The housing sector droops under a labor shortage and price hikes

Summary

Marketplace Podcast Summary Episode: "The Housing Sector Droops Under a Labor Shortage and Price Hikes" Release Date: November 26, 2024

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Introduction

In this episode of Marketplace, host Kai Ryssdal explores the multifaceted challenges facing the housing sector, delving into labor shortages, rising construction costs, and the broader economic implications of proposed international tariffs. The discussion is enriched with expert insights, real-world examples, and data-driven analysis, making complex economic issues accessible to all listeners.

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Housing Market Challenges

Labor Shortages and Construction Costs

The episode begins with a deep dive into the current state of the housing market. Despite national home prices continuing to grow—increasing by 3.9% year-over-year in September according to the S&P CoreLogic Case Shiller Home Price Index—sales of new homes have sharply declined in October, as reported by the US Census Bureau. Justin Ho of Marketplace highlights that the downturn is not solely due to natural setbacks like hurricanes but is significantly influenced by labor shortages and escalating construction costs.

Key Points:

• Labor Shortage: Dhanushka Nanyakara from the National Association of Homebuilders emphasizes the industry's struggle to fill over 250,000 open positions. "We have an aging labor force. We need young people to go into trade schools. We need to attract women to come into the trades," Nanyakara states at [02:15].

• Rising Costs: The shortage of labor drives up construction costs, compounded by the scarcity of essential materials. Kai Ryssdal notes, "We have seen record high price growth in the last few years because we don't produce enough domestically" ([02:32]).

• Mitigation Strategies: Charlie Dougherty, senior economist with Wells Fargo, discusses how homebuilders are attempting to mitigate rising prices through mortgage rate buydowns and other incentives. However, elevated mortgage rates continue to dampen the home-buying process ([03:08]).

Material Costs and Tariffs

Greg Kuta, CEO of Westline Capital Strategies, provides insight into the fluctuating prices of construction materials like lumber, which has seen a significant 70% price drop since its peak two and a half years ago. However, he warns that potential tariffs on Canadian lumber could reverse these gains, adversely affecting both builders and consumers ([03:22]).

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Impact of Proposed Tariffs

Trump Administration's Tariff Plans

The conversation shifts to the international trade landscape, focusing on President-elect Trump's announcement to impose a 25% tariff on goods from Canada and Mexico, and an additional 10% on imports from China. Ana Swanson of The New York Times provides an in-depth analysis of the potential ramifications of these tariffs.

Key Insights:

• Trade Agreement Tensions: The proposed tariffs would breach existing trade agreements, such as the United States-Mexico-Canada Agreement (USMCA). Swanson explains, "This would definitely violate the terms of that agreement, which insists that, for certain products, tariffs should be zero" ([05:14]).

• Economic Consequences: Estimates suggest that these tariffs could cost the typical American family $1,300 annually, reduce GDP by 0.4%, and cut employment by 350,000 jobs. Additionally, core inflation could rise by 0.9% ([07:36]).

• International Responses: Canada and Mexico have expressed strong opposition, with Mexico prepared to retaliate with its own tariffs and Canada seeking to diffuse tensions through diplomatic channels ([06:16]-[06:22]).

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Consumer Spending and Retail Trends

Analyzing Real-Time Data

As the holiday season kicks into gear, Marketplace examines how retailers and investors are leveraging real-time data to understand consumer behavior. Kaylee Wells reports on the evolution of data analytics from basic credit card usage to sophisticated metrics like social media clicks and delivery app orders.

Highlights:

• Data Specificity and Timeliness: Matthias Vernengo, an economics professor at Bucknell University, notes that modern data sets are "much faster and localized and sectoral" compared to traditional metrics like quarterly earnings ([10:35]).

• Consumer Behavior Insights: Jonathan Chin of Factious observes that while consumers are spending more per transaction, the overall spending remains flat due to tighter budgets. Additionally, Chinese companies like Temu, Shein, and TikTok Shop have seen significant sales spikes this year ([10:58]-[11:30]).

Best Buy's Mixed Results

Stephanie Hughes discusses Best Buy's third-quarter performance, highlighting a 3% decline in comparable sales overall, offset by a 7% increase in laptop sales—the highest since April 2021. This surge is attributed to consumers upgrading outdated laptops, driven by factors like improved processor speeds and AI capabilities ([12:07]-[14:12]).

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Port of Baltimore’s Recovery and Future Prospects

Resilience Amidst Adversity

The episode features an interview with Sue Monahan, president and CEO of Baltimore International Warehousing and Transportation, who reflects on the port's recovery following the collapse of the Francis Scott Key Bridge eight months prior.

Discussion Points:

• Operational Challenges: Monahan describes a slow recovery post-collapse, compounded by a three-day port strike that disrupted vessel scheduling and delayed cargo arrivals ([18:34]-[19:17]).

• Strategic Adjustments: To mitigate future disruptions, the company is diversifying its logistics operations, handling direct deliveries from customers to warehouses instead of solely relying on port traffic ([20:04]-[20:28]).

• Anticipated Tariff Effects: Monahan anticipates an initial boost in port traffic as businesses attempt to import goods before potential tariff implementations, followed by a normalization phase similar to the COVID-19 surge ([21:49]-[22:22]).

• Business Resilience: Reflecting on recovery, Monahan emphasizes adaptability: "We didn't give up. We just shifted and did what we needed to do to keep the drivers running, to keep the warehouses operating, and we did. We were successful." ([22:07]-[22:41]).

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Yelp's 20th Anniversary and the Authenticity of Online Reviews

Celebrating Two Decades of User Reviews

Megan McCarty Carino explores Yelp's evolution over 20 years, highlighting its role in elevating local businesses and the complexities surrounding the authenticity of online reviews.

Key Themes:

• Prolific Yelpers: Richard Props, a Yelp Elite member, underscores the platform's impact on local communities by providing detailed and accessible reviews, especially concerning accessibility for wheelchair users ([23:40]-[24:21]).

• Business Growth Through Reviews: Luke Tobias of Futuro Pizza credits Yelp for driving his business growth during the pandemic and beyond, culminating in recognition as the number two pizza place in the Midwest ([24:09]-[25:06]).

• Challenges of Fake Reviews: Deena Maisland, a marketing professor, highlights that approximately 10% of online reviews are fake. Yelp combats this through user reports and algorithmic detection, though the system is not foolproof ([25:23]-[25:56]).

• Consumer Perception: Freddie Wong's strategy of seeking restaurants with precisely three and a half stars exemplifies the nuanced ways consumers interpret reviews, balancing factors like food quality and service expectations ([25:58]-[27:03]).

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Economic Indicators and Market Movements

Stock Market and Housing Stocks

Towards the episode's conclusion, Kai Ryssdal presents a snapshot of the financial markets:

• Stock Performance:

  • Dow Jones Industrial Average: +123 points (0.3%) to 44,860.
  • NASDAQ: +119 points (0.6%) to 19,174.
  • S&P 500: +34 points (0.6%).

• Housing Stocks:

  • Redfin: -2.1%
  • Zillow: +6.1%
  • Compass Inc.: +1.4%

• Bond Yields: The 10-year Treasury note yield rose to 4.29%.

Implications: These movements reflect investor responses to ongoing economic challenges, including labor shortages and international trade tensions, as well as signals from the Federal Reserve regarding interest rates and inflation control.

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Conclusion

The episode of Marketplace offers a comprehensive examination of the housing sector's current struggles with labor shortages and rising costs, framed within the broader context of international trade dynamics and consumer behavior. Through expert interviews and detailed analysis, listeners gain a nuanced understanding of how interconnected factors—from labor markets to global tariffs—are shaping the economic landscape.

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Notable Quotes:

• Dhanushka Nanyakara: "We have an aging labor force. We need young people to go into trade schools. We need to attract women to come into the trades." [02:15]

• Greg Kuta: "If the new Trump administration raises tariffs on imported Canadian lumber, guess what, prices rise from an industry that needs demand." [03:22]

• Ana Swanson: "These tariffs could cost the typical American family $1,300 a year. Trade with Canada, Mexico, and China accounts for more than a third of U.S. imports and U.S. exports." [07:36]

• Charlie Dougherty: "We didn't give up. We just shifted and did what we needed to do to keep the drivers running, to keep the warehouses operating, and we did. We were successful." [22:30]

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This summary encapsulates the key discussions and insights from the episode, providing a clear and detailed overview for those who have not listened to the podcast.

Transcript

[Amy Scott]

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[Justin Ho]

This Marketplace podcast is supported by Odoo. Why waste time and money on disconnected management platforms when Odoo has everything any business will ever need in one simple, affordable, user friendly software? That's why it's time to switch to Odoo.

[Kai Ryssdal]

Sign up [e-mail] Weakness in the housing market, a brewing trade war with our closest neighbors, and a look at 20 years of Yelp. Stick around From American Public Media, this is Marketplace in Baltimore. I'm Amy Scott in for Kai rysdahl. It's Tuesday, November 26th. Good to have you along. We'll start with some housing news first. Home prices nationally kept growing in September, though more slowly than the month before. That's from the s&P CoreLogic Case Shiller Home Price Index, which rose 3.9% from a year before. Number two from the US Census Bureau. Sales of new homes fell sharply in October. Some of that weakness was expected as parts of the south are still recovering from Hurricanes Helene and Milton. But as Marketplace's Justin Ho reports, other issues are weighing on the market for new homes and the companies that build them.

[Justin Ho]

A big challenge that homebuilders are dealing with is the amount of available labor. Dhanushka Nanyakara with the national association of Homebuilders says the industry has more than 250,000 open positions it's trying to fill.

[Charlie Dougherty]

We have an aging labor force.

[Justin Ho]

We need young people to go into trade schools. We need to attract women to come into the trades, nanya Kara says. That shortage pushes up construction costs. Construction materials, including electrical transformers, are also in short supply.

[Kai Ryssdal]

We have seen record high price growth in the last few years because we don't produce enough domestically.

[Justin Ho]

And then there's the sheer price of new homes. Charlie Dougherty, senior economist with Wells Fargo, says homebuilders do have some tricks they can pull to take the edge off sticker prices, including mortgage rate buydowns and other incentives.

[Amy Scott]

But at the end of the day.

[Justin Ho]

Mortgage rates are elevated.

[Amy Scott]

And I think that just discourages the.

[Justin Ho]

Home buying process overall. Some of these issues have gotten a little better recently. Mortgage rates are lower than they were this time last year. And Dougherty says material prices have started to calm down.

[Amy Scott]

Right.

[Justin Ho]

They're still very elevated compared to where.

[Amy Scott]

They were, say, back in 2019. But the pace of growth has been fairly steady and to the benefit of home builders, more predictable.

[Justin Ho]

One input that's actually gotten cheaper recently is lumber. Greg Kuta, CEO of Westline Capital Strategies, says prices are down more than 70% since their recent peak about two and a half years ago. But Kuta says, remember, we get a lot of our lumber from Canada. And if the new Trump administration raises tariffs on imported Canadian lumber, guess what prices rise from an industry that needs demand. That's, you know, the home builder industry, the softwood lumber industry. It's definitely tough to say that an increase in tariffs is going to benefit the consumer, especially since right now, Kuta says homebuyers can't really stomach any more price increases.

[Kai Ryssdal]

I'm Justin Ho for Marketplace Wall Street Today unfazed. We'll have the details when we do the numbers coming back to those tariffs Justin was talking about yesterday, President elect Trump made international waves when he announced plans to impose tariffs of 25% on all goods coming into this country from Canada and Mexico, plus an extra 10% on all imports from China. Here to talk us through what that might mean for us international trade agreements and consumer prices is one of our weekly Wrap regulars, Ana Swanson at the New York Times. Ana, good to have you back.

[Ana Swanson]

Thanks so much for having me.

[Kai Ryssdal]

So we have had a free trade agreement with Canada and Mexico in place, what, for three decades now, the last agreement signed by Trump himself in 2020, would this basically tear up that deal?

[Ana Swanson]

So it would definitely put a lot of pressure on it. And that's kind of one of the ironies of what the President Trump, what President elect Trump was talking about last night. The three countries, Canada, Mexico and the United States, have had a free trade agreement for more than three decades. That's led our economies to be very tightly knit together in his first term. President Trump criticized that agreement, nafta, as the worst trade deal ever negotiated. And he replaced it with something called the United States, Canada, Mexico agreement. Now, what he's proposing, a 25% tariff on both of those countries would definitely violate the terms of that agreement, which insists that, you know, for certain products, tariffs should be zero and that if you have a trade dispute, you should handle it through certain channels. So it remains to be seen, you know, what would happen to President Trump, President elect Trump's own trade deal if those tariffs do go through.

[Kai Ryssdal]

How are those countries, Canada and Mexico, responding to this announcement?

[Ana Swanson]

So there was a lot of activity immediately from officials in both of those capitals. A lot of concern, of course, about what this could do. The Mexican president put out a statement today saying that, you know, she had already been working with the United States on migration and that tariffs weren't the answer, that they would hurt industries that go across the US Mexican border. But still Mexico is prepared to respond with tariffs of its own. Canada has similarly talked about drawing up its own tariffs, and officials there today said that they would work with President elect Trump to try to diffuse the tensions. There was also one opposition leader who suggested, if we need to, we could just jettison Mexico entirely from the US Mexico Canada agreement. Not sure that will be too popular down in Mexico.

[Kai Ryssdal]

Wow. Yeah. I mean, so we know that tariffs are paid by companies that import products and then passed on to their customers. Justin was just talking about the potential effect of higher lumber tariffs on housing. So what would the consequences be for other industries and their customers?

[Ana Swanson]

Well, the estimates are still coming out, but I did see that there were some estimates today by for example, the center for American Progress, which is a left leaning think tank, that a 25% tariff on Canada and Mexico and a 10% tariff on China would cost the typical American family $1,300 a year. There were also other estimates, for example, from the Tax foundation, that the tariffs could reduce GDP by 0.4%, cut employment by 350,000 jobs. Another estimate by Goldman Sachs talked about pushing up a core inflation index closely watched by central bankers by 0.9%. So definitely some economic impact, because after all, these are America's three largest trading partners. Trade with Canada, Mexico and China accounts for more than a third of U.S. imports and U.S. exports, and it supports tens of millions of jobs. So there's a lot on the line with these trade relationships.

[Kai Ryssdal]

All right, well, we hope to have you back to talk more about this as it becomes more clear. Again, this was just a social media post. It's hard to know what exactly is going to happen with these proposed tariffs. Anna Swanson, writing about trade at the New York Times, thanks so much. Thank you. I'm sure you haven't noticed, but the holiday shopping season is already upon us. And while many of us are busy making lists and hunting for Black Friday bargains, retail analysts and investors and consultants will be watching us closely to see how people are spending more and more. Those analysts are looking at real time data, credit card swipes and mobile app clicks, and basically anything that might give a glimmer of insight into why consumers do the things they do. Marketplace's Kaylee Wells has more.

[Kaylee Wells]

This whole industry of different data types is older than you might think. Darrell Smith is head of research at the firm New Data, and he says it all started with analyzing the details of where people were using credit cards and what they were buying.

[Justin Ho]

That is really something that's been used.

[Stephanie Hughes]

For what, since the early 2000s by hedge funds and asset managers.

[Kaylee Wells]

Now the data includes footfalls like where you're physically shopping, satellite images of store parking lots, delivery app orders, social media clicks. The list goes on.

[Justin Ho]

It's kind of another plane of information that an investor might be accessing.

[Kaylee Wells]

There are two main selling points here. One is how specific the data can be. Matthias Vernengo is an economics professor at Bucknell University who says unlike traditional data sets like quarterly earnings and company filings.

[Justin Ho]

They get much faster and localized and sectoral.

[Kaylee Wells]

And in addition to specificity, Vernango says the data provides insights in real time much faster than, say, the consumer confidence index.

[Justin Ho]

When people ask me about, oh, but consumer confidence is low, I said, yeah, well, who cares? I mean, it's lagging data.

[Kaylee Wells]

As for this holiday season, Jonathan Chin says he's already seeing signs of price pressure. He is co founder of a data company called Factious that analyzes credit card use.

[Justin Ho]

Things are just expensive and people's wallets are a lot tighter and I'm seeing some of that in the data. People are spending more, but they're getting.

[Kaylee Wells]

Less stuff, he says. People are spending more on each transaction, but the total amount they're spending is flat. Also, it's a big, big year for Chinese companies selling affordable products. Temu Shein and TikTok Shop have all seen spikes in sales this year. I'm Kaylee Wells for Marketplace.

[Kai Ryssdal]

Sticking with how consumers are spending money, the electronics retailer Best Buy did not have its best quarter today. The company said its comparable sales for the third quarter fell about 3% from the same time a year ago. One exception, though. Sales of laptops grew 7% year over year. The biggest increase, Best Buy said today in its earnings call since April 2021. Marketplace's Stephanie Hughes has more.

[Stephanie Hughes]

This fall, Joshua Spokes is taking a graduate level course in geospatial analysis. His computer needs to be able to wrangle some hefty data sets, and his old laptop just wasn't cutting it.

[Amy Scott]

Even when I closed other applications, it was still struggling to the point that basically like it wasn't able to run.

[Justin Ho]

What I needed it to run.

[Stephanie Hughes]

So about 10 days ago, spokes bought a new laptop. It cost just under $2,000.

[Amy Scott]

It's really nice to have something that's just a lot snappier.

[Stephanie Hughes]

People typically replace their laptops every three to four years, says Seth Basham with Wedbush Securities. And remember what a lot of us were doing four years ago? Hunkering down and buying computers.

[Amy Scott]

Consumers who bought laptops during the pandemic now are sitting there with laptops that are outdated in terms of battery life.

[Justin Ho]

Processor speed, et cetera.

[Stephanie Hughes]

Basham says that desire to upgrade is driving laptop sales at Best Buy and across the electronics industry, he says there's a similar replacement cycle for tablets where sales have also been popping up.

[Amy Scott]

There's a life cycle to every gadget that you buy.

[Stephanie Hughes]

Some argue for extending that life cycle, like Kyle Wiens. He's the CEO of the online repair guide Ifixit. It also sells parts and tools, some of them through Best Buy. And he says the first thing that peters out in a laptop is the battery.

[Amy Scott]

There are pouches of chemicals and they.

[Justin Ho]

Wear out just like the battery in.

[Amy Scott]

Your car wears out. You have to replace it every so often. And it's actually really straightforward to replace.

[Justin Ho]

The battery in most laptops.

[Stephanie Hughes]

Wean says he's also a fan of buying a laptop where it's easy to add new memory or storage to it or take it out if need be.

[Amy Scott]

My wife spilled wine on her laptop the other day and we just pulled.

[Justin Ho]

Her memory module out, stuck it in.

[Amy Scott]

Another laptop and she was good to go.

[Stephanie Hughes]

Another thing that could drive sales in the future, laptops with AI capabilities. Wedbush's Seth Basham says as those computers become more advanced, more people will be willing to buy one. I'm Stephanie Hughes for Marketplace.

[Justin Ho]

Coming up, you're being lied to by the five star system.

[Kai Ryssdal]

I knew that place was overrated. But first, let's do the numbers. The Dow Jones Industrial Average rose 123 points 3 10% to finish of 44,860. The NASDAQ added 119 points, a little over 6/10% to close at 19,174. And the S&P 500 gained 34 points. 6. 10%. And at 60:21. Today a U.S. district Court Judge in Missouri granted final approval to that big national association of Realtors settlement over broker commissions. Checking in on some housing stocks. Redfin fell 2. 10%. Zillow deposited 6. 10% and Compass Inc. Traded up 1.4%. Bonds fell. The yield on the 10 year T note rose to 4.29%. You're listening to Market.

[Amy Scott]

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[Megan McCarty Carino]

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[Kai Ryssdal]

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[Ana Swanson]

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[Kai Ryssdal]

Brokerage Services LLC Member NYSE SIPC this is Marketplace. I'm Amy Scott. It was eight months ago that the Francis Scott Key Bridge in Baltimore collapsed, killing six workers and closing the port for weeks. During that time, I met Sue Monahan, president and CEO of Baltimore International Warehousing and Transportation. She'd had to lay off truck drivers and then send them long distances to pick up goods from other ports. Today, the Maryland Port Administration figures the Port of Baltimore is back to about 85% of its typical vessel traffic. So we called up sue to check in. Good to talk with you again.

[Charlie Dougherty]

Nice to talk to you too.

[Kai Ryssdal]

We last talked, I guess, in July when the Port of Baltimore was just opening back up. And at the time you said business felt touchy. How has it been since then?

[Charlie Dougherty]

Well, it's definitely picked up in November, but it still was pretty spotty through August and September. A lot of the business didn't return right away. We still had cargo coming into Norfolk, so we kind of lost that transportation piece of the business that we would have had out of Baltimore.

[Kai Ryssdal]

And then there was that three day port strike that affected Baltimore. How did that affect your business?

[Charlie Dougherty]

That affected our business. It really shut down the port for a week. And then because the vessels were delayed, we didn't have everything coming in for a couple weeks. So we were really slow a couple weeks after that. And I think that had to do with vessel scheduling.

[Kai Ryssdal]

Is this a busy time for you or is the holiday rush already over?

[Charlie Dougherty]

Because we have so many different kinds of products that we store, we experience it differently. We don't always handle a lot of retail, but we suspect that we might have a lot more cargo coming in to try and beat a potential strike for January. Because they haven't settled the negotiations yet, right?

[Kai Ryssdal]

It was a tentative deal, so you could be facing that all over again.

[Charlie Dougherty]

Yes.

[Kai Ryssdal]

And how do you gear up for something like that?

[Charlie Dougherty]

Well, we do have someone that's handling business development, and so we are looking to diversify so that not everything is coming from the port so that we can handle deliveries that are coming, you know, a direct customer to another customer. Instead of port to customer, port to warehouse. So we have been successful, you know, picking up some cargo that way.

[Kai Ryssdal]

What are you hearing from your clients as they return to Baltimore and start using your port again? Have things gotten somewhat back to normal since the bridge collapsed?

[Charlie Dougherty]

I would say that they have. I think that, you know, most of the clients are happy to be back in Baltimore. We did lose a small amount of business to New York and Norfolk where people were able to make some kind of concession that made it more attractive for them to move through those ports. It wasn't significant, but it was there.

[Kai Ryssdal]

And some of those customers have stayed with those ports.

[Charlie Dougherty]

Yes.

[Kai Ryssdal]

How do you win them back? Do you have a pitch that you give?

[Charlie Dougherty]

It's pretty much time if they can get the same service. A lot of people are really driven by pricing right now. So it's cheaper to go into New York and Norfolk ocean freight wise, but we are inland, so the inland freight is less expensive, so it depends on where exactly those customers are going from.

[Kai Ryssdal]

As you know, the incoming Trump administration has promised to raise tariffs on many imports. Does that worry you at all in terms of the potential impact on the customers that you serve?

[Charlie Dougherty]

We suspect that people will try to bring in cargo prior to any tariffs that could go into effect. So that might be another driver. It might have an increase in traffic coming in to any port, actually.

[Kai Ryssdal]

So you might see an initial boost.

[Charlie Dougherty]

Yes, I suspect it'll be somewhat like Covid was, that everybody was bringing in a lot of product and then it'll fall off again as there's some level of, if you can call it normalizing after that.

[Kai Ryssdal]

Were there lessons that you learned as a business owner from all this and the recovery?

[Charlie Dougherty]

We didn't give up. We just shifted and did what we needed to do to keep the drivers running, to keep the warehouses operating, and we did. We were successful.

[Kai Ryssdal]

All right, Sue Monahan, running Baltimore International Warehousing and Transportation. Thank you so much.

[Charlie Dougherty]

Thank you.

[Kai Ryssdal]

This next piece is one of those anniversary stories that can make you think, wow, has it been that long? And also, was there ever a time this thing didn't exist? That thing in this case is Yelp, which this fall is celebrating its 20th birthday. The user review platform launched in late 2004 and has now accumulated almost 300 million reviews worldwide. Marketplace's Megan McCarty Carino has this review.

[Megan McCarty Carino]

Reviews are everywhere, but only a small share of customers actually take the time to write them. Richard Props has written more than 1700.

[Amy Scott]

I think I'm one of the first Yelpers who figured out there was a word limit.

[Megan McCarty Carino]

Propz has been a Yelp Elite member in Indianapolis for 11 years. It's a designation for the most prolific and insightful Yelpers. He mostly writes about restaurants, but also doctors and medical services.

[Amy Scott]

Because I am somebody who's a very active wheelchair user, I do kind of feel a responsibility to review as much as I can because, you know, obviously people in wheelchairs want to get out too.

[Megan McCarty Carino]

Prop says including accessibility in his assessments is the kind of thing you might not find in your average newspaper restaurant review. He says platforms like Yelp also help to elevate businesses that are off the beaten track, like Futuro Pizza a few miles away, which Luke Tobias started in his own Indianapolis home. During the pandemic, he says Yelp was instrumental in communicating with customers and getting their feedback. Once he moved the operation into an actual restaurant in early 2021, you couldn't.

[Justin Ho]

Even go into A restaurant at that.

[Megan McCarty Carino]

Time with a tiny staff and a new baby, Tobias kept limited hours and asked customers to order a day in advance. Still, online reviews helped grow the business.

[Justin Ho]

People started finding out about it and people started really talking about kind of the quality of pizza.

[Megan McCarty Carino]

This year, Yelp named Futuro the number two pizza place in all of the Midwest. But as soon as online reviews became powerful, even years ago, it also was.

[Justin Ho]

Very clear that they could be easily faked.

[Megan McCarty Carino]

Deena Maisland is a marketing professor at the University of Southern California. She says about 10% of online reviews are fake, and AI tools have made forgeries easier. Yelp, like many platforms, says it uses a combination of user reports and algorithms to detect fake or solicited reviews so they don't factor into a business's star rating. But even when reviews are genuine, they can be pretty noisy to interpret.

[Justin Ho]

You're being lied to by the Five Star System.

[Megan McCarty Carino]

YouTube star Freddie Wong's advice for finding authentic Chinese food went viral a couple years ago.

[Justin Ho]

Go on Yelp and look for restaurants with three and a half stars. Exactly three and a half. Not three, not four. Three and a half stars is the sweet spot for authentic Chinese food.

[Megan McCarty Carino]

The formula is based on Wong's theory that cultural differences and expectations can result in reviews being very polarized. A restaurant might have great food but lack the kind of touchy feely service many American consumers expect.

[Justin Ho]

Some people think service is very important. For me, I don't care.

[Megan McCarty Carino]

The same goes for things like parking, ambiance or portion sizes. Thus the sweet spot of three and a half stars. Lately, though, Wong says he's given up on online reviews.

[Justin Ho]

I would rather have a human being tell me, go to this place. This place is interesting. I trust that more.

[Megan McCarty Carino]

But to Richard Propst in Indianapolis, reviews are more than their star ratings.

[Amy Scott]

It's about local. It's about good people figuring out how to make the community better.

[Megan McCarty Carino]

His latest five star review just posted. For Luke Tobias, Futuro pizza, I'm Megan McCarty Carino for Marketplace.

[Kai Ryssdal]

This final note on the way out Today we got a peek into Fed deliberations on interest rates with the release of minutes from the last FOMC meeting November 6th and 7th showing that all 19 participants approved the quarter point rate cut decided at the meeting and that officials, quote, remained confident that inflation was moving sustainably toward 2%, although a couple noted the possibility that the process could take longer than previously expected. Our Digital and On Demand team includes Kerry Barber, Jordan Mangey, Dylan Mietinen, Janet Wynn, Olga Oxman Ellen Rolfes, Virginia K. Smith and Tony Wagner. Francesca Levy is the executive director of Digital and On Demand. And I'm Amy Scott. We'll be back tomorrow. This is apn.

[Justin Ho]

The kind of burgers you get today tells you a lot about yourself. You're either someone who settles for sad, same old, same old burgers or you're at a Carl's Jr obsessed with a tangy OG Western bacon cheeseburger, demanding a housemade guacamole, loaded guac bacon fired up for the insanely hot El Diablo or craving a classic Char Famous Star. Give into your flavor cravings. Do your mouth to Carl's Jr. Good Burger.