whether that's inflation or the stock market or retirement planning. Affordanything.com community is a space where you can find like minded folks and it's completely free. That's affordanything.com community. We have a newsletter and we send out some really cool stuff that you do not Want to miss. Affordanything.com Newsletter for all the goodness. As always, make sure you're following us in your favorite podcast playing app. And while you're there, please leave us up to a five star review. Thank you so much for being part of this community. This is the Afford Anything podcast. I'm Paula Pant and I'll meet you in the next episode.