No Con Job Friday

Episode Summary

Executive Summary: This episode examines the stark contrast between weak incoming economic data and persistent consumer pessimism, focusing on affordability, labor market softness, and inflation trends. The hosts analyze September PCE figures, November private payroll data, and record-low consumer sentiment, arguing that tariffs and immigration policy are creating stagflation-like conditions. They debate whether the widely perceived affordability crisis is real or politically manufactured, and explore the implications for the Fed and upcoming policy decisions.

Main Topics: Affordability Crisis vs. Political Narrative (Priority: 5/5): The hosts extensively debate whether the current affordability problem is genuine or exaggerated. Mark argues it's real, citing rising costs of necessities, homeownership barriers, and youth unemployment. Chris differentiates by income segment, noting the top third is fine while the bottom third struggles. Marissa links homeownership to sentiment. Dante highlights student loan delinquencies as a stress indicator. No one supports the 'con job' characterization. Soft Labor Market Data (Priority: 5/5): Analysis of November private sector payrolls from ADP (-32,000) and Revilio (-9,000), both negative. The hosts extrapolate that BLS data will show near-zero job growth for October and November. Small businesses (1-49 employees) lost 120,000 jobs in a single month. Hiring weakness is concentrated among younger workers (20-24 unemployment over 9%). Layoff announcements (Challenger >1 million) are high but not yet reflected in UI claims, raising concerns about measurement. Stagflation Dynamics from Trade and Immigration Policy (Priority: 4/5): Mark explicitly argues that tariffs and immigration restrictions are simultaneously slowing growth/employment and raising inflation, creating stagflation-like conditions. This is reflected in rising PCE inflation (2.8% headline, 2.8% core) even as real spending growth weakens. The combination is described as politically toxic and likely to persist. Consumer Sentiment at Historic Lows (Priority: 4/5): Marissa reveals the University of Michigan Current Conditions Index at 50.7, the lowest since 1978, beating even the Great Recession. Interestingly, future expectations rose, creating a record-wide gap. This split suggests deep unhappiness with present conditions but some hope for the future. Democrats and independents hit record lows; Republicans remain positive. PCE Inflation Data and Spending Weakness (Priority: 3/5): September PCE deflator rose 0.3% month-over-month, with year-over-year headline at 2.8% (up from 2.7% in August). Core ticked down to 2.7%. Goods inflation surged to 0.5% month-over-month driven by non-durables (groceries, clothing). Real consumer spending was flat month-over-month, up only ~1% year-to-date. The savings rate held at 4.7% but is trending down. Fed Independence and Interest Rate Outlook (Priority: 3/5): Discussion of Chair Powell's replacement in 2026 and the new chair's influence. The group agrees the chair has structural influence (consensus-building, communication) but only one vote. Mark raises a scenario where Powell stays on as governor after stepping down as chair to defend Fed independence, which would signal serious concerns. Dissents are historically rare, suggesting consensus is the norm.

Key Arguments: The affordability crisis is real (not a 'con job'), driven by tariffs and immigration policy creating stagflation-like conditions (slower growth + higher inflation). The labor market is effectively at zero net job creation, with weakness concentrated in small businesses and younger workers; layoff announcements are rising but masked in UI claims by severance and reduced eligibility. Consumer sentiment is at historic lows (current conditions index 50.7, lowest since 1978) even as future expectations improved, reflecting deep present unhappiness. The housing affordability crisis is central to sentiment - homeownership locks in costs and builds wealth, while renters face rising rents and feel excluded from wealth creation. Student loan delinquencies (double-digit rates) signal stress among middle-income borrowers who must prioritize other expenses. September spending data show real personal consumption expenditures flat month-over-month, up only 1% year-to-date - very soft by historical standards.

Data Points: ADP Private Payroll Change (Nov): -32,000 - Total private payrolls declined in November per ADP data. Revilio Labs Total Payroll Change (Nov): -9,000 - Overall nonfarm payrolls declined in November per Revilio. ADP Small Business Job Loss (Nov): -120,000 - Businesses with 1-49 employees lost 120,000 jobs in November alone. PCE Deflator (Sep, YoY): 2.8% - Headline PCE inflation ticked up from 2.7% in August. Core PCE Deflator (Sep, YoY): 2.7% - Core PCE ticked down from 2.9% in August. Real Consumer Spending (Sep, MoM): 0.0% - Flat month-over-month; up only ~1% year-to-date through September. Personal Income (Sep, MoM): 0.4% - Nominal income growth; real income up 0.1% MoM, 5.2% YoY nominal. Savings Rate (Sep): 4.7% - Held steady but down from >5% earlier in 2025. Univ. of Michigan Current Conditions Index: 50.7 - Lowest since survey inception in 1978, beating Great Recession lows. Natural Gas Price: $5.45 per MMBtu - Up 7.7% on the day, 25% on the month, 77% on the year, driven by weather and European demand.

Pivotal Quotes: "I do think a lot of it is... tariffs. I did mention the savings rate." — Marissa Di Natale: Responding to Mark's question about whether food price increases are tariff-related, during discussion of September PCE data. "It's a real deal. I think it's exactly what a stagflation, stagflation, people hate stagflation, and it's being manifested in the term affordability." — Mark Sandy: Summarizing the overall economic situation as stagflation-like, driven by tariffs and immigration policy. "That is the lowest it's ever been on record since 1978, since the inception of the survey in January of 1978. Lower than the Great Recession." — Marissa Di Natale: Revealing the record-low University of Michigan Current Conditions Index of 50.7.

Implications: The data suggest the economy is entering a stagflationary phase. For markets, rate cuts become more likely as recession risks rise. For policymakers, the affordability crisis is politically dangerous and likely to persist. The Fed faces pressure to cut while inflation remains above target, potentially testing independence. Small business layoffs signal a broad-based slowdown.