Transcript
A (0:00)
Welcome to the last first Friday of 2025. On this show, we either interview guests or we answer questions from you. But there's one exception, and that's the first Friday of every month when we pause to take a look at the economy and the world around us to understand money at the macro level. Welcome to the December 2025 First Friday episode of the Afford Anything podcast. This is the show that knows you can afford anything, not everything. And we cover five pillars. Financial, psychology, increasing your income, investing, real estate, and entrepreneurship. I'm your host, Paula Pan. Let's kick off the last first Friday of the year with the topic that's on everyone's mind. Spotify Wrapped. That's right, Spotify Wrapped is out. And there are two shocking revelations. One is that they will guess your age based on the type of music you listen to, which is how I know that I have the musical tastes of a 70 year old. But more applicable to this podcast, Spotify also does a Wrapped for podcasters in which we can see what other podcasts our audience listens to. So if you're part of the Afford Anything community, which of course you are, what other podcasts do your fellow community members enjoy? And the results actually surprise me. Steve, can we go? Can we get a drum roll? Because we're gonna go from five to one in reverse order of the top five shows that people who listen to Afford Anything also listen to. Number five, the Dave Ramsey Show. Number four, Money for Couples with Ramit Sethi. Number three, choose Fi. Number two, Diary of a CEO with Stephen Bartlett. And the number one podcast listened to by members of the Afford Anything community. Extra drum roll please.
A (1:48)
Joe Rogan. We are ending 2025 with two pieces of knowledge. This is a community of Joe Rogan fans, and my musical tastes are old enough to almost qualify for required minimum distributions. Let's talk about the actual economy, starting with the jobs report, or lack thereof, just for review, because things have gotten a little weird. Normally, the Bureau of Labor Statistics, the bls, typically puts out a jobs report on the first Friday of every month, which is the reason that we do these monthly economic updates on this day. But the last couple of months have been different. On the heels of the government shutdown, plus a big shakeup at the BLS at the top level, here's what we know. In August, we lost jobs. In September, we gained jobs. In October, we dunno. And in November, we still don't know. The BLS did not put out a monthly jobs report today, so we are left to rely on data from Private payroll processors leading with a particular payroll processor called adp. Theirs is the biggest, and therefore, in the absence of BLS data, theirs is the second best choice. As to why we don't have a BLS report today, the agency was forced to delay the release until December 16th. So mark your calendars. December 16th because of the lingering effects of the shutdown. So we are never going to know what the monthly jobs data for the month of October was? That will forever be a mystery. We will eventually learn the November information, but we're not going to find out until December 16th. And what makes that date notable is that the next time that the Federal Reserve is going to meet is December 9th and 10th. So the next Fed meeting where they are going to make a decision about interest rates is going to happen before we get the BLS data. And if you're wondering, hey, why don't they just reschedule the meeting? It's a procedural thing. The Fed, before the year begins, announces their meeting dates. The Fed meets eight times a year. The December 910 meeting has been on the books for a long time. It's been on the books since last year. So the Fed is going to go ahead with their December 9th and 10th meeting, but they will not have any official BLS jobs data for either the month of October or the month of November at the time that they meet, which means they're going to be making an interest rate decision with limited knowledge. What makes this all unusual is that this is the first time in 12 years that a jobs report was delayed. And it's the first time ever that a month of household data referring to October will be entirely missed. During the last government shutdown in 2018. 2019. The BLS did not suspend its activities during the 2018-2019 shutdown. It continued to release the employment situation report, the jobs report, as normal. Okay, what did the ADP report say? Adp, which is a payroll processor, and they're looking purely at their own clients and they only have private sector clients. So the ADP report does not reflect any public sector information. But the ADP report for the month of November shows a loss of 32,000 jobs. This most significantly came from small businesses. This is the largest job drop in more than two and a half years. The ADP report showed that hiring in November was particularly weak in the fields of professional and business services, information, construction and manufacturing. And going back to highlighting that the bulk of this drop came from small businesses, defined as businesses with 49 or fewer employees. That category, small business, was the only category that dropped mid sized businesses, which are between 50 to 499 employees, and large businesses, which is 500 or more employees. Those two categories both grew, but the job losses among small businesses were significant enough that those losses offset the growth in midsize and large companies to such an extent that it led to net job loss. And that's particularly bad news for small businesses when you think about the fact that every job loss in a small business, when you're talking about a company with 49 or fewer employees, is proportionately a bigger share of that workforce. So it reflects that small businesses are disproportionately hurting, not just in raw numbers, but in impact to workforce. Now if we zoom out and look at the last three to six months of data from adp, we can see that job creation has been flat during the second half of 2025. And an analysis from the Economic Policy Institute, which uses a three month moving average, shows that ADP employment has dipped below zero for the first time since the pandemic. Running that same analysis on BLS data through September shows a similar slowdown. Now, I mentioned December 9th as the day that the Fed is going to meet, the first of two days that the Fed is going to meet. But there's another big thing that's going to happen on December 9th as well, and that is that the BLS is going to release data for September and October for what's called the Job Openings and Labor Turnover Survey, also known as jolts. Right now, the latest JOLTS data that we have only dates back to August, and it's December. We're a bit behind the curve there. Now, JOLTS data is different from the jobs report because JOLTS data is intended to provide insights into job openings and layoffs, whereas the jobs report is a snapshot of employment. So they're related, but they're distinct. In the absence of any data from the BLS that is more recent than August, we again turn to the private sector and we can look at data from Indeed.com, which in disclosure is one of the sponsors of this podcast. So we can look to INDEED for data on job postings, and we can look to a company called Challenger, Gray and Christmas for data on job cuts. So between those two sources of private sector data, we have at least a proxy for job openings and job cuts. Now, what we see from indeed, when we look at new job postings is pretty much a flat line. We see very little change. When we look to Challenger, Gray and Christmas, we see quite a bit of volatility but when we average that out into three month moving averages, we see a very slow rise in job cuts. What we can surmise from that is that the reason that the unemployment rate has been able to stay historically low is in the past year, even though hiring has been depressed, is because layoffs have also been pretty low. In other words, everyone's staying in their job, no one's getting fired, but no one new is getting hired. Which is why youth unemployment in particular the 16 to 24 age cohort, is above 10% overall. In fact, unemployment for people with a bachelor's degree between the ages of 20 to 24, non students, I should say graduates with a bachelor's degree between the ages of 20 to 24 is over 9%. What we see is a stagnant job economy. Unemployment overall is low because people are not getting fired, but people are also not getting hired. And when you have a situation where you don't have new job openings and you don't have new people getting hired, well, you, what that means is you largely don't have space for the newcomers, which are youth people under 24. So that's where we see the unemployment really peak. So that's a snapshot of what we know and more significantly, what we don't know about the current jobs market. We are currently in a situation where we have more questions than answers. And in the absence of recent data, we have proxies and guesswork that's going to make the Fed's job on December 9 and 10 quite difficult and quite controversial. Speaking of that, the big question on everyone's mind, is the Fed going to lower interest rates? Investors are currently betting yes, with CME Fed watch showing an 87 to 89% probability that, yes, the Fed is expected to cut interest rates by another quarter point at their December 9th and 10th meeting. There are, however, according to Morningstar, analysts who believe that that probability might be overstating the case because there have been public comments made by members of the Fed's Open Market Committee that show an unusual degree of division among the Fed's voting members. Some have spoken publicly in support of further rate cuts in order to help bolster jobs, while others have spoken publicly about the fact that we are still hovering above the Fed's 2% target inflation rate. Now, as we've mentioned in previous First Friday episodes, historically the Fed would always speak with one voice, publicly at least. They would want to have the public appearance of all being in agreement and in lockstep with one another. This is a culture inside of the Fed that started during the Alan Greenspan years and that has persisted until now. Now that culture is shifting and the Fed is more publicly expressing dissent and differences of opinion amongst its members, which has not happened since the Volcker years of the early 1980s, which is fitting because that was the last time that inflation was high. So if the Fed does cut rates by another quarter point, that would bring the target federal funds rate to a range of between 3.5 to 3.75%. What does that mean for mortgage interest rates? It depends on what the ten year treasury does. But what we know is that right now, according to Bankrate, the weekly national average on a 30 year fixed mortgage is 6.27%. Assuming that a reduction in the federal funds rate impacts the 10 year treasury in the way that home buyers hope it does, it might mean, maybe, and this is speculative, it might mean that mortgage rates could dip below 6%, just, just a hair below 6% for the first time in a long time. According to the national association of Realtors, once mortgage rates drop below 6%, which they predict will happen in spring of 2026, that could drive home sales up by 14. The NAR estimates predict 14% in 2026 if rates drop below that 6% sweet spot. This is because at that rate, a median priced home becomes affordable for 5.5 million more households. And NAR estimates that 10% of those or 550,000 households would buy a home over the next 12 to 18 months. That's how that number was calculated. But going back to the question of what's the Fed going to do? You know, the Fed has a dual mandate of keeping inflation in check and to promote maximum employment. And the Fed's own Beige Book, which they publish eight times a year. This is a qualitative report filled with lots of anecdotal information on the current economic snapshot. They call it beige because the COVID used to be red, but they actually changed the color of the COVID to beige because they wanted to downplay its importance. They figure people pay attention to reports that have a red cover. They don't pay as much attention to reports that have a beige cover. And so that's how this report became known, first colloquially and now officially on their website as the Beige Book. The Beige Book has contributions from all of these regional Fed banks. So the Fed is divided into 12 districts that cover the nation, which is why you'll hear people talk about the Fed bank of Boston, the Fed bank of Cleveland, the Fed bank of Atlanta, of St. Louis, of Kansas City, of Minneapolis, There are 12 of these in total, and all of them contribute to the Beige Book, and they gather anecdotal and qualitative experiences from each region. And in the latest report, around half of the districts talked about weakened labor demand, and a quarter of the districts, New York, Dallas and Minneapolis, reported slight declines in payrolls. So not not only are there fewer jobs, but people are getting paid less. Again, the Fed is really trying to downplay the importance of this, which is why they colored it beige. But when you take this in conjunction with the ADP report, in conjunction with data from Indeed and Challenger Gray and Christmas, when you put all of this together, it paints a picture of confidence that the Fed is probably going to lower interest rates. So we have that to look forward to. We're going to pause to hear from the sponsors who make the show possible. When we return, we're going to talk about the holiday season, holiday shopping, holiday spending. What do the numbers say? How are consumers feeling and how does that jive with consumer sentiment? We're going to cover all of that next.