The Dividend Cafe - A Check-In on the Economy

Episode Date: November 21, 2025

Today's Post - https://bahnsen.co/4oSvRlk Broad Economic Overview: Key Insights on Jobs, Housing, and Consumer Spending In this edition of the Friday Dividend Cafe, David Bahnsen delves into a comprehensive analysis of macroeconomic factors, exploring the current state of the job market, housing sector, and consumer spending. David emphasizes the importance of objective and apolitical economic analysis by discussing the recent trends in job creation, a softening housing market, and consumer spending patterns. The episode also critiques the use of consumer confidence as an economic indicator and underscores the importance of production in driving economic growth. Several data points and charts are presented, providing a nuanced view of an economy that is not strongly growing but also not on the brink of collapse. 00:00 Introduction and Overview 00:20 The AI Bubble and Investment Markets 01:22 Macroeconomic Commentary 04:49 Jobs Market Analysis 12:21 Housing Market Insights 18:26 Consumer Spending and Sentiment 21:56 GDP Growth and Economic Outlook 25:03 Conclusion and Final Thoughts Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Hello and welcome to the Friday Dividend Cafe where I am back in Southern California on this beautiful Friday morning and am going to talk to you today about the economy, everything going on across various economic metrics and, it is going to be so much more exciting than it sounds. Now, speaking of exciting, we've been spending a lot of time in the Dividend Cafe lately talking about what is arguably the most important story right now in investment markets,

which is the AI bubble thesis, the problems for AI and AI adjacent investors. It was a pretty comprehensive treatment in last week's Dividon Cafe, and I don't want anyone who missed it to let that go. Go back and check that out, Dividonofafe.com. if you missed it. And obviously, that story continues to go. And the fact that a lot of these stocks have continued to erode, that could reverse, that could continue getting worse. But my bigger picture feelings on the subject and what it means to investors has been really well laid out. And I stand by the perspective that I've shared in the past several weeks. Today, we're not really

looking at AI, at the stock market, at the S&P 500, at private markets. A lot of the more particular investment themes I've been covering over the last several weeks. What we're doing today is this broad macroeconomic commentary. And that's a big part of what Gibbon Cafe exists for. There is a part of me that always struggles a little to synthesize investment markets and macroeconomics, because the two are often not the same. And there are correlations, but then there are other things that are very non-correlated, and it can be confusing. I try to make it as simple as I can and practical as I can. I have this sort of economic nerd in me at heart that is never going to go away,

and there is a desire to use Dividing Cafe to provide cogent macroeconomic commentary. And when I say cogent, that actually in this context means two different things. One is that I want it to be accurate. I wanted to be good. I wanted to be not predictively good because predicting certain economic things is borderline impossible, but I wanted to be offered up along cogent lines where there's a lot of fundamental premises that people bring to economic analysis that are wrong. And generally speaking, flawed premises lead to flawed conclusions, where I at least want

the methodology by how we go about analyzing. the economy to be cogent, to know, work hard at doing that. But then the second area has become much more significant, which is cogent economic commentary, meaning economic commentary not done for the purpose of a political point. And it is borderline impossible to do economic analysis correctly when all you're trying to do is get a talking point to either celebrate something politically or criticize something politically. This has become so systemic. It's It's not just that it leads to a lot of bad or pedestrian or inadequate economic analysis, but it's also obnoxious.

It's divisive. It is idiotic. I have other adjectives I can use, but let's leave it there. You get the idea. So when I'm doing economic check-in like I am today in the dividend cafe, it's not to say. So therefore, the conclusion is that the president is doing great in the economy or the president is doing terrible in the economy, or the last president was doing this, or what have you. It really is. First of all, it's somewhat idolatrous, but second of all, imbecilic way to think

about the economy, that everything is just simply there, depending on the strings and the wisdom of the string pulling of some command control president. There is a lot more going on in the economy than political idolatry. And so hopefully you find my analysis. today to be a political objective. There are certainly policy ramifications to things in macroeconomics. And sometimes those things can be things you want to commend, and sometimes they can be things you want to criticize. And I'm going to do that according to my own principles and worldview. But the conclusions drawn are not for the purpose of establishing a political point. It's to give us an idea about the direction of standard of living. And then as investors,

the direction of economic growth is correlated to themes in our investing and, of course, corporate profits, which ultimately drive many asset class returns. All right. So let's talk first about jobs. It's something I have talked about throughout the year, but we haven't really covered this much since August. And I think that we are in an environment where jobs are perhaps the most important, unknown variable in the economy that we have had a weird sequence this year, where we first started off where job growth was decelerating to some degree. But then job growth was assumed to be that it was going to decelerate more after the trade war. And we went through a period in the first few months of summer where it didn't appear that was the case. And that gave a lot of

additional optimism to people, but then we got to a point in the late part of the summer going in the fall where all those earlier summer numbers had to be revised. And it turned out, well, and behold, we did have a pretty terrible summer for job creation. And then we got an annualized true up, which went back into 2024. And the revisions were so massive that it didn't just call into question summer of 25 job growth, but it called into question almost all of 2024 job growth. And it really put an asterisk around where we were. Then, just as we're ready to all collectively say, we don't have any idea what the heck's going on, the shutdown comes. And we go a couple months without any real governmental data. Now, that's governmental data. We had plenty of

private sector data. And before I get into the ADP number, I'm going to put a chart up right now that shows you the correlation between BLS and ADP estimate. So for those of you watch in the video, you can see that while the ADP number, which is private payrolls, is a different metric and survey than the Bureau of Labor Statistics measuring civilian payrolls, the fact of matter is that they do have a pretty good correlation together. And then what has ADP been telling us, which was not affected by a government shutdown. Look at this next chart here, and you'll see that throughout the year, the private sector payrolls from the largest payroll company in the world

have been declining. And again, as I mentioned before, through the summer and early fall actually went negative. So the fact that the ADP numbers have weakened so much that they correlate so much of BLS, it is not a holistic set of, data, but it is very indicative of a softening and, shall we say, curious jobs market. Now, they have begun running at ADP four-week averages to give a shorter-term lay of the land.

And you see here in this chart that, again, we're looking at slightly negative private sector job creation. The latest number coming in at about negative 2,500 on the week, a four-week average of a little over 10,000, and that's negative jobs. So the governmental data is important, and here I do not merely mean the data created by the government, the official data that comes from the Bureau of Labor Statistics. I mean data that is measuring governmental jobs. And the reason I say it's important is many have said, well, wait a second. We have a lot of weak data here, But remember Doge at the beginning of the year, and they did the DRP, the Deferred Resignation Program, where the government basically said, we're going to pay you salary and benefits for eight months.

You don't have to come to work, and then at the end of the eight months, you're gone. So we're prepaying severance of eight months for you to voluntarily leave your job. And they extended that offer to two million federal workers, and 154,000, which is 6.7% of the workforce, took them up on it. But those people were shown as employed throughout the eight months. They were not shown as unemployed. They continued to receive pay and they technically were on government payrolls. Then now as we get to the end of this eight months and whether it ends up being captured in October data, which we don't have yet, or November data, which isn't done yet, is immaterial because they're not going to show them as unemployed at the end either. They're going to show them as out of the labor force.

So it would be reducing the labor participation force, but not having that impact to the unemployed, per se, because you can't be unemployed if you're not looking for a job. And that's how the distinction works between labor participation and unemployed. All year, we have about 97,000 jobs decreased in the actual government data. So that's not nothing, but it isn't huge. It is not a byproduct of the major doji. efforts being the only reason that some of the other data looks worse. We most definitely seem to have some challenges with the labor market throughout the shutdown. Private sector data got a much tighter look than it normally does. And Challenger Gray and Christmas, which is a pretty

reputable reporting firm that I've been studying for years, put out a report in October showing 153,000 job cuts in the month of October, which was the highest amount in a single month since 2008. And they're reporting over a million job cuts since the beginning of the year, which does include governmental data. About 30% of that would be related to jobs adjacent to government, like government contractors. But there is a sense which the October number, I really want to see November December because there is a sense so which the October number may be front loaded because employers are more likely to lay off in October because for understandable reasons, people really don't like laying folks off around the holidays.

So again, there's some lumpiness in this we're going to continue looking at, but regardless, the October number, even just compared to last year's October, is 175% increase of cuts. It's 183% increase from the very much. month prior in September. So I don't look at ADP, I don't look at BLS, I don't look at Challenger Gray as authoritative, but when you look at all of them together, there is not a sky's falling outlook, but there is a very cautious view of labor markets to be had. And that is really the best case. It is entirely possible things are weakening quicker and that the lack of expedited data is causing us to not see what might be actually really

happening. I don't think there's any room to conclude everything is rosy in the jobs market, and I also would not say that it is foreshadowing an inevitable recession either. Now, final comment on jobs, the BLS did report the month of September. Finally, of course, the government shutdown ended a couple of weeks ago, and we got that data on Thursday yesterday this week, and it showed 119,000 jobs created in September, which is better and expected, still well below trend. But again, at six or seven week stale at this point. And the revisions in the report for the summer were negative by another 33,000 jobs, indicating once again that the summer was far worse than anyone had expected. Moving on from the jobs picture to housing, we are again looking at a housing market

that is annualizing of about four million existing home sales. And that represents something in the range of a 22% drop from our pre-COVID average pace. The $4 million annualized now is the lowest we've seen since the financial crisis. It is basically about where it was a year ago. So you're looking at a couple of years now, a really muted, compressed activity. And then when you look at the post-COVID pace where house sale, we've averaged about $5.5 million for many, many years, 4 million right now, but it got up to 6, 6.5 million in middle of 2020 through the middle of 2022. And so we're 37% below that pace. And I can't imagine the scenario where we get back to that level. Now, the inventory of existing homes is picked up, which is good. And I also think that

really serves as a ceiling for there to be much more increase in prices, which is also very good for the affordability debacle we're dealing with. Inventory is up about 10, maybe 11%, I think the exact number was 10.9 from a year ago. The average clearing time of the inventory, the average time on market, if you will, to sell all available inventory is about 4.4 months. It's generally average somewhere a little over five months, so we're still below average, but it has picked up, and that, again, should be a reasonably healthy indicator.

Now, on the new housing front, different than existing product, Home builders, this was fascinating to me, 41% of them indicated that they cut prices last month to get products sold. It's the highest that we have seen since the pandemic. The average discount being given to get a house to sell is 6%. And by the way, there's another 65% of home builders on top of that, saying that they also are offering incentives to get a home sold, whether it is covering part of closing costs,

features around the mortgage rate, buy down of the rate, free upgrades with the home. So there's a number of things being done to help move product, and they're all on the favor of buyers right now. So you see this softening exists both with new and existing home product. The supply problem is modestly improved. It has a long, long way to go. The price level, I think, is reasonably capped. It doesn't mean we drop 20% anytime soon. I'd love to. I'd love to to see a 5-10 or 15% drop to enhance affordability and move the market and create an equilibrium between supply and demand.

And I do believe prices are headed modestly lower and I do believe that to be a good thing, not a bad thing. We have a chart here, I wanna show you, apart from the home builder sentiment being bad, what you see here is mortgage applications have started to pick up, mortgage rates are down. So for both new purchase and refinance mortgage applications, They've picked up from what's been a multiple year bottom, but they're way, way down, of course, from where they were number of years ago.

But just back to the subject at hand, housing does not matter to me in my assessor of the economy because I care so much about people being able to sell their home at a higher price than it was a few months ago or it was and they bought it a few years ago or anything like that. And I don't really don't care about it. I actually see it as counterproductive. So when we were accustomed to do over a 20, 25 year period thinking of healthy housing means prices going up an above average rate, that is not my perspective. What I do care about is the absurd price barriers to getting more people in the housing market coming down. And I think that there's primarily social, cultural, and yes, political realities around all that.

But I also believe that limited housing activity will bleed into the real economy, that there's such amount of construction, of industrial activity, renovation from appliances, furniture, title, mortgage finance. It touches other elements of the economy that are more important to me than sticker price paid and sold on one's own home. The idea that what I'm saying is bearish for housing because I want prices to come down, you have to understand. how unlikely it is of getting to a point where there's the forced selling that created a dramatic push lower of prices. I want to put a chart up here that just shows the amount of equity people have in their homes. Now, that can come down, but if you were to see a five to 15 percent drop in

housing prices, and owners right now have an aggregate $35 trillion of equity in their single-family residences. I'm sorry, people wouldn't even know that it happened. There is so much protective equity that if it dropped from 35 to 30 trillion, it would be a non-event. You're just very unlikely to see any kind of big increase of that kind of force-selling and credit implosion and race to the exits that was the hallmark of the granddaddy of them all in 2008. But understand, the national equity across all single family resident housing was just $10 trillion 15 years ago. It's not ancient history. And it's steadily picked up over those 15 years, but it's now 35 trillion, three and a half times higher than it was. So my view is that those wanting house prices to go

up at four to five times the way inflation is going up or four to five times the way wages are going up, they can keep hoping for it all they want. It is not going. going to happen. And I say that is a good thing. And the better we can do at creating new housing supply, the better we can address that affordability issue. Speaking of affordability, we'll move on to the consumer. Longtime followers in Divida Cafe know how laughable I consider it to be. That we look at consumer confidence and sentiment and say, well, that's how the economy is going to go. The 90 to 95 percent trend in these things are the consumer. when the confidence and sentiment is supposedly waning is a byproduct of how they just got done feeling about backward data and that it is very often followed by strong ongoing sales and actual activity because apparently some people like to say they feel cautious before they go ahead spending money anyways. It is immaterial to actual activity, but it also is not the driver of economic growth. It is a result of economic.

growth because as the high school economic students, I'm currently teaching can tell you, consumption follows production. And productive activity leads to consumption. One of the things productive activity does is employ people and pay them. And one of the things people need in order to spend and consume is a paycheck. And so production drives economic growth, not consumption. And this represents one of the great macroeconomic fallacies of the last hundred years, getting this chicken or egg backwards. Now, all that said, there are ample studies indicating a consumer is continuing to spend plenty, whether you're looking at core retail sales that take out gas and auto and restaurants

or total retail sales or whether you're looking at more consumer discretionary items. Deloitte runs a study there, McKinsey runs a study there, that people are spending plenty of money on discretionary items as well. Now, it is true that the most recent University of Michigan consumer confidence, survey had dropped from 53.6 to 50.3. That's a very low level. But again, I consider it to be lagging, not leading indicator. And I do not believe that what one says about how they feel is ever correlated to how they spend their money. What I would suggest is that our bigger question is going to be how capital investment, capital expenditures are playing out. So we get an idea

on the productive side of the economy, which is the ultimate driver to greater consumption. And yet, much like I said about housing, I do think there is a social, cultural, and yes, political ramification in the consumer too, because the lower wage and middle class wage earners in a very different situation here than the higher earner who, if people are being honest, when we talk about the price of coffee and bananas and automobile feel, don't even know. The top two or three deciles of wage earners don't even know what these things cost and what they're spending because it's such an absolutely immaterial part of their wallet share. And yet, of course, that is not true as you go downscale in terms of income level.

And so you do get a greater coming apart, a greater divide when price impact or the portion of your disposable income you're spending on housing or rent is going higher, leaving U.S. money for quality of life issues like restaurants and entertainment and clothing and things like that. I don't think the aggregate data on this is an impediment to economic growth, marginally. I think it is a societal concern that people ought to be paying attention to.

So where this leaves us all is to total GDP growth. And when all said and done, you had a lot of lumpiness this year, quarter by quarter, because of front running of tariffs. So you had a quarter where the way in which exports minus imports is measured into one of the key ingredients, it would be a big detractor from GDP and then the next quarter be a big addition to GDP growth. But when you strike out all that quarter over quarter lumpiness, we're going to end up

getting somewhere between 1.8 and 2.1 percent real GDP growth, net of inflation for the full calendar year. I would be favoring, I would be predicting that number is going to be on the lower end, 1.8, 1.9. Either way, it is essentially 40 percent. lower than pre-financial crisis trend line. And it is essentially exactly, exactly in line with post-financial crisis trend. The economy is not above the last 15 years of trend and is not below it. And there is going to be some movement, I think, in 2026, one way or the other around this is we get a better feel for the impact of tariffs, AI, you know, capital, expenditures, the productive side of the economy, capital flows, they are just simply not going to be

measured in the 2025 data. There's a chart here you can see of the consensus forecast for GDP, and I'm going to focus on the U.S. side, which is the one that is higher up, where you see here that GDP expectations, economic growth really went higher after President Trump was elected. And then they collapsed like a lead balloon after the Liberation Day and the terrorists were announced. And they've steadily begun to move back higher, but not to where they had gone, but right back in that middle ground of around 1.8, 1.9 percent expectation. So net of inflation, 1.8, 1.9. Right now, inflation sitting there between 2.2, 2.6. lo and behold, what is the 10-year right there at around 4.2%.

So nominal GDP growth, which is inflation plus real GDP, in line with the 10-year, and you basically end up in conclusion with an economy that right now, as we come near the end of 2025, is not collapsing, it is not strong, it has some upside possibilities embedded in it. Will we get greater foreign capital flows from some of these trade deals? Will there be greater capital infusion and economic investment? It has some downside possibilities very clearly embedded in it. Tariff impact, dragging growth down, this dull housing activity, bleeding into the economy. The job market is not great, but it isn't terrible yet.

GDP growth is not great, but it isn't terrible yet. And I don't think I said anything political there whatsoever, nor do I think I'm saying anything hyper-profound. We're calling balls and strikes, and this actually, this sort of muddle through to an old expression for my friend John Malden, this muddle-through environment is a good way to describe things because that's what we're seeing. I hope this is helpful. A lot of charts there at dividend cafe.com. Please share Divencafe far and wide. If you would like anyone else reading this analysis, you're more than welcome to send it out. Rate us. Give us a thumbs up on the video. Rate us on the podcast, all that kind of stuff.

I always forget. I'm supposed to say that each week, but there you go. I just remembered. In the meantime, have a very wonderful weekend. I will be with you in the Dividing Cafe on Monday, and we will do a Thanksgiving edition Dividing Cafe as we do every year on Wednesday. There won't be one next Friday. We'll do it a couple of days early so we don't clutter your inboxes over the holiday weekend. Looking forward to a great Thanksgiving week next week. In the meantime, have a good weekend. And USC beat the ducks. Take care. The Bonson Group is a group of investment professionals registered with High Tower Securities LLC, member FINRA and SIPC with Hightower Advisors, LLC, a registered investment advisor with the SEC.

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