How is San Diego's economy doing this holiday season?

S1: Welcome in San Diego , it's Jade Hindman. On today's show , stress from holiday spending is up. So is the cost of living. We'll have a check on our local economy with economist Daniel in a mark. This is KPBS Midday Edition. Connecting our communities through conversation. The holiday season means extra spending on gifts and travel. It also means extra financial stress. As we head into the new year , we're checking in on the state of San Diego's economy , from the unemployment picture to health care. So joining me live , as he often does , is Daniel and Mark. He is the chief economist at the Policy and Innovation Center. Daniel , hi.

S2: Good to see you.

S1: It's going good. Well , I got to jump into this because in very recent news today , the Federal Reserve cut interest rates a quarter of a percent. This is the third cut. So it was a it was a very divided decision also. Why is that. Yeah.

S2: Yeah. This this one wasn't a surprise. We this is exactly what we expected to happen. But , uh , you're right that there's a lot of divided opinion on this. And the reason for that is that the fed really has one lever that they can pull to try to guide our economy , and that is the interest rate. And if they increase the interest rate then that is likely to bring down inflation. But it's also likely to drive up unemployment. If they decrease the interest rate like they did today , that's likely to spur greater employment , but it's also likely to endanger greater levels of inflation. So we have this seesaw , right ? And they're trying to keep that seesaw in balance. But the problem is that when there are both upward pressures on inflation and upward pressures on unemployment , you know , there's no optimal way for the fed to respond. That tool really only helps them balance between these two risks. It's called the dual mandate of the Federal Reserve , which is to keep price stability and full employment. This is a difficult environment because we have some long standing weakness in the in the labor market that actually predates this current administration. But on top of that , we have an extra burden of tariffs. And and the one big beautiful bill , which is , um , you know , we have some fiscal policy that's problematic for our economy. So they're in a bind. It's a tough situation. And to make matters worse , they don't have recent data because the government shutdown precluded the Bureau of Labor Statistics from collecting this typical data. They would be able to provide on the level of employment , the level of inflation , etc..

S1: My gosh , so the economy is so out of whack , we've got to pick our poison. That's right. Every few. Months.

S2: Months. That's the perfect way to put it.

S1: All right. So well what do these interest rate cuts mean to San Diegans ? And , you know , like , maybe for our housing market ? Yeah.

S2: Um , so one thing to , to note is that that , uh , the , the fed sets what's something called the federal funds rate , which is kind of a base level of the interest rate , um , that gets added on to. So , for example , if you are looking for a mortgage , you know , you're not going to get the federal funds rate at 3.6%. That'd be freaking fantastic. But that's not going to happen. Um , so the mortgage rates are shaped by what people's expectations are of inflation and interest rates over the next 30 years. If you're looking at a 30 year fixed mortgage , right. So that's that's going to be impacted today for sure , but it's not going to be massively impacted. Uh , the lower interest rate is is good for hiring. So that that it makes it easier for businesses to borrow money to be able to pay workers. And so that's good news for workers. It's also probably already baked into people's expectations of the stock market , but it has been contributing to the rally in the stock market , which is good for the top 10% of US families by wealth that have 85% of all US securities. Um , so , uh , I guess way to go , rich folks.

S1: Yeah. Well , also , like many days , the conversation this morning was about the president's take on our economy. He says affordability is a hoax. The economy is doing great , but if it's bad , it's Biden's fault.

S2: I think for a long time , um , everyday Americans have seen that there are flaws in our economy. And and some of those flaws do predate this administration , in fact. You know , there's this whole question of the vibe session , which was like the vibe was that we're having a recession even though we weren't having a recession. Well , you know , some of the updated data , um , as we've gotten , you know , the Bureau of Labor Statistics does a fantastic job of giving us the best available estimate of employment , but they have to wait for all the data to come in to revise those numbers , to figure out what really it was. And and in May , we had one of the biggest revisions downward ever. And so what we've seen is that the the economy in the last year of the Biden administration was not quite as hot as we thought it was. And , and , and it continues to the labor market continues to worsen through the , the , the Trump administration. So , um , you know , we're not we're not in as good of a spot as we were , you know , a year ago or two years ago , um , or right before the , the pandemic. But , you know , unemployment is still reasonably you know , it. We're not at French levels of unemployment yet. Okay.

S1: Okay. Well , um , how does that picture look locally ? Yeah.

S2: Um.

S1: Specifically unemployment.

S2: That's a great question. So , uh , we don't know for sure what the unemployment rate is right now locally. And we , we don't know because the government shutdown means that we haven't had data since September. Um , we'll have a new US release. Uh , next week we'll have new local data , probably on the 18th or something like that. Um , so right now we're flying blind , but , um , based on available data , both us national data that that that hasn't yet made its way into local data and based on private data about payroll. Um , it's not a very pretty picture. So , um. Uh , San Diego's unemployment rate is , um , you know , probably , you know , in the mid 40s percent , um , which is , you know , not not terrible , but , um , but it's , uh , it's it's higher than we'd like to see , but we're probably between 4.5 and 4.9%. Would be my estimate. Hmm.

S1: Hmm. Well , that in mind. And like we mentioned a little earlier , it is the the holiday shopping season. It's in full swing.

S2: But but the headline for the US data is seems pretty positive. You look at it and you say 203 million people shopped over the weekend , over Black Friday weekend and they spent $44 billion , which is an 8% increase over last year. It's a record. So you think , wow , that's great. When you go a little deeper , you see these problems start to emerge. So , um , Gallup conducted a poll in advance of of the holiday season asking people how much they intended to spend. And what they found was that people making over $100,000 plan to spend three times as much as people who are making under 50. So there's a there's kind of a K shape here where where we're moving. Some people are moving downward and some people are moving upward , um , where a lot of that consumer spending is being driven by high income individuals. And what the the Boston Federal Reserve Bank found , the economists there when they looked at credit card data , was that consumer spending is increasingly in America being driven by high income individuals and , uh , consumer debt , and particularly credit card debt is rising among low income individuals. There's two facts that don't that are not happy facts for the US economy. So the headline looks good. But if you dig a little deeper , you see there are people a lot of people in America are really struggling , um.

S1: You know , people in that struggle. Fall into the buy now , pay later offerings. Talk a bit about that. You know , the overall the overall state of household debt in our region and how those scams may or may not be the way to go. Yeah , I won't say scams , but offerings.

S2: Yeah , I through an affiliation with MIT , I used to have access to credit card data that I could look through , and last time I looked , 25% of San Diegans had a debt that was in default. So , uh , 90 days or more late. Um , basically , you know , being at the stage of some , some , you know , collection agency coming to you and saying , you know , the game's up , you know , pay up now. So , so that's disturbing. A quarter of San Diegans have debt in collections. You know , that's not a sign of a healthy economy. It's not a sign of spending that's in balance. As an economist , I really believe in debt spending. I think the guys like Dave Ramsey who say never take any debt. I think that's foolishness. You live a long life and you're going to have peak earnings in the middle of your career. Your younger self and your older self are going to borrow money from that rich middle self. And that's that's something economists call consumption smoothing. And it's a good thing to do. And if you're , you know , a young person who's making less money. Yeah. You know what. As long as you're doing it responsibly , I wouldn't say take out credit card debt , but if you can take out a student loan or , you know , borrow money to , to buy a home or whatever , you know , yes , totally reasonable , borrow money to buy a car as long as it is a low rate , that's fine. But but when you borrow money that you can't afford to pay back on the schedule you set for yourself and your dick goes to. Collections. That's a problem.

S1: I want to pivot to health care costs , which are expected to skyrocket because of expiring ACA subsidies. It's something Congress hasn't been able to negotiate a solution for. Can San Diegans afford the expected hike in insurance costs ? Yeah.

S2: Many can't. Many of our neighbors cannot afford that. And and by the way , you know , health care costs are a huge problem for all San Diegans. It's masked for many of us who get insurance through our employer because we don't see that number. But our incomes would be higher if our employers didn't have to pay for that health care insurance. And the health care insurance is rising at a disturbing rate. So it's a problem for everybody. But it especially hits people who were relying on those subsidies. Of course , that is the reason that the government shutdown is that the the Democrats in the Senate , although they didn't have enough votes to control the agenda , they did have enough votes to say , we will filibuster here. We'll stop this agenda for moving forward if you don't give us what we want , which is an extension of those of those , um , subsidies for people on Obamacare. Um , unfortunately , they , you know , or what ? I don't mean to comment on politics here , but like that , that didn't pan out. So now , um , we have the problem of this massive government shutdown and what it's done to our economy. Plus no progress on on subsidies for health care. It's going to be a real struggle for a lot of our neighbors. Um , yeah.

S1:

S2: And in reporting on jobs data and inflation data. And to , you know , the Bureau of Labor Statistics is back at work , and they're truly a marvel of of an institution. And they're going to be giving us some high quality data quality data soon. Um , I release an analysis every time the state releases local numbers , um , through the Policy and Innovation Center where I work. Um , so , you know , as soon as the state comes out with local data , which we expect to happen later this month , you know , we'll be sharing that out. Um , I , I look forward to finding out how how things are going. And , and I also hope that we are at a high watermark for these tariffs where , uh , what we'll see is an increase push by employers to , to get exemptions from tariffs and to limit them. And so , you know , if that happens that's good for the economy.

S1: All right. Well something we'll keep track of. Happy holidays to you. I've been speaking with Daniel and Amar , chief economist at the Policy and Innovation Center. Daniel , as always , thank you.

S2: Good to see you , Jane.

S1: That's our show for today.

S3: I'm your host , Jade Hindman. Thanks for tuning in to Midday Edition. Be sure to have a great day on purpose , everyone.