First Friday: The Economic Maze We're Navigating Together

0:00The 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 stable coins. A court made a recent ruling related to student loans.

0:33And 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-eye 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.

1:12So 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 healthcare jobs are spread out across ambulatory healthcare services, hospitals, and nursing and residential care.

1:59Financial 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.

2:38While 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.

3:20That 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 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 8.30 a.m. Eastern on the first Friday of every month, which is why we always host a First Friday Economic Update episode.

4:14The 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.

5:06Stay 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'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.

5:52This 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.

6:30And so his thinking is that by lowering these energy costs, they can save consumers money and also boost 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 U.S. GDP. And 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 that 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?

7:12I 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.

7:50Are 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 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. U.S. 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.

8:39conditions, 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.

9:31The 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 inflation, stock market performance, likelihood of recession, likelihood of higher interest rates, and views on the labor market.

10:24So 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?

11:13Or 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 Broadbase 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.

11:56And when we return, we'll talk about deep seek, AI, crypto, student loans, and much more. The kids are back in school now, and I finally have some extra time to plan a weekend getaway for just us. We've been wanting to visit Lancaster County, Pennsylvania for a while now because I've heard so many people rave about it. We love exploring new places, finding the cutest shops, and eating at restaurants that the locals love. DiscoverLankaster.com is the best place to learn about the unique things to do and upcoming events. Plan your trip alongside us at DiscoverLankaster.com slash amplified. I want to shout out to all the small business owners out there.

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14:07Welcome back. On January 20th, DeepSeek released the DeepSeek chatbot free of charge for both iOS and Android. Within seven days, by January 27th, 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 U.S. side, Vice President J.D.

14:52Vance, who delivered remarks that conveyed three primary ideas. One was that the U.S. 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 DeepSeek.

15:31Vice President Vance's remarks highlighted the AI arms race taking place between the U.S. and China without naming China overtly. But it's clear that this AI competition between the U.S. and China is not only going to be about how quickly China catches up to the U.S. 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 DeepSeek into its search engine. And that Chinese automakers like Great Wall Motor and BYD, which is a electric and hybrid car manufacturer.

16:21I 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.

17:07And 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, doesn't the SEC do that? What's the difference? Great question.

17:49The 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.

18:32And 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 20th, and the new Acting Chair, Mark Ueda, is generally much more crypto-friendly. And crypto-friendly in this context essentially means not classifying cryptocurrency as a security, because security's 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.

19:22Meaning 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 U.S. now has a new CFTC chair named Brian Quintez, 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.

20:14And so all of that, with Mark Ueda now as the acting chair of the SEC and Brian Quintez 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.

20:59The 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 20009 zip code, which is DuPont-Adams-Morgan area, those home prices are climbing rapidly.

21:42Whereas by contrast, home prices in 200037, 200015, 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 property, the key to really doing well is deep diving into a small selection of zip codes, one, two, maybe three zip codes, and learning as much as you can, becoming an absolute expert in those particular zip codes.

22:31Because 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 DC 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.

23:10This Friday, the NBA on Prime tips off with their debut doubleheader. First up, Boston brings the action to the garden as the Celtics face the New York Knicks. Then out west, it's a battle of the superpowers as the Lakers try to poster the relentless pace of the Minnesota Timberwolves. The Celtics and Knicks, who has the most hustle in defense? This game will come down to who wants it more. and the Timberwolves and the Lakers. It's two Western Conference heavyweights going toe-to-toe. Buckle up, folks. This one's going to be electric. Celtics-Knicks, T-Wolves and Lakers. Coverage starts Friday, 7 o 'clock Eastern, only on Prime.

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24:45Welcome 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 happened. 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.

25:24It 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.

26:11But 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.

26:48And 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 U.S. 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.

27:27And 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 Haggerty from Tennessee introduced something called the Genius Act, and that stands for Guiding and Establishing National Innovation for U.S. 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.

28:17And 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 U.S.

29:01dollars 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.