Morning Brew Daily - Government Shutdown = Mass Layoffs? & Quantum Trading is Here

Episode Date: September 26, 2025

Episode 679: Neal and Toby discuss the potential government shutdown and the impact it’ll have on the economy. Then, Starbucks announces its closing 1% of its stores as part of its turnaround plan. Also, CarMax shares plunge as its latest earnings report warns nobody is buying used cars. Meanwhile, IBM just helped HSBC with the world’s first quantum-powered financial trades. What. Plus, a breakdown of plastic surgery across the country by region. Finally, Amazon settles with the FTC for $2.5B over its ‘deceptive’ Prime program.  00:00 - Bill Nye inducted into Hollywood Walk of Fame 2:55 - Government shutdown looms 7:15 - Starbucks closes its stores 10:30 - Dog of the Week: CarMax 16:10 - Stock of the Week IBM 19:40 - Sprint Finish! You can try reMarkable Paper Pro Move for 100 days for free. If it’s not what you’re looking for, get your money back. Get your paper tablet at https://www.remarkable.com today Get your MBD live show tickets here! https://www.tinyurl.com/MBD-HOLIDAY  Vote for MBD in the Signal Awards! http://bit.ly/3W4e5ik  Subscribe to Morning Brew Daily for more of the news you need to start your day. Share the show with a friend, and leave us a review on your favorite podcast app. Listen to Morning Brew Daily Here:⁠ ⁠⁠https://www.swap.fm/l/mbd-note⁠⁠⁠  Watch Morning Brew Daily Here:⁠ ⁠⁠https://www.youtube.com/@MorningBrewDailyShow⁠ Learn more about your ad choices. Visit megaphone.fm/adchoices

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pwc.com slash US slash brew AI. That's PWC. dot com slash us slash brew a i good morning brew daily show i'm neal frederiman and i'm toby howell today starbucks is closing stores and cutting staff as its turnaround fails to impress then the white house is threatening mass layoffs if the government shuts down next week it's friday september 26th let's ride good morning and happy friday if you go to hollywood and look at the stars on the walk of fame you'll see a new one that was added just this week william nigh a.k.a. Bill Nye, the science guy.

The beloved educator was honored with a star on the Walk of Fame on Monday for helping kids realize that learning science could be fun. A former Boeing engineer and comedian, Nye says that, quote, almost all of my work is the celebration of the P, B, and J, the passion, beauty,

and joy of science. Now mostly retired from TV work, Nye heads up the Planetary Society, where he advocates for space science and exploration. Toby, I don't think anyone's ever rocked a bow tie harder. Bill Nye has just a permanent place in all of our childhoods, but one of my favorite Bill Nye's stories is how he actually got the name, Bill Nye, the Science Guy. As you mentioned, he did perform stand-up in the Seattle area who's part of this sketch comedy group called Almost Live.

It was there that he earned the nickname because he corrected the host mispronunciation of Gigawatt, and the host said, who do you think you are, Bill Nye, the science guy, and thus the name stuck. But yes, hard to think of a figure more beloved or had a bigger impact on all of it. of our childhoods and our love of science. And now a word from our sponsor, Remarkable. Neil, do you ever feel like your meetings are missing something? Snacks and hard stops. Sure, but I was more thinking about human connection.

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turns at AKA.m.m.S. College PC. As the government careens towards a potential shutdown on October 1st due to a lack of funding, the Office of Management and Budget, aka the ones behind Doge, had an interesting message for the federal leaders. If there is a shutdown, start thinking about your reduction in force plans. In other words, mass firings could be ahead. The memo specifically called out programs not directly addressed by legislation passed by the current administration or not aligned with the Trump's priorities as targets for permanent cuts. Now, there is an off-ramp to this further dojification of the federal workforce.

If a bipartisan funding agreement can be reached before next Wednesday, its unlikely mass layoffs would occur. Historically, shutdowns have led to temporary downsizing, but often in the form of short-term furloughs, not direct firings. But now the pressure is turned up to 11 to get a deal done, which was likely part of the motivation behind the memo in the first place. Democrats have pushed back on the threat with Senate Minority Leader Chuck Schumer, telling reporters the plan was an attempt to,

at intimidation and question whether any firings would hold up in court. But still, the threat will hangover negotiations in the lead up to Wednesday. So, Neil, there's two parts of this story. One, how likely is it that we reach a government shutdown and these layoffs occur? And two, what ripple effects would those layoffs have on the economy? Let's start with the negotiations for the shutdown and get to the ripple effects in a bit. So, yeah, the Republicans have the majority in the Senate and the House. And they do need a little bit of Democrat support in order to pass a short-term funding bill in order to fund the federal government past the end of the fiscal year, which ends September 31st.

Democrats are digging in. They really want to extend subsidies for people on Obamacare and reverse those heavy cuts to Medicaid hundreds, hundreds of billions of dollars worth under the one big, beautiful bill, the GOP's tax and immigration bill. and they're dug in, and they don't have any meetings on the calendar with Republicans in order to perhaps advance a funding bill past October 1st. So, you know, the chances of a government shutdown, I haven't really looked at Bollymarket, but they look pretty high. And now the White House has really escalated things beyond what normal shutdown politics looks like with this threat to mass fire workers in the federal government.

And what do normal shutdowns look like? Usually 60% of essential workers keep working without pay with a promise that they'll get payback at a later date and then 40% are furloughed and then return with back pay. So if we move from temporary furloughs to full on permanent layoffs, you change the entire fiscal math around a government shutdown because instead of getting maybe a hiccup in GDP, for instance, you will get this sustained drag on it because there's less consumer spending because layoff workers have no money. So it just starts to ripple down through the economy as well. And I'll tell you one thing, markets do not like political brinksmanship or whatever you want to call this. They don't want

to inject uncertainty into this, into consumer spending, into regulations, to all these things. And so by kind of pushing it to the edge and threatening to basically affect a large portion of the federal workforce, a lot of markets get a little uncomfortable with that. If you're looking for how a government shutdown affects the economy, there is a general rule for every week that federal operations are shuttered. About one-tenth of a percentage point from the nation's total economic output that quarter goes down. We had this back in the first term of President Trump in 2018. We had the longest shutdown in history. That was 35 days, about five weeks. According to Wells Fargo, that shaved off 0.1 percentage points from the U.S.

GDP in the final quarter of 2018. And then another 0.3 percentage points in the first quarter of the following year. Generally, because these things are temporary and honestly last only a few days at a time. You see economic output or economic spending just completely bounced back. So there's really no negligible impact on the economy over the long term because people who are furloughed get their paychecks and then they spend what they would have spent had they got their paychecks at a normal time. This changes the math entirely. As you're seeing, it's very intense. Bricksmanship we're seeing from the Republican side. We'll see what the Democrats have to respond with. And I don't think this will be the last time we talk about it because as we draw closer to that

Wednesday, October 1st deadline. This is going to just get even more pressure filled. Moving on, Starbucks is taking its store footprint from Aventi to a Grande, announcing yesterday that it's closing 1% of its North American stores around 400 cafes. On top of that, it is cutting 900 corporate jobs following up on the 1,000 or so people laid off earlier this year. New CEO, Brian Nichols, says the closers are focused on underperforming stores as he shifts from more cosmetic changes like tweaks to employ uniforms and adding surveillance.

mugs to more structural cuts. In total, the company expects restructuring to cost about $1 billion. But Starbucks is huge, which means that many investors not only welcome the changes but think that they need to be even bigger given Starbucks's sprawling 41,000 global locations. Everyone agrees change is definitely needed. Starbucks has posted six straight quarters of negative same store sales growth. In the meantime, the vision for its new leader, Nickel, on the job for a year now, is crystallizing. And the message to employees Thursday, Nicol said that stores that got the acts were either unable to create the physical environment our customers and partners expect or where we don't see a path to financial performance.

That nickel has been hiring baristas left and right while cutting corporate staff, shows where his priorities lie, recreating that coffee house experience of old. Still, Neil, while investors like seeing changes being made, some are getting a little antsy of their costs and the timeline at this point. Yeah, Belius research analyst Jacob Aiken Phillips, said the turnaround still has a long way to go after this announcement and the changes being made still don't address that their prices have just gotten way too high. Many of the shops that

Starbucks is closing are mobile-only stores where you pick up and grab your coffee. And this jives with Nichols' grander strategy of turning Starbucks back into the third place where you go and hang out. He's added more comfortable seating and electrical outlets, which we know are key to places where you want to study. They already have free Wi-Fi. So, So the fact that they're closing these small pickup-only stores further advances this really bold strategy that flies in a face of what we're seeing with trends in beverage and food more generally, which is that people care more about value and speed than kind of hanging out. So it's kind of an ambitious zig where others are zagging.

It's also a lot of pressure on baristas because he has been staffing up as he gets rid of corporate staff. He's hiring more and more baristas to try to make it a better experience for customers. but that in turn is putting a lot of pressure on these baristas because some of, even though the menu has gotten smaller, some of the drinks have gotten more complex and they're trying to get drinks out to people more quickly. Also, there's been this pushback on uniform policies. You have to wear a black t-shirt to work now, which has sparked some lawsuits actually from baristas saying, I wish I could wear whatever I wanted to wear. So it is this tension because you want to make these consumer-facing changes, but the very people who need to carry those out are kind of pushing back

against a lot of your changes. Yeah, and Starbucks stock is down 8% this year. Let's just say it right now is turnaround is not going according to plan. Investors are getting antsy. They think that these particular cuts and changes that were announced yesterday just don't go far enough. Okay, let's head to Stock of the Week, Dog of the Week, the Friday segment where Toby and I pick one stock that knows all the words to a milly and another that can't even

get through the first verse. Toby, you won the pre-show game of Catan, but elected to receive. So I'm going first with Dog of the Week, which is CarMax, whose stock tumbled 20% yesterday to become the worst performer in the S&P 500. It adds to a growing number of problems in the auto sector that suggests a slowing economy and a strapped consumer. Last quarter, CarMax was more like Carmin. The biggest seller of used cars in the country said its sales and profit plunged from a year before in what its CEO called a challenging period. Analysts were stunned. One at the investment firm Stevens called it a bit shocking and said he was still trying to make sense of the results.

CarMax tried to help with a few explanations of its own. One, it said that customers had pulled forward their demand for cars to the beginning of the year in order to lock in one before tariffs hit. That artificially boosted sales in the spring while deflating them in the summer and fall. It also cited depreciation of its fleet and angsty consumers who seemed to be sitting on the sidelines. And if it was just CarMax, maybe analysts would brush this up. off, but the auto industry's entire dashboard is lit up with warning alerts. A subprime auto lender collapsed a few weeks ago. Profits are getting thinner from tariffs, and the push to electrify has been far more

challenging than expected. Toby, I don't think the smoothest used car salesman could have talked someone into buying car max stock yesterday. We've talked a lot about this idea of demand getting pulled forward, that when these tariffs were starting to filter through the economy, a lot of people started panic buying and loading up on stuff. But I think this is the clearest example of this happening that we've spoke about. about so far because actually CarMax enjoyed a 42% increase in earnings in the prior quarter

that ended in May. That came from all the people going, I see these tariffs coming. Like, let's just go car shopping right now. So it is suffering from its own prior success. That being said, Cox Automotive, who is kind of this industry analysts, said that they upped their full year projection for new vehicle sales in the U.S. So it is an interesting thing where some people are still bullish that people are going to keep spending. We have seen relatively strong consumer spending data come out recently. So really rough quarter, but we'll see if maybe it was just a blip because all that demand was pulled forward or it's going to be a more continuous thing. Yeah, new vehicles are selling like Hawkecks actually. They're up 4% so far this

year. But what analysts are reading into this CarMax result and other news from around the auto industry is that consumers at the lower end of the income spectrum are strapped and are pulling back. And you see that in a few examples here. So I mentioned this subprime auto lender and car dealer owner, which is called Tricolor. It absolutely collapsed spectacularly a few weeks ago. And analysts view subprime auto loans as a leading economic indicator because people on the lower end of the income spectrum will do anything to repay their auto loans. But delinquencies rose in August to 9.3%, which is near the 10% mark that has only been hit only three times since the 2008 financial. There's also this auto supplier named First Brands, which sells oil filters and windshield wipers.

That is creating towards bankruptcy protection. Ford now is offering lower interest rates to buyers with the weakest acceptable credit histories. It's trying to sell these F-150s that aren't going anywhere off the lot. So there are a bunch of signs that the auto industry is struggling, and a lot of that points to consumers at the lower end of the income spectrum, just pulling back. Thank God, we live in New York City and don't have to buy a car anytime soon. All right, let's take a quick break and come back with our stock the week. Today we helped a... Latte for Sam.

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increase efficiency in a large-scale bond trading test. The test used historical European bond data and found that the computer was able to make a 34% improvement in predicting whether a bond would trade at a quoted price. While that doesn't sound all that impressive, oftentimes high-volume bond markets are searching for just a 1% improvement in efficiency, which means a 34% edge could reshape the whole industry. HSBC's head of quantum technologies called it a potential Sputnik moment for quantum, because it's the first time someone has been able to prove that quantum gives an advantage using real trades at scale.

The demonstration led to a 5% boost in IBM stock, which is quietly up more than 27% so far this year. You know, oftentimes quantum is talked about like the Lochness monster, a supposedly fantastical thing, but most people will only believe it when they see it. This quantum power trade might be the first sighting of a practical use case for a technology that many still think is a long way off from real word applications. There's been a lot of quantum momentum this year. Remember earlier this year, Alphabet's Google revealed that its quantum processor named Willow solved a problem in five minutes that the world's most powerful supercomputers wouldn't have been able to solve if they

started working when the universe began 13 billion years ago and then, J.P. Morgan also announced in March that it generated and certified truly random numbers using a quantum computer. And J.P. Morgan is one of many finance firms, including HSBC, that are really locked in on quantum because if you can solve complex problems faster, which is the promise of quantum, then you get a little bit of an edge over your competitors and finance that little bit, that 100th of a percentage point makes all the difference from hundreds of millions of dollars into hundreds of billions of dollars. That is the funny part is that on the one hand you have all this R&D coming from big tech, IBM, Microsoft, Alphabet, they're all betting billions of dollars on quantum. And then on the other side of the spectrum, you have the finance institutions that really want quantum to work as well. So there is a lot of energy and money behind quantum right now. And if you look at some of the more pure play quantum stocks as well, IonQ, D-Wave, Rgetti,

Cubit, they all added $23 billion in market cap last month. That nearly doubled the entire industry as a whole. which is ironic because none of these are making money. And a lot of them actually say in their guidance that we don't even expect to have a usable product for a few years now. Some are saying 2030 and yet there is all this momentum behind it. Also, the Trump administration is putting some thrust behind it. They made quantum an R&D priority. They're calling out for more people to work on the commercialization of it.

So a lot of tailwinds, but the headwind is just that is this thing going to work? Is it actually going to have some application in the real world? world. HSBC says, we think we just found one. And shout out to IBM, too. I mean, let's go back to that because that was your actual stock of the week. They built their first quantum computer in the year 2000 and are only seeing maybe real world dividends here in 2025. They played the long game with this. And as they've been playing the log game over there, you know, over a century in existence, but it's really had an amazing comeback for Big Blue, which was thought to be this old legacy tech company, kind of like Oracle that are seeing new life thanks to new technologies. Okay, let's

sprint to the finish with some final headlines. Hope you're not planning to redo your kitchen anytime soon because tariffs are coming to cabinets and other furniture. Last night, President Trump announced major new tariffs on household goods, including 50% on kitchen cabinets, bathroom vanities and associated products, plus a 30% tariff on upholstered furniture accusing countries like China and Vietnam of flooding the market with cheap products and harming American manufacturers. And that's not all. Trump also slapped a 25% tariff on heavy Trump. coming into the U.S. and a 100% tariff on branded or patented pharmaceutical products unless the company is currently building a plant in the United States. These new tariffs are set to

begin next Wednesday. Yeah, this is part of the push to roll out some of the Section 232 tariffs, which are a little bit more legally durable. They allow action on national security grounds without Congress's approval. And so that is why something like pharmaceuticals is getting a 100% tariff because Trump thinks that this is a national security concern that we need to make more of our drugs in the country. And you have seen European drug makers already start to fall in morning at trading. Novo Nordisk is down because they are, you know, still manufacture a big part of their blockbuster, OZempic drug outside of the U.S., which is ironic, though, because all of these pharmaceutical companies were scrambling in the early parts of the administration to say, hey, we are

building in the United States. We are breaking ground on these million-foot facilities. inside the U.S., but still they're being hit with these tariffs as, you know, Trump says, we need to be doing more to bring. But we don't know if they're going to be head. I mean, if they're building a plan in the United States or they already have, which all of these drug makers have, Eli, I mean, Eli Lilley's an American company, Astros, GSC, they have announced collectively $350 billion by the end of this decade on manufacturing in the United States. And then let's talk about furniture, too, because this thing's going to get more extensive and

it's already getting more expensive. Furniture last month, this was according to the CPC. report cost 4.7% more than in August 2024 living room and dining room furniture specifically has gone a lot more expensive. It's up 9.5% over the past 12 months. And we're now seeing sector-specific tariffs hit these particular sectors that go into your household and making your house look good. So if in the past few months, we've been looking at furniture specifically to see how tariffs had impacted inflation. And now we're getting specifically tariffs on on furniture, so we should see, I mean, economists would say we should see prices rise if there

is a tariff. So we're not having that dinner party at your house. You didn't buy an extra chair? Come on. Moving on. If you're on the jury for the Amazon FTC trial, tough luck, you have to go back to work tomorrow. Yesterday, just days after the trial began, Amazon agreed to a $2.5 billion settlement with a regulatory agency that accused the company of duping millions of people into signing up for a prime membership account and making it difficult for them to cancel when they tried to get out. The settlement is historic, one of the largest in FTC history, and we'll see Amazon pay $1 billion in penalties and $1.5 billion to customers capped at $51 each to anyone who qualifies. To be eligible, you had to have signed up for a U.S. Prime subscription between June

23rd, 2019, and June 23rd of this year, or you could have tried and failed to cancel a prime subscription or mistakenly signed up for one over that time period. Amazon is 30 days to notify eligible customers who can apply for refund. A big part of this trial was the so-called dark patterns that Amazon was using to trap users or make them do a certain action. One thing that was called out as an example is that if you want to enroll a user in Prime, they had this big button that said get free same-day delivery. And then if you wanted to avoid Prime, the only option was a tiny text link that said,

no thanks, I do not want free delivery. So it's just these things that Amazon called industry's standard practices, but the FDC says this is actively harming consumers. And the response to this settlement has been kind of twofold. One people said that finally they're actually paying out this money to consumers and they're celebrating it as a win for consumers. But then Lena Khan, who actually started this big brigade against big tech, said that this is just a drop in the bucket for a company called Amazon. Amazon makes the most money of any company on planet Earth. So $2.5 billion is not necessarily something that was going to impact Amazon.

on more akin to a slap on the wrist. So yes, a settlement is occurring. Some people thinks it should have been bigger or it should have forced more legal action. Finally, for something completely different to close out the week, let's talk about the geography of plastic surgery. If you want to hear Toby and I say the word Brazilian buttlift, you've come to the right place.

The Wall Street Journal analyzed data from the American Society of Plastic Surgeons to show how preferences for cosmetic surgery vary widely across regions, painting a mosaic of bionic bodies. Here are the takeaways. This may not be so surprising, but people in Florida prize curviness. 50% of all butt agmentation performed by ASPS surgeons were done in the Southeast region in 2024.

As one surgeon explained, in Florida, they want high-end results and they don't care if someone goes, oh my God, you got a facelift. Meanwhile, in the more Puritan Northeast, they're looking for less curvy body shapes, and the Brazilian buttlift is far less popular there. For one surgeon in New Jersey, he sees a lot of patients who want them to make them look younger, but not in an unnatural way.

When it comes to breast augmentation, go west. 37% were recorded in the Pacific and mountain states like California and Utah, with those in Southern California opting for bigger implants. And even within the L.A. area, there is wide variation. Down in Orange County, south of L.A., plastic surgeons told the journal that patients want implants that are 400 or 500 cubic centimeters compared to Los Angeles patients who generally want 200 to 300 cc's model that one for me. But none of these procedures compared to liposuction, which was the top request last year, Ozempic, be darned. Toby, what made you perk up from this report? I think the fact that not all beauty trends are uniform across region of the United States. It sounds very simple on the service, but they reflect culture, they reflect lifestyle,

they reflect the different beauty ideals in each region of the country. Overall, though, maybe the thing that the plastic surgeons were pointing to was that fitness and wellness is in right now. And so that means that they're looking for sleeker and trimmer looks in general. That's probably like the broad trend as a whole outside of Florida. Florida is just completely in its own world. And a lot of surgeons said that the trickle-down effects of OZempic and these weight loss drugs becoming more popular are meaning that a lot of it is post-weight loss maintenance

where you want to like skin tightening or trying to get a more trimmer look if you've lost a lot of weight. So fascinating how these things evolve over time, evolve when new medicines are introduced, and certainly evolve in different regions of the country. And then one thing that stood out to me was also this one plastic surgeon who has a clinic in Palm Beach said that after Trump's election in 2024, the number of patients coming into his clinic absolutely exploded. So politics affects it too. Yeah, I guess more people are coming to Mar-a-Lago and they want to look good. I guess when people are coming in. All right, that is all the time we have. thanks so much for starting your morning with us.

Have a wonderful Friday and an even better weekend. Toby, it says here you have a big announcement. Yeah, we got some pretty sweet news to share. Morning Brew Daily has been nominated for three Signal Awards, which are kind of like the Oscars of podcasting. We're nominated for Best Business Podcasts, Best Commute Podcasts, and Best Daily Podcasts. But unlike the Oscars, fans can actually vote.

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is our president and our shows of production of Morning Brew. Great show today, Neil. I wish you all well. Yamava Resort and Casino at San Manuel is California's number one entertainment destination for today's superstars. Catch the Jonas Brothers return to the Yamava Theater stage on April 30th, the powerful vocals of Demi Lovato

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