The GDP equation

Summary

Marketplace: The GDP Equation
Release Date: February 26, 2025

In this episode of Marketplace, host Kai Rysdal delves into complex economic topics, including transatlantic relations, the intricacies of GDP, the fluctuating bond market, the critical supply chain of rare earth elements, and the evolving landscape of grocery delivery services. Through insightful discussions with experts and engaging analogies, the episode unpacks how these elements influence both the U.S. and global economies.

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1. Deteriorating US-EU Relations and Economic Interdependence ([00:01] - [05:47])

Con Rysdal opens the episode by highlighting the significant economic stature of the European Union (EU), which boasts a collective GDP of approximately $21 trillion, making it the world's second-largest economy. He emphasizes the shifting dynamics under the second Trump administration, which is steering the United States away from its traditional European allies both politically and economically.

Neil Irwin, Axios’s chief economic correspondent, provides historical context, explaining how the U.S. and EU have maintained a "deepest, most intertwined economic relationship in the world" ([01:21]). This relationship has fostered substantial cross-border investments, trade flows, and cultural exchanges, contributing to the prosperity of both regions.

However, Irwin notes a rapid deterioration in these ties, citing actions from the new Trump administration that signal a departure from longstanding alliances. He references statements from EU leaders, such as the incoming German Chancellor advocating for independence from the U.S. ([04:44]), indicating a potential realignment of international economic and diplomatic landscapes.

Notable Quote:

“What you have right now is a very large, wealthy continent that has these deep ties with the US that are nothing to shake a stick at.”
— Neil Irwin ([03:40])

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2. Understanding GDP and the Impact of Government Spending Cuts ([07:15] - [09:47])

Transitioning to domestic economic concerns, Justin Ho and Stacey Vanek Smith break down the components of Gross Domestic Product (GDP) using the formula C + I + G + NX ([07:23]). Here, 'C' stands for consumer spending, 'I' for investment, 'G' for government spending, and 'NX' for net exports.

Ann Villamill, an economics professor at the University of Iowa, explains that government spending ('G'), particularly discretionary spending, accounts for about 6% of GDP ([07:28]). Ernie Tedeschi, Director of Economics at Yale University's Budget Lab, warns that even halving discretionary spending could "mechanically reduce GDP by 3%" ([08:04]). This reduction would have immediate and long-term repercussions, diminishing economic growth over successive years ([08:27]).

Gila Ba, Chief Fixed Income Strategist at Janney Montgomery Scott, adds that cuts in government spending could dampen private investment ('I') by reducing demand for private sector goods and services, potentially leading to layoffs and decreased consumer spending ('C') ([08:37]).

Notable Quote:

“That's why even small cuts to government spending can spiral.”
— Ernie Tedeschi ([08:31])

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3. The Bond Market: Stability Amid Uncertainty ([09:47] - [15:40])

Con Rysdal shifts focus to the bond market, traditionally perceived as a safe haven for investors. However, recent economic uncertainties, including inflation and shifts in government policy, have introduced volatility.

Stacey Vanek Smith visits an unconventional ice cream shop, Surprise Scoop, to draw an analogy with the bond market. Here, customers receive a random flavor, symbolizing the unpredictability investors face today. Alison Schrager, an economist from the Manhattan Institute, explains that unlike the predictable returns of bonds, current economic factors like inflation can erode the real value of bond interest ([12:16]).

Mike Kudzel, a portfolio manager at Pimco, highlights that U.S. government bonds are still considered among the safest investments, with billions invested weekly due to their perceived low risk ([12:19]). However, Schrager points out that rising interest rates mean the government must pay more to attract investors, increasing debt service payments and straining the federal budget ([14:13]).

Despite inflation concerns, there is still robust demand for bonds as investors seek stability, especially when other markets like stocks or cryptocurrencies exhibit higher volatility ([15:34]).

Notable Quote:

“If the government lays off a lot of workers, for instance, that's reduced spending.”
— Gila Ba ([08:37])

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4. Market Updates: Stocks and Cryptocurrency ([16:28] - [20:51])

In the market segment, Con Rysdal provides a snapshot of recent movements:

• Dow Industrials: Down nearly 3%
• London's Footsie and Paris's CAC 40: Up about 3% each
• Germany's DAX: Up 7%
• Nvidia: Rose significantly post-earnings
• Bitcoin: Dropped from a high of $107,000 to around $85,000, while Coinbase saw a modest increase

Notable Market Insight:

“Just looking at the bond market, it's definitely more excitement than there has been in a very long time. Those are very attractive returns with a lot less risk than other markets.”
— Mike Kudzel ([14:13])

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5. Securing the Rare Earth Supply Chain ([18:26] - [20:38])

Sabri Ben Assure explores the strategic importance of rare earth elements, critical for modern technologies like electric vehicles and smartphones. With China dominating 90% of the world's refined rare earth production, the U.S. faces significant challenges in establishing an independent supply chain.

Matt Sloester of MP Materials discusses efforts to develop domestic mining, processing, and refining capabilities in the U.S., citing the Mountain Pass Rare Earth mine in California as a cornerstone project ([19:43]). However, Chris Barry, President of House Mountain Partners, points out economic hurdles, including increased costs due to inflation and tariffs that add uncertainty to the market ([20:29]).

These factors complicate the U.S.'s ability to compete with China's low production costs, despite substantial government support and investments aimed at reducing dependency on foreign sources.

Notable Quote:

“China has been using its ability in this space as an economic weapon.”
— Ernest Scheider ([19:34])

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6. Instacart's Slowing Growth in Grocery Delivery ([21:10] - [24:31])

The episode also examines the grocery delivery sector, spotlighting Instacart's recent challenges. Originally thriving during the pandemic, Instacart has reported lower-than-expected revenues and anticipates a slowdown in growth ([21:10]).

Daniel Ackerman discusses how increased competition from major retailers like Kroger and Walmart, alongside changing consumer behaviors and inflation-induced spending shifts, have contributed to Instacart's struggles. Neil Saunders from Global Data suggests that while there is still growth potential, customer preferences for in-store shopping—where they can see and select products firsthand—may limit expansion ([22:30]).

Sucharita Kodali, a retail analyst at Forrester, notes that inflation has led consumers to prioritize essential purchases, reducing their willingness to spend on delivery services. This shift, coupled with fierce competition and rising operational costs, paints a challenging outlook for grocery delivery platforms in the near future ([23:25]).

Notable Quote:

“Pulling back on services like grocery delivery could be a theme in the year to come.”
— Sucharita Kodali ([24:02])

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7. Closing Remarks ([24:31] - [23:49])

In the closing segment, Con Rysdal humorously addresses the trend of podcast audiences migrating to YouTube, pondering the future of podcasting versus video content. The episode wraps up with a reminder for listeners to access Marketplace through various platforms, ensuring that they stay informed on the latest economic and business news.

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Key Takeaways:

• Transatlantic Shift: The U.S. is witnessing a significant realignment in its relationship with the EU, potentially impacting global economic stability.

• GDP Dynamics: Government spending plays a crucial role in GDP growth, and reductions can have both immediate and prolonged negative effects on the economy.

• Bond Market Volatility: While traditionally seen as safe investments, rising inflation and interest rates are introducing new risks and complexities to bond investing.

• Rare Earths Supply Chain: The U.S. is striving to establish an independent supply chain for rare earth elements to reduce dependency on China, facing economic and logistical challenges.

• Grocery Delivery Challenges: Companies like Instacart are grappling with increased competition and shifting consumer behaviors, indicating potential slowdowns in the grocery delivery sector.

This episode of Marketplace offers a comprehensive exploration of interconnected economic factors, providing listeners with a nuanced understanding of current market trends and policy impacts.

Transcript

[Con Rysdal]

On the program today, the bond market story you didn't know you needed. Trust me on this one. From American Public Media, this is Marketplace in Los Angeles. I'm Con Rysdal. It is Wednesday today, the 26th of February. Good as always to have you along, everybody. The European Union, should you be curious, has as a single economic entity, a single market, if you will give or take 450 million people in it. Its collective gross domestic product is about $21 trillion, which makes it the world's second biggest economy behind us. I mention all of that because the transatlantic relationship just ain't what it used to be. The second Trump administration is turning the United States firmly away from Europe, politically and inevitably and economically. And that, as Axio's chief economic correspondent Neil Irwin wrote the other day, is going to come with some costs. Neil, it's good to have you back on the program.

[Neil Irwin]

Thanks for having me. Kai.

[Con Rysdal]

Give us the status quo ante, if you will, of the EU United States relationship as of like 20th of January, just to pick a date.

[Neil Irwin]

Well, it was pretty solid. It was kind of the deepest, most intertwined economic relationship in the world in some ways. Huge cross border investments, trade flows, financial flows, flows of people, of ideas, of information and, and really that has made both sides of the Atlantic wealthier over the years. That is the status quo as of about a month ago.

[Con Rysdal]

As we turn now the United States does to developing a relationship with Russia as the White House has said it wants to do. Can the Russians replace the economic gains the United States has gotten from its relationship with the European Union?

[Neil Irwin]

No, I think it's worthwhile to think about just the scale here. Russia is a comparatively small country in terms of its economy, even its population. To the rest of Europe, Russia has a smaller economy than the uk, Germany, France and Italy individually, let alone put together in terms of trade flows. There's not this track record of big innovative Russian companies building massive factories abroad in the US or anywhere else. These are just different scales of economic enterprise. And that's before you get to the kind of diplomatic, cultural, long standing historical tensions between these countries.

[Con Rysdal]

Just as a note on the whole long standing thing. I mean, the United States has been building its economic relationship with Europe at large since like the Marshall Plan.

[Neil Irwin]

Yeah, I mean, you go back to World War I, World War II, the US ultimately intervened in both and got involved. And then Post World War II, has spent the last 70 years, you know, playing a key role kind of rebuilding Western Europe and making it an economic power. Now, the European economy, to be clear has a lot of problems, and it's not as innovative and as fast growing as I think a lot of people would like to see it be. At the same time, what you have right now is a very large, wealthy continent that has these deep ties with the US that are nothing to shake a stick at. You look around the US you see all these states where European companies are big employers. You have BMW and Volkswagen and Airbus and Siemens operating these big operations in the U.S. these are the kinds of economic interconnections that are hard to replicate with a much smaller and more remote economy.

[Con Rysdal]

Take the next step on those interconnections because there's a national security aspect to economic interdependence.

[Neil Irwin]

Absolutely. And, you know, part of the entire theory of post war, you know, U.S. europe diplomacy has been that we have an economic interconnection and a diplomatic geostrategic interconnection that are interrelated. NATO is one side of the coin, economic ties to the other side of the coin, and really both sides of that coin are tarnished right now and really not what they were. And that's happened very rapidly. I mean, certainly first term, Trump had deep skepticism of Europe and hostility toward NATO in certain ways, but he was also not in position to really unwind those ties in the ways that he has made real progress toward doing in just the first five weeks of this administration. And we saw that over the last few weeks with J.D. vance over in Munich. We saw it with the German elections, where new German chancellor, incoming German chancellor, is basically saying, we must be independent from the United States. Those are words even a month ago, you would not have expected to hear from a new German chancellor a word.

[Con Rysdal]

Here about the rest of the world. There's a great quote in this piece that you wrote from Hank Paulson, the former Secretary of the treasury, about China and what Chinese officials would tell him.

[Neil Irwin]

Yeah. So Hank Paulson, the former treasury secretary, has said that a Chinese official once told him, well, you, the US have all the good allies. And what they meant by that was Western Europe. You have Germany, you have the UK you have France, you have Japan. That's part of why China has had to form these relationships with Russia, with North Korea, with kind of lesser powers, lesser economic forces. And what's happening right now is kind of the dissolution of that bond between the US and some of its historically closest allies that also happen to be some of the richest and most populous nations on earth. So where that leads, we don't know how much of its rhetoric, how much of its kind of bluster and how much comes a real dissolution of these economic and other ties? That's what we don't know yet. But directionally we know what way it's going.

[Con Rysdal]

Neil Irwin, he's chief economic correspondent at Axios. Neil, thanks a bunch. Good to talk to you.

[Neil Irwin]

Thanks so much, Guy.

[Con Rysdal]

Wall street today. So look, I'll tell you what, let's have a look at European indexes, why don't we, given the conversation Neil and I just had over the past month. The Dow industrials are down almost 3%, London's Footsie and the CAC 40 in Paris up about 3% apiece the DAX in Germany up 7%. We'll have the details when we do the numbers. We strive here at Marketplace not just to keep you abreast of business and economic news, but ahead of it. Thus, we turn now to the updated read on fourth quarter gross domestic product that we're going to get tomorrow. Gdp, of course, the sum and total of economic activity, which last we heard had the American economy growing at an annualized rate of 2.3%. Consumers obviously responsible for most of that. But you know what else spends money? The government spends money. And government spending, as perhaps you've heard, has fallen out of official favor. Marketplace's Justin oh has more now on what could happen to economic growth when the government cuts spending.

[Justin Ho]

Economists use a pretty simple formula to calculate gdp, says Ann Villamill, an economics professor at the University of Iowa.

[Stacey Vanek Smith]

It is represented by C +I +G +Nx.

[Justin Ho]

C is consumer spending, that's most of it. I is investment, NX is net exports, otherwise known as the balance of trade, and G is government spending, specifically discretionary government spending.

[Stacey Vanek Smith]

The military, they buy airplanes and ammunition, infrastructure projects, roads, airports, things like that, housing assistance, general science, space.

[Justin Ho]

This kind of spending at the federal level amounts to about 6% of GDP. Ernie Tedeschi, Director of economics at Yale University's Budget Lab, says, imagine you were to cut discretionary spending in half over the next year.

[Stacey Vanek Smith]

That would mechanically reduce GDP by 3%. That's a substantial reduction in GDP growth.

[Justin Ho]

To be clear, Tedeschi says cuts of that size are extremely unlikely. It's not even clear the Trump administration can even find that much discretionary spending to cut. But Tedeschi says any cuts have effects on economic growth that reverberate over time.

[Con Rysdal]

You lose out on the gains not.

[Justin Ho]

Just in year one, but in every.

[Stacey Vanek Smith]

Year subsequently because you, you know, you didn't invest as much to begin with.

[Justin Ho]

Government spending cuts also have knock on effects in other parts of the economy. Gila Ba, chief fixed income strategist at Janney Montgomery Scott, says they could also affect the I component of GDP investment. That's because government spending can ensure that there's demand for what private companies sell.

[Gila Ba]

And then you can take more risks in expanding and growing and investing in the real economy.

[Justin Ho]

Labas says cuts to government spending also affect the biggest component of gdp, c consumer spending. If the government lays off a lot of workers, for instance, that's reduced spending.

[Gila Ba]

Power within the U.S. economy.

[Stacey Vanek Smith]

And that means the individuals and businesses that serve those employees have reduced capacity.

[Gila Ba]

They might even institute some layoffs as.

[Justin Ho]

A result, Labas says that's why even small cuts to government spending can spiral. I'm Justin Ho for Marketplace.

[Con Rysdal]

There's a lot of uncertainty in this economy right now. All you have to do is look around. Tariffs, inflation, whatever's happening with how the government manages this economy. It's a lot. And that uncertainty shows up in all kinds of ways for us today. It's the bond market, safe haven of choice for investors the world over. The US treasury market has been thought of for decades now as a steady, predictable, no muss, no fuss kind of place for people to put their money. But that is starting to change a little bit. So we sent Stacey Vanek Smith to get the Scoop.

[Stacey Vanek Smith]

It is 17 degrees in New York and the wind is soul crushing. So the place I'm dragging, economist Alison Schrager is a little bit unusual. So how do you feel about getting ice cream in February?

[Alison Schrager]

As I said, I'm not sure this would be my first choice.

[Stacey Vanek Smith]

Luckily, Schrager follows the bond market at the Manhattan Institute. And the particular ice cream shop we're visiting has a lot in common with the bond market right now. For real. Oh, here we are. Surprise Scoop. Surprise Scoop bills itself as the world's first ice cream roulette shop. It's an empty room with white wall walls and a purple floor and nobody greeting you. Just some very loud music and some very big touchscreens on the wall.

[Alison Schrager]

Okay. Do you want me to read this?

[Stacey Vanek Smith]

Yes, please.

[Alison Schrager]

Okay. Welcome to Surprise Scoop. All flavors are randomly selected. No flavor choosing allowed. No refunds or exchanges.

[Stacey Vanek Smith]

We keep it here at Surprise Scoop. You order a scoop of ice cream on the touchscreen. You pay 10 bucks and a worker you never see Picture flavor. The customer has no say at all. I read that one of the flavors is Pickle.

[Alison Schrager]

Ooh.

[Stacey Vanek Smith]

And if you hate what you get, you are in a pickle. According to the disclaimer. Oh, you have to consent. What If I don't get the ice cream flavor I want.

[Alison Schrager]

Sorry. Please try again. In all seriousness, we're all taking a risk here.

[Stacey Vanek Smith]

Risk. Now here's where ice cream roulette brings us back to the bond market. So bonds are just little loans you give the government. You buy a bond for four weeks or two years or 10 years, and when that time is up, the government pays you back plus a set amount of interest. So buying a bond is a lot like how you would usually go for ice cream. You pick your flavor, you pay, you enjoy a nice, predictable payoff.

[Justin Ho]

US Government debt is by far the safest investment one can make in a portfolio.

[Stacey Vanek Smith]

Mike Kudzel is a portfolio manager at Pimco, one of the biggest investment firms in the world. He says that safety is exactly why investors and governments snap up billions in US Government bonds every week.

[Justin Ho]

In the world of investing, we think the US Government is as risk free as it gets.

[Stacey Vanek Smith]

But the bond market has been on a slightly rockier road lately, says Alison Schrager.

[Alison Schrager]

And that's partially because inflation is back inflation.

[Stacey Vanek Smith]

So say you buy a two year government bond for 100 bucks and at the end of that time the government will pay you back your $100 plus $5 of interest. But let's say during those two years, inflation spikes. By the time you cash out, your 105 bucks can't buy as much. Essentially, you lost money on your bond investment. 102 for Stacy back at Surprise Scoop, our order is up. There's a little secret opening in the wall, and a hand suddenly pokes out of it, holding our dish of mystery ice cream. The ice cream is white and covered in sprinkles. So enough of this bond talk. It is time to dig in.

[Alison Schrager]

I'm not sure what flavor it is. It's something exotic. It's like coconut.

[Stacey Vanek Smith]

It's like durian or something.

[Alison Schrager]

I have no idea what this flavor is. I don't think I like it.

[Stacey Vanek Smith]

It's weird. Weird. Not the experience one hopes for when going for ice cream or buying a bond. But with inflation worries, there is a rising risk that the trusty plain vanilla return investors count on with bonds will end up being more of a coconut durian mystery flavor situation. So for the past couple years, to attract investors, the government has been having to pay a higher interest rate or yield on its bonds, and those rates have gotten pretty high, says Pimco's Mike Kudzel.

[Justin Ho]

Just looking at the bond market, it's definitely more excitement than there has been in a very long time. Those are very attractive returns with a lot less risk than other markets.

[Stacey Vanek Smith]

So where our $100 bond was paying out $105 after two years, now the government is having to pay out more, say $110. A sweet deal for investors, but a bitter pill for the government. It's having to pay those higher interest rates, says Schrager.

[Alison Schrager]

It's a very big deal. We're running up a lot of debt. And debt service payments are becoming an increasingly large part of our budget. So if they go up even more, it just eats into the budget. We have less money for other things.

[Stacey Vanek Smith]

Recently, the government has gotten a break. Bond market roulette has struck again. Right now, investors are worried that tariffs and other economic forces could slow the U.S. economy. The result? They have been flocking to bonds. And higher demand means the government can pay lower interest rates on those bonds. Because in spite of all the worries about inflation, bonds are still seen as the safest investment on earth. In tough times, stocks or crypto can lose a lot of their value overnight. But with U.S. bonds, the only real worry is that by the time you get your money back, it won't be worth quite as much, which isn't the worst thing. It's kind of like getting an ice cream flavor you don't love.

[Alison Schrager]

I mean, I'm still eating it.

[Stacey Vanek Smith]

Me too. I mean, at the end of the day, even if it's like not the best ice cream, it's still ice cream.

[Neil Irwin]

Yeah.

[Stacey Vanek Smith]

Financial risk, just like ice cream roulette is always relative. In New York, I'm Stacey Vanek Smith for Marketplace.

[Con Rysdal]

Love Stacy, though I do not. Great ice cream is not great ice cream. Don't eat it if you don't eat it. But if you need something from us and you miss it on the radio, we've got a podcast. Check it out. Marketplace.org or the platform of your choice. Follow us there.

[Sabri Ben Assure]

Coming up, people like to sometimes touch and see the things that they're buying.

[Con Rysdal]

Can't squeeze an avocado on Instacart is all I am saying. First though, let's do the numbers. Dow Industrials down 188 today. 4 10% 43,433. The Nasdaq added 48 points, about a quarter percent. 19,075. The S&P 500 basically flat 59 and 56. Market size have been focused on Nvidia. We told you that earlier this week, which beat analysts expectations when it reported earnings after the market closed today. During the session, Nvidia up 3 and 7 10%, up another 2% after hours. Broadcom up about 5.1%. Intel lifted 2.3%. Bitcoin today about $85,000 per down from its high of 107. Told you that so I can tell you this. Coinbase global trading exchange for crypto up 2.10percent today. PayPal, which does allow users to buy and store cryptocurrencies, down 2.7%. Bonds up yield on the 10 year t note farther down 4.25%. You're listening to Marketplace. This is Marketplace. I'm Kai Rysdal. President Trump held his first official cabinet meeting today, during which, among many other things, he confirmed that Volodymyr Zelensky is going to visit the White House on Friday to sign that big minerals deal that's been in the news the past couple of weeks. Specifically, and this is according to the Ukrainians, that in exchange for American help in getting security guarantees from third countries, Kyiv would give the United States 50% of the proceeds from Ukrainian state owned mineral sales. That is the proceeds, but not the New York Times reports the minerals themselves, rare earths in particular, critical as you've heard, to all kinds of cutting edge technologies as marketplaces. Sabri Benishour reports the US private sector and the federal government have been working to develop an independent supply chain for those minerals.

[Sabri Ben Assure]

Rare earth elements have names like gadolinium and lutetium and they're in the part of the periodic table where things get weird. They have special electric and magnetic properties. Ernest Scheider is reporter for Reuters and author of the book the War Below.

[Stacey Vanek Smith]

And Two of them, two of those 17 are called neodymium and praseodymium and.

[Sabri Ben Assure]

They'Re used to make magnets, the strongest permanent magnets on Earth. Two coffee mug sized magnets like these could crush the bones of your hand in the blink of an eye. And they are critical to the US's economic future.

[Stacey Vanek Smith]

The thing that makes our cell phones vibrate, the thing that makes a electric vehicle move, is a rare earth magnet.

[Sabri Ben Assure]

China produces 90% of the world's refined rare earths.

[Con Rysdal]

China is the big dog.

[Stacey Vanek Smith]

They are going to be the big.

[Neil Irwin]

Dog for many, many years.

[Sabri Ben Assure]

Curtis Moore is a senior vice president at Energy Fuels, a major uranium producer in the us.

[Con Rysdal]

They have invested heavily. There's a lot of government support for their rare earth industry.

[Sabri Ben Assure]

This has presented a problem for the us, says Scheider.

[Stacey Vanek Smith]

China has been using its ability in this space as an economic weapon.

[Sabri Ben Assure]

It's restricted the supply of critical minerals before and it's considering doing so again. So the US has been trying to get its own rare earth supply chain off the ground.

[Con Rysdal]

We are really on The Verge @MP Materials of restoring the full rare earth supply chain in the United States.

[Sabri Ben Assure]

Matt Sloester is head of corporate affairs at MP Materials, which owns the Mountain Pass Rare Earth mine in California. It's the largest mine focused on rare earths in the world.

[Con Rysdal]

So now we can extract the material.

[Sabri Ben Assure]

We can process the material, and then.

[Con Rysdal]

We can refine it into a usable form factor.

[Sabri Ben Assure]

MP Materials has also built a magnet manufacturing facility in Texas. Energy Fuels, the uranium miner has also begun refining a growing list of rare earths. But once the US has passed the technical challenge, there's the economic one. China produces very cheaply, but US Costs have gone up. Chris Barry is president of House Mountain Partners.

[Con Rysdal]

Because of inflation throughout the economy, the cost of capital of these domestic mining and metals projects has risen rather dramatically, upwards of 30%.

[Sabri Ben Assure]

Finally, Barry says tariffs have thrown in an element not on the periodic table, the element of uncertainty. In New York, I'm Sabri Ben Assure for Marketplace.

[Con Rysdal]

One more item from that Cabinet meeting that's in our wheelhouse. The president was asked about tariffs on Canada and Mexico, which he said two days ago would start next week, March 4th. Today he said, and here I quote April 2nd for everything. Stay tuned. A whole lot of things changed in this economy in early 2020. The labor market, supply chains, grocery shopping, too. When so many of us started ordering online to get things delivered right to our doorstep, Instacart was in a perfect position to capitalize on that pandemic moment. And it did. But fast forward to today and the company's outlook is, well, not so great. In its earnings call this week, Instacart reported lower revenue than expected and worse, said there's going to be a slowdown in growth in the coming quarter. So half a decade on from the start of the pandemic, Daniel Ackerman has more on the prospects for the grocery delivery business.

[Gila Ba]

Instacart sales quadrupled in the first year of the pandemic for obvious reasons. And while many shoppers returned to grocery stores in person, online ordering has held its own in the last five years.

[Sabri Ben Assure]

There has been growth consistently across the period, but it has come in fits and starts.

[Gila Ba]

Neil Saunders is managing director at Global Data, and he says in theory there is still plenty of headroom for grocery delivery.

[Sabri Ben Assure]

Grocery is still one of the lower.

[Con Rysdal]

Penetrated categories within retail for online purchasing.

[Gila Ba]

But realizing that growth could be hard, says Saunders, not least because grocery stores Are some consumers happy place?

[Sabri Ben Assure]

People like to sometimes touch and see.

[Neil Irwin]

The things that they're buying, but also.

[Sabri Ben Assure]

If they're buying something for a meal in an evening, they often like to see what's available. They want the inspiration of buying in store.

[Gila Ba]

Grocers like Kroger and Walmart are building out their own delivery services. So Bobby Gibbs, a retail consultant at Oliver Wyman, says, it's a crowded market. You're seeing more competition as a lot of the rideshare services have moved more into grocery fulfillment. Then there's inflation, which is once again changing which products we buy, says Sucharita Kodali, a retail analyst at Forrester.

[Stacey Vanek Smith]

One of the biggest signals of inflation these days is eggs. Eggs and actually steak too. And those are two categories which are fairly inelastic in demand, meaning people will.

[Gila Ba]

Buy their steak and eggs anyway, but.

[Stacey Vanek Smith]

When they do, there's sticker shock. And that, I think, necessarily has an adverse impact on adding other items to your cart.

[Gila Ba]

Instacart did report consumers are spending a bit less per order on average. And Kodali says this all speaks to something broader, something we've been hearing about in survey after survey lately.

[Stacey Vanek Smith]

Just general consumer malaise.

[Gila Ba]

Kodali says pulling back on services like grocery delivery could be a theme in the year to come. I'm Daniel Ackerman for Marketplace.

[Con Rysdal]

This final note on the way out today, in which I kind of get it, but I don't really get it. Saw this in Bloomberg that more than a billion people are watching podcasts on YouTube every month. They are watching podcasts. First of all, if you're watching a podcast, is it even a podcast anymore? But also, am I the only one who listens listens to podcasts when I'm walking the dog or working out or cooking or whatever? Wait, don't answer that. YouTube, by the way, says it was a pandemic thing. That's when people started watching podcasts also. Hey, you kids, get off my lawn. Sorry. Our media production team includes Brian Allison, Jake Cherry, Jessyn Dooler, Drew Jostad, Gary O'Keefe, Charlton Thorpe, Juan Carlos Torado and Becca Weinman. Jeff Peters is the manager of media production. I'm Kai Rysdal. We will see you tomorrow. Everybody, this is APM.