First Friday: The Strange Economics of Feeling Poor While Spending More Description:

0:00Welcome to the last first Friday of 2025.

0:30host, 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?

1:10And the results actually surprised me. Steve, can we go, can we get a drum roll? Because we're going to 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 the CEO with Stephen Bartlett. And the number one podcast, listened to by members of the Afford Anything community. Extra drum roll, please. 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.

2:03Let'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 don't know. And in November, we still don't know.

2:43The 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 16. So mark your calendars. December 16 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 16.

3:35What 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 9-10 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.

4:28What 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.

5:12But 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. Midsize businesses, which are between 50 to 499 employees, and large businesses, which is 500 or more employees.

6:04Those 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.

6:58And 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 9 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.

7:35Right 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.

8:29So 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 in the past year, even though hiring has been depressed, is because layoffs have also been pretty low.

9:14In 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 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, what that means is you largely don't have space for the newcomers, which are youth, people under 24.

10:07So 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 FedWatch 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.

10:54There 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.

11:37They 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 percent.

12:21What does that mean for mortgage interest rates? It depends on what the 10-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 homebuyers hope it does, it might mean, maybe, and this is speculative, it might mean that mortgage rates could dip below 6%, 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.

13:08The NAR estimates predict 14 % in 2026 if rates drop below that 6 % sweet spot. But 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.

14:01They call it beige because the cover used to be red, but they actually changed the color of the cover 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.

14:39Louis, 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 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.

15:36So 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.

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19:55Let's take a look at some holiday sales stats. So Shopper spent a record$11.8 billion online on Black Friday. According to Adobe Analytics, that's up 9.1 % from last year. So one of the questions that I got, and I thought this was an excellent question, is to what extent, when we report rises in holiday spending, to what extent are these real inflation-adjusted numbers versus to what extent are we just talking about more money is being spent because everything's more expensive than last year? In other words, is an uptick in sales simply a reflection of inflation rather than a reflection of an actual increase in consumer spending?

20:38And there's some mixed data. So according to Adobe Analytics, with shoppers spending 9.1 % more than they did last year, that is actual real increase, specifically on Black Friday itself. But in terms of what is projected, and again, this is just an expectation. We'll have to see how the numbers play out. In terms of what is projected across this holiday season, and the holiday season is demarcated as all sales that take place in November and December. Last year, people spend$976 billion. And this year, the expectation, according to the National Retail Federation, the expectation is that holiday shopping is expected to top$1 trillion.

21:22That means sales growth of between 3.7 % to 4.2%. Now, our trailing 12-month inflation for the 12-month period ending in September was 3%. So with sales growth of between 3.7 to 4.2, sales are still taking up slightly, but not a ton. The other really interesting thing about the holiday spending stats is that the average household is actually expected to spend less. Last year, the average household spent$902 on the holiday season. this year the average household is expected to spend only$890. So in nominal dollars, that's a$12 decrease, and it's actually more when you factor for inflation, more of a decrease.

22:17So then the obvious question is, okay, well, if people, if the average household is spending less, then how is it that holiday shopping is expected to increase? It's because more households are participating in the holiday season. Last year, 183.4 million people participated in holiday spending. And holiday spending, by the way, is defined as spending on gifts, on candy, on decorations, and on holiday-related food. So last year, it was 183.4 million people. This year, it's expected to be 186.9 million people. All of these stats come from the National Retail Federation. So more people are participating in the holidays, but they're spending less money on average.

23:05And this actually tracks with consumer confidence data. As if you listen to First Friday episodes regularly, you know that we've been tracking the Consumer Sentiment Index from the University of Michigan throughout the year. And the University of Michigan's November consumer sentiment data is the second lowest on record. It is just above the June 2022 low, meaning consumer sentiment is in the toilet. Consumers are pessimistic. And actually, if you look at the performance of retail stocks in 2025, this actually reflects that same story. Look at stocks in the consumer discretionary sector and the consumer staple sector.

23:50Those stocks are relatively flat. So the iShares U.S. Consumer Discretionary ETF is up 6.4 % year-to-date as of November 26, and the iShares U.S. Consumer Staples ETF is up 7.2 % year-to-date. Those numbers might sound good on the surface, but compare that to the S &P 500, which is up 17.3 % year-to-date. Now, all of that is as of November 26. That's a long and detailed way of saying that the consumer discretionary sector and the consumer staple sector, both of which represent retail spending, are lagging the overall economy. They're both significantly lagging the S &P 500 as a whole. But if you look inside of that, there's an exception, and the exception is discount chains.

24:47Dollar General is up 44 % year to date, and Dollar Tree is up 47 % year to date. Those discount chains are outperforming the overall economy. And that basket of facts tells a very similar story to the University of Michigan Consumer Sentiment Index. Consumers are pessimistic, they're not spending as much on the holidays, and the stock prices of discount chains are going up. while retail spending as a whole is flatlining relative to the overall economy. It's underperforming. Now, we do also see some growth in the very highest end of high-end luxury, which indicates, as our former guest Peter Atwater talks about, a K-shaped distribution.

25:37There's a bifurcated distribution in which the wealthiest consumers are spending and deal hunters and bargain hunters, the discount store crowd, they're also spending. But there's a wide swath in the middle that's not. Take a look at Target's stock price. It is Christmas red. Take a look even at fast casual chains like Cava or Chipotle. They're down significantly year to date. So it's that middle market consumer that's pulling back. While the extreme ends of both luxury and discount, that's where we're seeing growth. Another thing is happening on the topic of holiday spending. People are starting to shop earlier and earlier.

26:18I mentioned that the formal official definition of holiday spending for tracking purposes is any spending that happens in November and December. But nearly half of shoppers who are surveyed by the NRF, 42 % to be specific, say that they are browsing and buying prior to November. So October. And we're beginning to see retailers start to react. And Amazon is the most major example. Amazon created a discount window called Prime Big Deal Days, in which they offered discounts that peaked at 18%. And they scheduled that for October 7th and 8th, essentially targeting the early holiday wave. From a retail perspective, you might regard that as the unofficial start of the holiday season, stretching the discounts all the way back to early October.

27:13But with that said, according to an NRF survey of more than 8 ,000 households, even though people are 42 % of respondents are browsing and buying in October, 63 % still plan to do the majority of their shopping over the traditional holiday weekend, Black Friday through the end of Cyber Week. This year, 130 million people shopped on Black Friday. About half of that, 67 million, shopped on Small Business Saturday. And about half of that, 38 million, shopped on Sunday. And 76 million people shopped on Cyber Monday. Cyber Monday, by the way, really blew it out of the water this year in a few ways.

27:59A couple of ways that were particularly notable. One is mobile spending, which is up 7.2 % year over year. This is according to Adobe Analytics. The other is AI-assisted spending. We'll talk more about that in just a moment. And then the third is buy now, pay later. This year, across the month of November, buy now, pay later spend topped$10.1 billion, and that's up 9 % year over year. All in all, consumers spent$14.25 billion on Cyber Monday. That was actually up from initial projections of$14.2 billion. That's an increase of 7.1 % year over year. Hottest categories are electronics and apparel, and hottest toys are Lububu, Legos, Nintendo, K-pop Demon Hunters, manga tiles, DIY craft kits, Play-Doh sets, Ms.

28:52Rachel learning toys, Nerf guns, Paw Patrol, Fisher-Price Little People, and a huge variety of gaming consoles. Okay, so back to AI-assisted spending. More than half of survey respondents used AI for tasks like finding gift ideas for others, finding the best prices, spotting sales, and tracking price drops. People used AI to curate product ideas, to analyze reviews, and even to use AI agents that could call local stores to check on inventory to see if something's still in stock. People also used agentic AI to automatically buy items when prices drop. And then, of course, AI provides personalized recommendations.

29:42Surveyed consumers reported that AI made shopping a lot easier. It became easier to manage their budget, to research and compare options. and most shoppers stated that AI helped them feel more in control. So there's some good news in tech innovation for smarter shopping. It's interesting. AI is sort of the good news story, and then buy now, pay later is a bit of the concerning news story. So there's a little bit of sun and a little bit of cloud. Overall, according to Salesforce, 22 % of global sales during Cyber Week were influenced by AI. There was also another survey, this survey was done by Visa, that showed that more than one in four shoppers, 28%, said they would be excited to receive cryptocurrency as a gift.