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- [00:02]
Kristen Schwab
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- [00:32]
Kai Rysdal
You know that old joke about economists, how they always say, well on the one hand, but then on the other hand, yeah, that. But for consumers. From American Public Media, this is Marketplace in Los Angeles. I'm Kai Rysdal. 30th October today. Good as always to have you along, everybody. We begin on this Wednesday with a question of balance. Our inquiry is prompted by this morning's update on economic growth. Gross domestic product, we learned, grew at an annualized rate of 2.8% in the third quarter of the year. That makes it 2ish years of a textbook strong economy. Why? Consumer spending mostly. Which is whence the question of balance comes because we want, and honestly we need consumers to be spending keeping the economy strong, but not spending so much so as to drive up inflation again. Marketplace's Kristen Schwab looks at finding that elusive sweet spot.
- [01:45]
Kristen Schwab
Spoiler alert. The sweet spot for consumer spending. There is no simple answer, because the sweet spot depends on what else is happening in the economy. Jonathan Parker is a finance professor at mit. Ideally, you just want balanced growth. You want growth in investment and consumption, consumption, the consumer spending part, and investment business spending, which has also been strong. We produce stuff, we get stuff done and we put people to work. A stark contrast to the deep pandemic days when there were too many people chasing too few goods and not enough workers to get it all done. Julie Smith, an economist at Lafayette College, says a key element to achieving balance is people spending not too little, not too much. I think a lot of that has to do with how they are feeling about the economy. And the latest consumer confidence numbers out this week say people are generally feeling okay to positive about the economy. Okay to positive might not sound like a glowing review, but it might just be the review the Fed needs. Because it could mean, for instance, that consumers feel confident enough about jobs to keep spending, but not so confident that they're job hopping for raises, which increases inflation. Inflation. Jim Wilcox, an economist at UC Berkeley, says the equilibrium of this moment, it means consumer spending has fallen into that sweet spot.
- [03:10]
Kai Rysdal
The kinds of consumer growth we're seeing lately are not going to reignite inflation.
- [03:16]
Kristen Schwab
Spending that's sort of even keeled allows the Fed to relax a little, at least for now.
- [03:22]
Kai Rysdal
They do not have to hurry to.
- [03:25]
Kristen Schwab
Lower interest rates a lot, and nor are they under much pressure to stop lowering interest rates, which he says puts the Fed on track to cut by 25 basis points next week. I'm Kristen Schwab for Marketplace Wall Street.
- [03:42]
Kai Rysdal
Today, GDP shme DP traders took issue with a couple of tech company earnings reports. We'll have the details. Yeah, when we do. The number today being the Wednesday before the first Friday of the month. We got some jobs data from the payroll company ADP this morning from which we learned wage increases have slowed again. ADP says year over year, the median wage gain is 4.6% for people who stay in the same job, 6.2% for people who switch. Should you be curious, the rate of increase has been slowing for a couple of years now, which kind of makes sense. It's one of the side effects of slowing inflation. But here we sit at the far end of 2024. Inflation is mostly dead and the rate of wage gains is still falling. Marketplace's Kelly Wells asked some economists just how low it's likely to go and what that might mean.
- [04:59]
Kristen Schwab
The actual wage increase number isn't all that important, says Bankrate's senior economic analyst Mark Hamrick. The magic number is positive with respect to real earnings, real earnings being earnings adjusted for inflation. Right now it is positive because those wage increases have been bigger than price increases. Inflation is around 2 1/2% wage gains, even for folks who stay in the same job, almost twice that. Wages have outpaced inflation for a year and a half now. That's because it's still a workers market, says Nicole Smith. She's chief economist at Georgetown's center on Education and the Workforce. Those workers still have the upper hand to make decisions about moving or staying and what types of wages they will accept. Smith says demand for workers think job openings is still greater than the supply. Think unemployed people. If you're an employer, you still have to play it safe because if you drop those wages too substantially, you run the risk of losing your employees. So wages are growing faster than inflation even though wage gains have fallen. Dean Baker says that's a win win. He's a senior economist at the center for Economic and Policy Research who says today's job market is a far cry from what we saw two years ago.
- [06:18]
Kai Rysdal
If wages go up rapidly enough, that.
- [06:20]
Kristen Schwab
Will be passed on in prices, and.
- [06:22]
Kai Rysdal
We were seeing that.
- [06:24]
Kristen Schwab
So what's happened is the labor market has normalized it's still strong. Perhaps even better news, Baker says he thinks this 2% gap of wage gains over inflation could stick around. If you could point to a period of 2% sustained real wage growth, you really have to go back to the 60s. So things look pretty good right now. Tomorrow we'll get a look at the employment cost index for the third quarter of this year, a major indicator of economic health for the Fed as it weighs future interest rates. I'm Kaylee Wells for Marketplace.
- [07:21]
Kai Rysdal
In a lot of ways, as Kristen and Kayleigh were just telling us, the economy right now seems like it's headed in the right direction. You can recite the specifics as well as I can, but just because things look good doesn't mean this economy doesn't have any problems. Problems that the pandemic both caused and highlighted. Labor shortages, supply chain issues, higher costs, of course, thanks to inflation, also tighter profit margins. As Marketplace Justin Ho reports, for a lot of small business owners, this economy right now feels a little bit off kilter.
- [07:51]
Kristen Schwab
Like a lot of restaurant owners, Matt Hetrick has had trouble filling positions at his two locations around Annapolis, Maryland. He says over the last few years, even after raising wages, he's had to get creative, running shifts with fewer managers and cutting down on prep work. Just something as simple as a French fry, right? There's a lot of, like, places that will cut their own French fries, that will fry them several times, do the whole thing. And then there's also the ability to buy frozen fries out of a bag, which maybe wouldn't go over well in Belgium, but requires a lot less labor. Hedrick says making adjustments like these is part of the job. But what's difficult, he says, is that many of the challenges that he's had to adjust to over the last few years have subsided a bit, but they haven't gone away. So you have inflation, you have worker shortages, you have access to capital shortages. It doesn't seem to be ending and getting back to a place where it's a reasonable set of challenges. Hedrick says all that adapting can be exhausting because it's not like he's correcting a tactical error he made, like opening up a business in the wrong location or designing the wrong menu. Instead, the challenges he's dealing with are economic headwinds, just like big companies talk about in their quarterly reports in which he as a business owner has no control over. You can't control how many workers there are in the United States and where they are and what wages they'll take. And so it feels broken because you're adjusting to things that you weren't doing wrong. Supply chain issues have been sticking around, too. Katherine Reynolds handles imports for Palmetto Tile Distributors in South Carolina. We're starting to see the effects of all the things that have been going on in the Red Sea, the attacks and the container delays. I feel like it's finally starting to catch up with the industry overall, reynolds says. Then there was Hurricane Helene and the port strike. She says every supply chain delay pushes up her costs because shipping companies add fees and surcharges for labor and fuel. It just seems we just go from one kind of disaster to the next. That's just sustaining these price levels, unfortunately. Another challenge, Reynolds says, is that demand for tile among her home builder clients has been fairly sluggish. She says that could be because of the hurricane or because people are nervous about the election. But a big factor holding our customers back, she says, is the cost of building supplies and construction loans. And as rates haven't come down like they thought they would, and basic supplies to build a house, like wood and plumbing pipes, all of that have stayed higher. They've had to scale back their tile budget considerably. That means most businesses don't have much leverage to jack up their prices. Last week, a Federal Reserve survey found that businesses in a number of fed districts said input costs think labor supplies and those shipping surcharges are rising faster than they can raise retail prices. You can't realistically raise a price if you're going to be competing with several hundred other retailers selling the same exact thing at a lower price. That's Jeff Kaley. He owns Worldwide Cyclery, a mountain bike store in Newbury Park, California. He says given the limits on his ability to raise prices, rising expenses are taking a toll. That's just making our business a lot harder to be profitable and a lot harder to operate and run profitably than it used to be just back five years ago. So he's been cutting back on shipping supplies and how much AC and heating the business uses. He also let go about 10% of his staff. The net result, he says, isn't great for anybody. I feel as if we're not offering as good a value to our customers and to our staff as we were in 2019. And that's a result of just having to cut corners and pinch pennies everywhere we can in order to keep hanging on. Kaylee says Worldwide Cyclery is still doing all right, but doing business right now is just harder than it was before the pandemic. I'm Justin Ho for Marketplace.
- [12:09]
Kai Rysdal
Coming up.
- [12:09]
Kristen Schwab
You know, we're not gonna maybe look to upgrade anything this year.
- [12:14]
Kai Rysdal
Sometimes you just gotta hold off. Right. First though. Sure. Yes. Let's do the numbers. Dow Industrial is down 91 points today. 2, 10%. 42,140. The NASDAQ off 104 points, about a half percent. 18,607. The S&P 500 ticked down 19 points. About 3, 10% there. 58 and 13. Google parent company Alphabet posted comfortable quarterly earnings. Profit was up 35% in its cloud business. Alphabet's big spending on artificial intelligence seems to have been a good bet for the tech giant. Google invested some $13 billion on capital projects like data centers in an effort to catch up in, yes, the air race. Alphabet shares climbed 2 and 8. 10%. Rival Microsoft gained about a 10th percent today. Kristen Schwab was telling us about consumer spending in GDP. So some big retailers, shall we? Walmart subtracted 4, 10% today. Costco slid 9. 10%. Target went the other way, picked up 4/10 of 1%. German automaker Volkswagen is having a rough week. And after announcing a 42% drop in year over year earnings, company is struggling due to rising costs in Europe. Also because of decline in demand for its vehicles. Over in China, it's also asking workers to take a 10% pay cut in order to stave off layoffs. Bonds down Yield on the 10 year T note 4.3%. You're listening to Marketplace.
- [13:40]
Kristen Schwab
This Marketplace podcast is supported by Gusto. Let your employees know you've got their back by signing up for Gusto for payroll and HR. More than 300,000 small business owners use Gusto. They offer benefits like health insurance, employee onboarding and more. Get your payroll taxes filed, deductions calculated, and your team paid fast. No more pain, just the joy of running your business. Get three months free when you go to Gusto.com Marketplace. That's Gusto.com Marketplace. When you think about businesses growing their sales beyond forecasts, sure you think about a product with demand, a focused brand and influence driven marketing. But an often overlooked secret is the businesses behind the business making, selling and for shoppers, buying simple. For millions of businesses, that business is Shopify. Nobody does selling better than Shopify. Home of the number one checkout on the planet. And the not so secret secret with shop pay, that boosts conversions up to 50%, meaning way less carts going abandoned and way more sales going. So if you're into growing your business, your commerce platform better be ready to sell wherever your customers are scrolling or scrolling on the we in your store, in their feed and everywhere in between. Businesses that sell more sell on Shopify. Sign up for your $1 per month trial period at shopify.com marketplace all lowercase go to shopify.com marketplace to upgrade your selling today. Shopify.com marketplace.
- [15:13]
Kai Rysdal
This is marketplace. I'm Kai Rysdal. We love our cars. We Americans do. What we don't love so much is the money we have to spend to own and drive them. G Obviously, the prices of some of them also. Obviously. And lately, even as inflation overall has been falling, insurance and maintenance costs have gone through the roof. Marketplace's Mitchell Hartman has our story.
- [15:37]
Kristen Schwab
Navy Federal Credit Union puts out a quarterly Cost of Car Ownership index, crunching together 11 different expenses from new and used vehicle prices to gas and regular upkeep. Economist Robert Frick says since 2020, the overall cost is up 38% while the consumer price index is only up 21%. It's kind of like we can't catch a break with cars. Vehicle prices soared early in the pandemic with messed up supply chains and empty dealer lots. Now, says analyst Carl Brauer at iccars.com, prices have leveled off, but they're still much higher than they were pre Covid. There's still enough people out there who are ready to buy a new car that you're not really getting a deal. For automakers, there's little incentive to lower prices, says Garrett Nelson at CFRA Research. They entered into a new labor contract with the union UAW last November, and so they're being pinched by much higher labor costs. Also, drivers are now getting dinged by soaring insurance rates, says Robert Frick, up more than 11% last year. How come a lot of cars were wrecked from flooding and fires? Cars are more expensive to repair because of electronics. The people who work fixing cars, they got a big pay raise. All this is causing consumers to pull back, says Kayla Brune at Morning Consult. For middle income folks trading down to cheaper cars, while lower income consumers those that already have cars, increasingly saying that they're not confident in their ability to make payments. Anyone who bought when the market peaked and wants to sell now is also in trouble, says Carl Brauer. With used vehicle prices falling, automobiles aren't particularly a good asset. But because they were for about three years there, people got a false sense of reality, he says. A lot of people owe more on the vehicle they bought at top dollar than it's worth today. I'm Mitchell Hartman for Market.
- [17:56]
Kai Rysdal
We've been talking on and off the past two or three years about the extended moment that organized labor has been having, from individual Starbucks stores to the United Auto Workers to the machinists at Boeing. And now the wnba. The women's National Basketball Players association made huge gains in their 2020 collective bargaining agreement agreement. It raised the average pay of a WNBA player into the six figures for the first time. It guaranteed new benefits like parental leave. And it required the NBA, which owns more than half of the W, to increase its marketing spending. But after an historic 2024 season, the players union is opting out of that old cba. And a year from this week is the deadline to find something new. Marketplace's Sven amar has more 3.3 million.
- [18:43]
Kristen Schwab
People tuned into the New York Liberty's overtime championship win against the Minnesota Lynx in this year's WNBA Finals. 28 years in the making. It was the most viewers in 25 years. Keitra Armstrong, a professor of sport management at the University of Michigan, says the W has been on a sharp rise since about 2021. But what we saw in the last year, it just catapulted them, I think, to a new level. WNBA games smashed viewership records. Teams sold more tickets and merchandise than ever. And the league inked a landmark $200 million a year meteorites deal. With all this money pouring into the league, Armstrong says, it's not surprising the athletes want to revisit their contract. If you're a part of producing that product, this is a unique moment. This is a unique strategic window of opportunity to capitalize on the energy and the synergy and the momentum. Terry Carmichael Jackson, executive director of the Women's National Basketball Players association, says the athletes are eager to get to the table. Even the stars of this year's Finals, Nafisa Collier, Breonna Stewart. I had separate calls with them, you know, round about game three, going into game four, going to game five, they're saying, okay, when do we get the results of the vote? Were ready at the top of their contract wish list. Higher player salaries. We're in a hard cap system. And when I mean hard cap, I mean hard really pretty restrictive. Where even superstar rookies can't crack six figures. And some of the best players in the world play overseas in the off season to supplement their income. We've got to address that. And Carmichael Jackson says the next CBA should ensure that players share in the league's growing profit. Under the current agreement, players split less than 10% of WNBA revenue. We've got to look at a revenue share provision that comes a little bit closer to what the NBPA and the NBA have, where players get more like a 50% cut of league profits. The WNBA players union will also bargain for better family planning, childcare and retirement benefits, and higher professional standards for things like practice facilities. The league didn't respond to an interview request, but Jada Mumju, who studies the business of sports at the University of New Haven, says these negotiations come at a busy time of expansion. The league is moving from 40 games to 44 games, moving finals from five games to seven games, moving from 12 teams to 15, with the first of three new teams launching in San Francisco next year. All of these add to the league's inventory. These are all assets that they are selling to corporate partners. Mumju says this should help the players union make their case and prevent an impasse. Maybe selfishly, I really hope that there's no stoppage, that we can't continue watching the exciting games. Mumju has been watching crowds grow at Connecticut sun games these last few years. She says the W doesn't want to see that momentum stall with a player's strike. I'm Savannah Marr for marketplace.
- [22:28]
Kai Rysdal
Crop prices and thus incomes for farmers and growers in this economy, the past couple of years have been pretty good. This year, though, the U.S. department of Agriculture is guessing farm income is going to drop four and a half percent in an industry where margins are already thin. And variables think crop yields and weather. Those variables are plentiful. Will Bauer reports from Harvest Public Media that those economic realities might mean farmers are more cautious with their spending this year, which could then spill over into the rest of the ag economy.
- [23:00]
Kristen Schwab
After days of rain, fifth generation Illinois farmer Nick Kohler is finally able to get into his cornfields. Now. Today is a beautiful day for harvest. Nice blue skies. Kohler grows corn, wheat and soybeans. And for the last couple of years, crop prices were pretty good, which meant pretty good profits. But this year he's dealing with lower crop prices and thinner profit margins. We're kind of at the necessity purchases right now. If we need something, we're going to make it work. Kohler starts up his combine to get ready to harvest corn. The combine broke down earlier this fall, but he says with his budget right now, he'd rather fix big equipment like this than trade it in. You know, we're not going to maybe look to upgrade anything this year. That fiscal caution among farmers choosing not to buy a new combine or tractor, for example, is already impacting the ag equipment sector and manufacturers. The biggest player in the space is John Deere and sales have taken a hit. It's the first year of a downturn. Mick Dobre is an analyst for the financial firm Bayard. Dobre has watched as Deere's equipment sales drop by 20% in the second quarter this year. In turn, the ag machinery giant has cut production and that's led to hundreds of layoffs in states like Iowa and Illinois. This is going to stretch into 2025. It's pretty unlikely to experience a one year downturn when it comes to farm equipment demand. That's in part because more and more grain is being grown abroad this year after some recent lulls. Production was way down in Ukraine for a while. Same in South America. But now grain growers internationally are producing again and there's less demand for domestic grain, which means lower prices when American farmers go to sell their grain. Now, this year isn't a disaster for crop prices. It's just the last couple of years had been a boost for farmers. Agricultural economics professor Joe Jansen at the University of Illinois says farm income is returning to more normal levels. It's a situation that obviously is difficult for the farmer because they are getting squeezed. Profitability on the farm is going to be very difficult to come by. And less profitability has downwind effects for farmers. They may not have as many options to expand or make bigger long term investments like land purchases. Tim Johnson is an area vice president for Farmers National Co. Which specializes in ag real estate. He says when farmers do have the option to expand, they're often buying hundreds of acres at a time. And interest rates are a big deal. On big loans, that interest rate really adds up quickly. That truly causes a level of conservatism.
- [25:36]
Kai Rysdal
To come into play.
- [25:37]
Kristen Schwab
Often farmers can't dawdle on land purchases. New acres may only become available when a neighbor retires or someone dies, meaning farmers may have to take the risk even when the economics aren't working in their favor. That's why in addition to earning less right now, farmers are in general taking on more debt. Economist Ty Kreitman with the Federal Reserve bank of Kansas City says that makes sense since farmers don't have as much liquidity these days. Past couple years, loan demand was sort of subdued because there was a lot of liquidity and now we're sort of seeing that liquidity is sort of running down and now we're seeing higher usage of debt. At the same time, there is a bright spot. Federal Reserve interest rate cuts should make loans less expensive for farmers. In Godfrey, Illinois, I'm Will Bauer for Marketplace.
- [26:32]
Kai Rysdal
This final note on the way out today. Don't look now, but report reports of a recession in Europe's biggest economy seem to have been premature. Germany reported its equivalent of GDP today. The economy there grew at a minuscule but very welcome 2/10 of 1% annualized unemployment in Germany, by the way, 6.1%. Our media production team includes Brian Allison, Jake Cherry, Justin Duler, Drew Jostad, Gary O'Keefe, Charlton Thorpe, Juan Carlos Dorado and Becca Weinman. Jeff Peters is the manager of media production and I'm Kai Rysdal. We will see you tomorrow everybody. This is apm. You turn to Marketplace for up to the minute news for stories that show you the connections between global events and your personal economy. And you're not alone. Marketplace is the most widely consumed business and economic news program in the country. We're proud to make fact based journalism freely accessible and Marketplace investors make it all possible. Your year end donation today will make a real difference in our nonprofit newsroom and in the lives of millions of Marketplace listeners every single day. So please contribute what you can today@marketplace.org donate.