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B
Well, you know, the biggest reason is because we've got this boom in AI infrastructure investment and the wealth effects that accompanied it. What's good about that is that we have incredible growth in the US Economy over the summer. And, you know, actually in the spring, we probably had the best six months, the economy's experience since the back half of 2023. That sticking point is that was not without a lot of jobs. And I think it's important to understand that the economy adds up on paper with this AI infrastructure boom and the inequalities that we're enduring to look a lot better than it feels to most Americans. And you're seeing that in the consumer sentiment data in different measures of the job market in terms of their assessment of the job market. And I think that's very important because it really hones in on the sort of dissonance that we felt. I mean, we really went through, you know, I sort of say the looking glass as we went through the pandemic and we've never come back. We're in a world that is very different than the one we left, one that has been haunted by inflation and inflation that never really went away and has begun to re accelerate not as rapidly as we saw during the pandemic. But we haven't had a place where prices weren't front of mind for most consumers. And as we go into this holiday season, of course, price levels really do matter to a lot of consumers.
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A
You wrote a piece in early November and you called it Rising Tide Fails to Lift All Boats. And I think this is kind of what you're talking about, which is, yes, the A.I. boom, it's great. There's spending and it's by this very narrow group of companies also powers the stock market, which then makes wealthier people who are invested in the stock market in a big way feel comfortable spending. This kind of leads to this chatter around a K shaped recovery or economy. Can you explain what that K shape is and do you believe it exists?
- [05:43]
B
So, one, I believe it exists. And two, what it is is that we've got a very substantial group of very affluent consumers that are hold up the economy even as low and middle income households struggle. We know that subprime delinquencies on debt have moved up and frankly the interest rates are so high on that debt that anything the Federal Reserve does to cut rates doesn't really do much to dent the affordability crisis that they're facing. At the same time, very affluent households are still willing to sort of pay up for the front of the bus in terms of airfares, they're willing to pay up for very high end luxury hotels. They're traveling abroad. That is a very different kind of economy than we've seen and certainly one that is one that's hard for the Federal Reserve because at the same time we're starting to get some of the goods inflation related to tariffs. We did have a mother of all front running cycles and so not everything this holiday season is going to be that much more expensive. But some things are going to be more expensive. The things that aren't going to be more expensive are the fact that we saw just the most dramatic run up in orders and in imports into the US in March that we'd ever seen. And then we saw a second round of front running ahead of those August tariffs in July. And that helped to give some retailers some stuff on their shelves that they didn't have to mark up as rapidly. But what we're hearing is we're starting to hit a tipping point and the margin squeeze, it's shown up in layoffs, it's shown up in weakness in the manufacturing sector. And the margin squeeze is starting to get to a tipping point where surveys are telling us that many firms are getting ready as we get into 2026 to start raising prices more. And that's something that the Fed is really struggling with as we go into this holiday season. The Fed is sort of in the dark themselves. There will be a flurry of economic data they've got, but not all of it. There's going to be holes in the economic data. And we saw Chairman Powell already warn us that, you know, a rate cut in December is not a foregone conclusion. There may not be an extra Christmas present by the Fed underneath the holiday trees in terms of an additional rate cut. And that's because of a lack of some key data in terms of what's really going on in the US economy due to the shutdown itself. We may never get all of the CPI data that we need and all of the employment data that we need to really assess the economy through this period.
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A
You know, you said something that stuck in my brain when you said affluent consumers have been holding up a lot of the overall spending. Can you define what affluent means in this sense? Meaning that I want to understand. Are we talking about households that have 175 or $200,000, or are we talking about, like the tippy tippy top?
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B
So it really is those 175, 200,000 in the confidence numbers. Interestingly, the only households that are more confident about the world today than other households are those who have large stock portfolios. So that's in the U.S. consumer sentiment by the University of Michigan survey in the Consumer Conference Board. It's households over 200,000 at the 20% mark. You know, of households sort of carrying over economic spending, that work done by Moody suggests it's about 175,000 and up. So you're not talking about the tippy tippy top. You're not talking about the billionaires, the only ones carrying it. But what's important about what we're seeing out there is this is also creating a conundrum for the Federal Reserve because those households, they are not as much affected by inflation, and they're providing a floor underneath inflation, supporting it. In the service sector, which goes above and beyond anything that we see due to tariffs, we're seeing things like curbs on immigration show up and everything from daycare costs, which went up at the third fastest rate, one of the pieces of data we did get in September, and those have been going up at more than double the overall inflation rate for decades now. In home elder care, again, highly reliant on immigrant labor, that went up on its fastest rate on record in terms of costs in the month of September. So those service sector items that are starting to buoy along with the rebound in airfares, the rebound in hotel room rates, all of those things are buoying inflation in the service sector, which has never come back down to where it was pre pandemic and is certainly well above anything that would be consistent with us sort of just getting prices out of our minds and thinking about them all the time.
- [10:36]
A
I also think, like, there are these huge categories that eat up a budget, right? And if you're not making $200,000, but like, if you think about childcare or elder care or housing or the cost of an automobile, these big ticket items are really intense. And so it makes sense to me that people in the middle, not even like, even upper middle, you know, but like, if you're making 150 grand somewhere in the country, you're feeling pretty good. If you're making 150 grand, you live in New York City, you don't feel as good. So we're talking about overall this idea around like affordability and I wonder if where we are with the tariffs and prices accelerating and that the economy is doing well enough for the top and also the spending by AI. Where do the cracks form? Where like besides just socially it feels very uncomfortable to have a widening gap. Is there a problem with that? Like how long can that go on and is it a problem?
- [11:42]
B
It is a problem and we're already seeing it affect the labor force and people's ability to participate in the labor force. We know for instance that women with bachelor's degrees and above in children under five after joining the labor force en masse and helping to push women's labor force participation rates back up above the levels that we saw in the peak in 2000 when my kids were babies, that actually movement actually now we're seeing it go in the other direction. The most educated women are now dropping out of the labor force because in fact childcare is too expensive. And of course the most educated of women are more likely to be in a double income marriage where they may be able to drop out of the labor force. But that's losing some very valuable talent. And we know that last year alone childcare disruptions cost the economy and this is before kids are sick that just the disruptions in childcare are estimated are it shaved as much as 1 to 1.4 billion hours of work missed that we get in this richness of these household surveys. On the flip side of it, we know in home elder care that is being not dominated entirely by women anymore, it has moved from about a 6040 split in 2122 to 23 24. Data shows that it's 56% women providing a unpaid in home elder care to someone in their home versus 44% of men. But what's most important is among those youngest categories, people in their teens up to 34 years of age, it is now dominated by men providing unpaid care in their families. So it's really disrupting their ability to earn money and be able to feed their children and the basics of life, which I think really gets to this undercurrent that you're seeing about this backlash on a fruit affordability in the US economy. It was a backlash that we saw in the elections of 2024. It's a backlash that we saw in the November elections of 2025. And it's something that's not going away. Now as we come around the year after we get through the holiday season, which could be a bit of a stretch for many households, there's something else waiting on the other side and that is we're going to see a record amount of tax refunds and those are more broad based. But it's a bit of a double edged sword because we're going to be getting all this extra sugar high at a moment when we know tariffs are going to be having their biggest effects on inflation. They're still muted relative to the kind of pandemic induced inflation. But we know that fiscal stimulus in the wake of the pandemic added to the stickiness and the sustained bout of inflation that we're still dealing with today more than four years after the fact. And that is worrisome for many at the Federal Reserve who worry that, you know, we're going to get yet another bump up where it might cushion the blow for those very low and middle income households that need it most. But also at the same time time provide more reason to be worried that the inflation that comes from tariffs could stick around and be sort of sustained instead of wrestled to the ground and erased. After we get through this, how do.
- [15:11]
A
You think the reopening after the shutdown is like? What do you think are going to be the lingering impacts of the shutdown? Whether it be a hyper focus on healthcare, which is, you know, mighty expensive, where, which wherever way you slice it, or even just this idea that the government workforce is now it used to be you work for the government, you're pretty attached to your job. Now are these people going to be looking for jobs and not like almost be like marginally attached to their jobs? And what do you see as the impact of the shutdown?
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B
Well, there's a lot of impacts of the shutdown that we're going to yet to be able to sort of tease out. But one of the things I worry the most about is that unlike previous shutdowns, it was we have a low staffing going into this because of cuts made earlier in the year. The staff at the Bureau of Labor Statistics, for instance, is already down about 25% from the beginning of the year, which inhibits their ability. We were already seen before the shutdown that the percent of the prices that the Bureau of Labor Statistics had to impute to calculate consumer prices imputing means they were looking at substitutes and sometimes looking at history, which if the world is changing rapidly, history is not your best Guide. It was 40% in September. That was before we had a shutdown and before workers had to miss paychecks. And now they're saying they're not being able to pay workers in arrears 100% right away because of staffing shortages as well. That adds insult to injury to these families and you know, the collateral damage to contractors as you reopen government, slower reopening and the whole ecosystems in which they live. It affects all of the restaurants around them, all of those things. And so this has got a little bit of a more risk of scarring than we've seen in the past. And it's a combination of factors of the length of the shutdown, the size of the shutdown, greater and larger in scope than anything we've ever endured. But more importantly, it came against the already really strained. We see it in air traffic controllers, the strain on the federal labor force and just how they feel they fit in society. Now many of them are looking for other jobs, but in fact they're having a hard time finding them because we are not for as strong as growth is in the US Economy, it's not delivering a lot in terms of job gains. And especially for those workers who have a job, they're clinging on. Those workers who don't, they're left wanting. That really is important right now.
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A
So let's talk a little bit about the labor market. You know, we, as we talk, you and I are talking right now. I don't have the September and the October numbers in front of me. What, what do you think was going on in September and October? What do you think the data would have shown?
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B
Well, we do know from some of the private sector data is that they were still rough months, most notably the month of October, because on October 1st we knew that 151,000 federal workers who had taken a buyout earlier in the year, we're going to fall off of the payrolls no matter what on October 1st. And that was already when we're generating less than 30,000 jobs on average a month going into that period over the last several sort of June to August period that we had prior to the shutdown, the October number was likely going to be a red ink print on employment. We knew that ahead of time. Now, we may never get the full report on October employment, but we will see the lingering effects of it in November. We also know that the companies that are hiring up for the holiday season, many of them are hiring half as much as usual. Well, the data is seasonally adjusted. And if they don't hire up like usual in the month of November that will show up also as a very weak November because we're not meeting the normal sort of usual ramp up to the holidays season. And so all of those things are coming together to show this sort of dichotomy that we've got where an economy that is controlled by a very few number of firms doing extraordinary build on infrastructure without a lot of workers, at the same time that you've got a lot of wealth effects being generated by that, but only a few households participating in it. And it makes for a very difficult kind of labor market where the undercurrent of the long term unemployed, those over 27 weeks, those are still rising in ranks. We're starting to see announcements of layoffs pick up. That doesn't mean they're going to all be laid off by Christmas. But those announcements of layoffs were something that we're missing in the low hire, low fire environment. All of a sudden, if we see more firing, you're going to see the unemployment rate move up more than it has. It's inched up to 4.3% by our last numbers. And you know, it could easily reach 4.5% by the end of this year, which is incidentally what the Federal Reserve initially forecast for the end of this year. That was easier to forecast about a mild stagflation which the Fed had in their forecast than live it in real time.
- [20:40]
A
So if we assume that September jobs, there are some created in October, we lose jobs, those 151,000 federal workers right now because of all the changes in immigration and the labor force shifting. Right. One part of our equation here. How many jobs does the US Economy have to create on a monthly basis on average to keep up with population growth?
- [21:07]
B
Well, this is one of the greatest conundrums of where we're at right now. Last year, in order to sort of hold the unemployment rate steady at 4.2%, we had to create about 157,000 jobs a month. It was, you know, a lot of jobs every month. That was just month in month out. About that on average we created last year. Now we're down to between 30 to 50 or 30 to 60,000 jobs a month in order to hold the unemployment rate steady. Because we have a fewer supply of workers out there. That's within the range of zero in terms of the confidence intervals on any given months of data. Something that's plus 30,000 or plus 20,000 really isn't statistically different from negative 20,000. And I think that's something that is really hard to get your head around that we're now in a place that, that we don't need to generate many jobs because we're so constrained by both supply and demand of workers. They've come down in tandem but not completely imbalanced. And we are seeing some scars as those people who are entering the labor force, new entrants in the labor force, new college grads, are not getting hired up as fast as they were a few years ago. And one can argue the hiring frenzy we had coming out of the pandemic, some from firms overdid it and some of the slowdown in employment we're seeing today is, you know, they realized they overstaffed as they were trying to scramble and get as many workers as possible. But there's also a lot of other factors. Everything from tariffs hitting profit margins and firms having to respond to that. And if they don't pass it on in prices, they've got to deal with it in their margins. We know that it's in the supply chains. We know that businesses have been charged with more on input costs in response to tariffs and there's been a reluctance to pass all of it on to consumers. You mentioned vehicles. Vehicle prices crossed that 50,000 mark, which is a psychological threshold and that's without many of the effects of tariffs as many of the vehicle producers not only front run tariffs but they tried to absorb in their profit margins so that they did not lose too much demand. But you're starting to see something even akin to shrinkflation when you're buying a car. All of a sudden things that were once included in that price are now add ons. That is, you know, something we've seen in the grocery store for a couple several years now since.
- [23:32]
A
Yeah, no kidding. By the way, you bartenders out there, we know that you're not making drinks as big as that we once had them. Okay. Pre pre shutdown the inflation rate by CPI was starting to rise. Where do you suppose we end the year? Both. Let's do. Can we do Consumer Price Index? Because a lot of our listeners, they hear that more often and then we'll go into pce. So the cpi, where do you figure we'll end the year?
- [24:00]
B
I think we'll end the year around 3.2% or so. Just a little above where we're at today. As we get into, we think we're going to hit a peak around 3.3, 3.4 and then come off a little bit. The problem is that's still a full percent above the Fed's target. And you know we can talk about the PCE measures which is includes different sort of set of things and a different weighting than the cpi. But the bottom line is we're talking about an environment where the bulk of the effects of tariffs in terms of prices are still ahead of us. It's not going to be the 9% that was stunningly high, three times this amount. Right. In the height of the 2022 inflation in the summer of 2022. But it is still, it's price levels that bother consumers.
- [24:51]
A
Right, right.
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B
Level of prices relative to their income. Right. And that is still moving not in the same direction. And in fact one thing that really concerns me is indeed has a job posting and the wages posted and what are the wage gains for, you know, six months from. It's a good leading indicator on where wages will be six months from here on those job posting sites. Their wages are at 2.5%. That is below anything we saw pre pandemic. That is well below the current rate of inflation. And if that comes to fruition like it has historically as a lead indicator on where wages are going, that is a very tight environment for a lot of consumers that depend on annual wage hikes.
- [25:38]
A
It's such a curious period of time and like you said, it really is a bit like through the looking glass now, five years hence. Right. And it's hard to kind of wrap your mind around what has happened, what will happen. The real interesting wrinkle here is that as all of these numbers get released or not released, the lived experience, what I'm hearing from you is the lived experience on the ground for most middle class and lower income families is not going to be a good one coming, coming through this next phase. So in that respect, what should we expect from just plain old retail sales? Are we going to have enough rich people to sustain corporate earnings? Is it going to be enough or do you see things faltering a bit?
- [26:30]
B
Yeah, no, it's a great question. And what you know, we're looking at, we're talking to a lot of the retailers out there. We're looking at the projections. The projections for retail sales are around 3.5 to 4.5% somewhere in that range for the holiday season last year we had four and a half percent gains and off of much higher prices this year. So that's not very much of a real increase.
- [26:54]
A
Right. Because if everyone listening retail sales, it's not, it doesn't take, it's not like we inflation adjusted because things cost more, the actual spending is going to be more. No Matter what.
- [27:05]
B
Exactly. And so we have higher inflation going into it. We know that already. Right? That's already a given. And you know, the idea that, you know, consumers are making their more low and middle income households are, are being more choosy about how they spend and pushing back against some of the price hikes that they see out there, but also not able to fill their carts as much as they once did even for their holiday Thanksgiving or for their Christmas parties. And that is something to keep in mind as well. At the same time, you know, we are going to be coming around this new year and then all of a sudden people are going to get these big tax refunds which will feel great for a moment in time. But the timing of it with inflation as well, we know what happened in the wake of the pandemic and it's just worrisome because inflation is something that hits 100% of everyone. Now obviously more affluent households are not as affected by it as everyone else. Unemployment, it is horrible and it fits a smaller percentage of people. But when you've got both together, that's why we start thinking about this. Even a mild butt of stagflation is very painful. And I think that gets lost in translation.
- [28:18]
A
I mean, it's so interesting because of course it explains why when I go on the air at CBS and I do a segment which was essentially called There are two different economies and you'd're not crazy, I got so much feedback from it. Like thank God you're saying that because you know, like my 401k is going up and my company is talking about how they're making a lot of money and I feel like I am going insane. I literally feel like I'm going insane. So obviously the Federal Reserve knows this heading into the last meeting of the year. And as you said, Powell made a note at the last meeting and said, hey, a rate cut is not a foregone conclusion. Knowing what you know about the composition of this Fed, what do you think is the most likely outcome at the Fed meeting in December?
- [29:07]
B
That's a really hard one because I actually we have another cut in the forecast, but it really is a coin flip and I think it's going to be very difficult to get it over the line because for the Federal Reserve in terms of lags, December, January don't really make a difference and they'd like to get more data before they decide. But also there's a really fundamental question for the Federal Reserve and it gets right to the heart of this issue. The Fed can't fix an inequality with the blunt tool of an interest rate cut. And like I mentioned at the very beginning, a couple of basis points, 25 basis points here and there, even 75 basis points, three quarters of a percent, that's not much on a credit card that's already well over 20%. Or the high interest rates a subprime borrower is paying on auto loans, which auto loan rates are higher today than they were when the Fed started cutting rates. We're seeing those things and we know that rate cuts in general, they tend to favor more affluent households who also benefit from the wealth effects and have much lower interest rates on any debt they have. So it's a bigger decline for them and it makes it more affordable for them where it may not really do enough to juice the economy and make it more affordable for those lower income and middle income households. And more importantly, depending on what are the drivers of the slowdown in employment we've seen, is it going to be going forward related to AI? Is it going to be related to a supply shortage because of not enough immigrants to fill positions that native born may not fill in? It's not a zero sum game. They're often complementaries for each other, those kinds of things of this sort of uneven labor market with pockets of labor shortages where inflation has already picked up at the same time that you're making it even better for more affluent households, you could get more inflation from that. And so it's a very hard decision. And at the heart of the divisions that we're seeing within the Fed today, and that is that you see some very sort of a good minority of those on the Fed who did not want to cut in September and in October. And now they're saying, listen, let's hold off on December. We did it twice. We disagreed in two directions in the October meeting and now they're talking about holding off in December. And from the Fed's perspective, until they can get more clarity, they may want to wait really to that January meeting. But the most important thing is, you know, can the Fed's tools really deal with what we're dealing with right now in a way that alleviates the pain, or could it risk stoking more inflation? And historically, the Fed has not gotten these supply shocks, all right? And in their efforts to try to make it easier, it's actually backfired. And we've seen it most recently with the pandemic itself and the inflation that was not transitory. It's still with us today.
- [32:19]
A
If you've got a question about anything that we spoke about during this interview. If you've got feedback, if you want Diane to just be a guest host always, because that's what I would love. I'd love to have her, you know, quarterly come on the program and just give us an update. She's so smart. She's so fantastic. I use her all the time as a source when I'm doing stories and when I'm writing. She's just incredible. So give us a holler. If you've got a question about that, go to jillonmoney.com, click the contact Us button, write us a note. And if you would like to join us live, check the box. Mark will do everything else. And don't forget while you're on the website to sign up for the free weekly newsletter, which comes out today. Friday. Every Friday comes out. So we are always happy that we can present you some really smart people. You know, we don't have a ton of guests here. The show is really about you. But. But because I have access to some really smart people who are just good talkers, as Mark and I would say, we love to bring them to you. So if you like that, let us know. And if you don't like that, keep it to yourself. All right, you can subscribe to us on the Odyssey app or wherever you find your favorite podcast. Please leave us a rating and review wherever you listen. And it is Friday and it is the day after Thanksgiving. So I'm so thankful and grateful for Joel, Joel Goodman, who composed our music for the very best executive producer in the whole wide world, Mark Telercio. He's also the king of our website. We are distributed by the fine folks at Odyssey, who I'm also grateful for. So thanks, Leah. You're the best. We ask, of course, during this time and every single day to lift someone up. Change your work, change your wealth, change your life. Thanks for listening. We'll talk to you on Monday. Other jewelers hate Stephen Singer. Why? Because Steven Singer has the best real natural diamond stud earrings in America. Everybody knows gold and diamond prices are crazy right now. Gold is at the highest price in history. Lucky for you, Steven Singer has locked in his diamond studs at the old prices. Stephen has diamond studs available from a quarter carat all the way up to 10 carats total weight, all at the same perfect price as last year, same incredible value. There's no better time to get a pair of diamond studs from Stephen Singer jewelers. This can't last forever. Each pair is eye flawless and near colorless beautiful stuff. They come with his safety silicone back so you never have to worry about losing them. And with his unbeatable full value lifetime trade in, you know your diamonds are always worth what you paid. All backed by the best guarantee in the jewelry business. A full 100 day 100% no hassle money back guarantee plus fast and free shipping. Experience the difference at Stevensinger jewelers online@ihatestevensinger.com that's ihatestevensinger.com what's up?
- [35:02]
C
It's Draymond Green. I'm back for my 14th NBA season and my podcast, the Draymond Green show is back too. This season I'm breaking down games, reacting to the biggest NBA stories and sitting down with teammates, rivals and culture shapers. And trust me, I'm not holding back on the court or on the mic. Two new episodes. Episodes every week. New segments, big conversations. Real basketball talk for the real hoop heads. Listen to and follow the Draymond Green show wherever you get your podcast. We're back. We're better. Let's get it.