Marketplace Podcast Episode Summary: "Shrinking Spread"

Release Date: December 17, 2024
Host: Kai Ryssdal
Podcast Description:
Every weekday, host Kai Ryssdal helps you make sense of the day’s business and economic news — no econ degree or finance background required. “Marketplace” takes you beyond the numbers, bringing you context. Our team of reporters all over the world speak with CEOs, policymakers, and regular people just trying to get by.

1. Bond Yields and Market Optimism

The episode begins with a discussion on the recent trends in bond yields and what they signify for the economy.

• Justin Ho explains the concept of bond spreads, detailing the difference between government and corporate bond yields. For example, a 10-year government bond yielding 4% compared to a corporate bond at 5% results in a **1% credit spread (00:01:30).

• Guy Labas, Chief Fixed Income Strategist at Janney Montgomery Scott, points out that corporate bonds typically offer higher yields due to their increased risk compared to government bonds (00:01:50).

• Winnie Caesar, Global Head of Strategy at Credit Sites, adds that narrowing spreads indicate investor optimism about corporate profits, especially with expectations tied to the new Trump administration potentially boosting profits through a looser regulatory environment and extended corporate tax breaks (00:02:35).

• Justin Ho summarizes, stating that the narrowing spread suggests investors are optimistic about the economy's trajectory (00:03:01).

2. Struggles in the Retail Sector

The conversation shifts to the retail industry's challenges, highlighting a surge in store closures.

• Kyle Ryssdal notes that 49 retailers have filed for bankruptcy this year, nearly double last year's number, with over 7,000 brick-and-mortar stores closing despite continuous consumer spending (00:03:11).

• David Swartz, Senior Equity Analyst at Morningstar, discusses how giants like Walgreens, CVS, and Rite Aid are closing stores due to excessive retail space and the rise of online shopping, compounded by inflation (00:04:20).

• John Mercer from Coresight adds that retailers dealing in big-ticket items like furniture and home improvement are particularly affected (00:04:45).

• The episode delves into the aftermath of the pandemic, where temporary real estate accommodations helped many retailers survive, but their withdrawal has led to increased bankruptcies (00:05:10).

3. Decline of American Manufacturing

A significant portion of the episode is dedicated to the decline in American manufacturing and its socio-economic impacts.

• Matt Notowodigdo, Professor of Economics at the University of Chicago's Booth School, attributes the decline to technological automation and the China shock, which refers to the surge in Chinese imports post-China's entry into the WTO (00:06:18).

• The Bureau of Labor Statistics reports a loss of 7.5 million manufacturing jobs since 1980, with many workers exiting the labor force altogether due to challenges in finding new employment (00:07:59).

• Matt Notowodigdo explains that many former manufacturing workers either leave the workforce, retire early, or shift to other sectors like construction during booms, though retraining programs have seen limited success (00:09:27).

• The impact on communities is profound, with increased mortality rates among middle-aged workers facing layoffs and a notable increase in college enrollment among younger generations in affected areas as a coping mechanism (00:10:39).

4. Climate Change Challenges in the Ski Industry

The episode examines how climate change is adversely affecting the ski industry, particularly smaller independent resorts.

• Henry Epp reports from Vermont, highlighting how Bolton Valley Resort struggles with insufficient natural snow, necessitating extensive snowmaking efforts, which are becoming increasingly difficult due to rising temperatures (00:12:10).

• Lindsay DeLaurier, President of Bolton Valley, shares their investments in advanced snowmaking systems to mitigate the shorter windows of adequate weather, though challenges persist as Vermont's winters have warmed by over 3°F in the past century (00:14:01).

• Daniel Scott from the University of Waterloo emphasizes the vulnerability of lower elevation resorts to melting and rain events, suggesting that urgent climate action is necessary to sustain the industry (00:15:16).

• Despite advancements, Bolton Valley couldn't make enough snow for Thanksgiving but managed to open by early December as temperatures eventually dropped (00:16:09).

5. Stock Market Gains and Household Net Worth

The discussion transitions to the surge in household net worth driven by stock market gains and rising home values, alongside the disparities in wealth distribution.

• Kyle Ryssdal reports that household net worth reached a record high of nearly $169 trillion, primarily fueled by stock market and real estate appreciation (00:17:03).

• Guy Labas introduces the "Wealth Effect," where increases in stock and home values encourage higher consumer spending. However, this effect is uneven, benefiting predominantly the top 10%, who own approximately 92% of all equities (00:19:00).

• Sam Stovall from CFRA Research notes that while more Americans are investing in stocks through 401(k)s, the benefits are disproportionately skewed towards the wealthier strata (00:19:41).

• Thuan Nguyen from RSM warns of potential risks, such as consumers overspending based on paper profits, leading to increased debt (00:19:54). However, the overall debt-to-assets ratio remains near a multi-decade low, supporting continued consumer spending (00:20:08).

• Mitchell Hartman adds that although credit card debt is at a record high, it is offset by rising household assets and incomes, though lower-income Americans continue to accrue more debt as they lack substantial assets (00:20:33).

6. Competitive Apple Picking Season in Colorado

The episode concludes with a light-hearted segment on the skyrocketing demand for apple picking in Colorado amidst climatic challenges.

• Ray Sullen narrates the intense competition for apple picking reservations at Yaya Farm and Orchard in Longmont, Colorado, where demand far exceeds supply due to the region's arid climate and limited viable agricultural land (00:21:05).

• Sharon Perdue, owner of Yaya Farm, discusses the necessity of a reservation system to manage the overwhelming demand and the challenges of expanding production due to the time required for new apple trees to mature (00:23:00).

• Families like the Dzubla club exemplify the cherished traditions of apple picking despite the difficulties in securing spots, highlighting both the cultural significance and economic pressures on local orchards (00:24:05).

Notable Quotes with Timestamps

• Justin Ho (00:02:35): "Investors also expect that the new Trump administration will help companies jack up profits even more."

• David Swartz (00:04:20): "Walgreens to the other seemingly all day."

• Matt Notowodigdo (00:07:05): "The decline in manufacturing comes primarily from technological changes and the China shock."

• Lindsay DeLaurier (00:14:01): "We've spent about a million dollars on our snowmaking system... it's becoming essential because... the windows are getting shorter."

• Guy Labas (00:19:00): "There's a name for what happens when better off Americans see lots of plus signs show up in their brokerage accounts... the Wealth Effect."

• Ray Sullen (00:23:53): "Most of the urban corridor farms, there's nowhere to expand to."

Conclusion

The "Shrinking Spread" episode of Marketplace delves deep into the interconnected facets of the economy, from bond market optimism to the decline of manufacturing jobs, the resilience of the ski industry amidst climate change, and the growing disparities in household wealth. Additionally, it touches on cultural elements like the competitive apple picking season, illustrating the diverse challenges and adaptations within various sectors. Through insightful interviews and data-driven discussions, the episode paints a comprehensive picture of the current economic landscape and its multifaceted impacts on society.