Marketplace - Consumers are still consuming

Episode Date: July 16, 2024

Retail sales numbers released today show spending was flat last month. But if you look a little deeper, you’ll see Americans spent more in June than May. What does this mean for the Federal Reserve as it considers lowering interest rates? Also: Homebuilders are feeling a little less confident, and AI is trying to read emotions. Plus, the nocturnal sprint at UPS’ one-day-shipping hub.

So how's that soft landing looking? More evidence today from the retail economy. From American public media, this is Marketplace. In Baltimore, I'm Amy Scott in for Kai Rizdal. It's Tuesday, July 16th. Good to have you with us. Today's lead story is another tale of the remarkable resilience of the American consumer. The latest retail sales report for June from the Commerce Department says spending held up better last month than many economists expected. Overall, retail sales were flat compared to figures for May,

which were revised higher. Dig a little deeper though, and the picture looks even brighter. Marketplace's Sabri Benashour has that story. It was the price of soy milk that did it for Ben Lee. I've been collecting receipts from all these different grocery stores. Lee is 34, lives in Brooklyn, and this year he decided to go hard on comparison shopping. At like Target, like a bottle of soy milk could be like $4.99 now, but at the local Fresh Associated, you know, it's $6.50.

He says he wanted to support local small grocery stores, the little guys, the mom and pops, but that soy milk price tag was just a no. And so, you know so I've definitely avoided the smaller grocery stores as of late. Economists have wondered if this kind of increasing price sensitivity was gonna result in consumers spending less. And at first glance, that looked like it could be the case

with today's retail sales numbers. The overall number was flat with automobile sales down at least 2 percent. But that, it turns out, was an illusion. The software company that provides a lot of the back office software for car dealers was hacked. Eric Winograd is chief economist at Alliance Bernstein. And that resulted in a dip in auto sales because dealers were struggling logistically.

So the car sales don't really count. Consumers spent less on gas too, but that's because gas prices fell. So when you take all that stuff out, we actually spent more in June, 0.8% more than in May. Some of the bright spots in June were housing related goods. Lydia Bussour is senior economist at EY. If you look at furniture, that category was up 0.6%. You know, if you look at online shopping, that was also quite strong at 1.9%. So consumers may be becoming pickier, but they're still consuming.

Scott Helfstein is head of investment strategy at Global X ETFs. The labor market is still relatively healthy. Household balance sheets are relatively healthy. And that's what keeps the consumer going. And if the consumer keeps going, the economy does too. In New York, I'm Sabri Beneshor for Marketplace. Wall Street kept going today.

We'll have the details when we do the numbers. Those retail sales numbers are the latest sample of the data Fed officials are watching as they get ready to vote later this month on interest rate policy. Recent signs that inflation and the job market have cooled off help make the case for a rate cut before long. It's the equivalent of easing the brakes off the economy a little bit. So how does resilient demand from consumers affect that case? Courtney Brown covers economics at Axios, also one of our Friday regulars. We got her on the line to give us some context. Courtney, good to talk with you. Good to be here. Thank you for having me.

So as we just heard, retail sales came in higher than forecast last month. What does that say about how consumers are doing right now? It says that the consumer is still kicking. I like the way one economist put it to me, which is the consumer may be down, but the consumer is not out. And I think that's really accurate. We've gotten some mixed signals in recent months about the health of the consumer. There's been this narrative that there's a spending slowdown, there's a spending slowdown,

but the data that we got for June kind of muddles that narrative a little bit. Hmm. How so? I mean, there have been some signs of stress, as as you mentioned but are there parts of this report that are stronger than others? Right, I mean you strip out gas and auto sales and you have this really right picture. All of the rest of the categories saw an increase in retail sales except except for one, this weird category that they call sporting goods and hobby shops and that like, and it just fell a little bit, but everything else looked pretty good. And so I think the big question is, was this data point an outlier or is it a sign that the retailer, the retail side of the economy and consumers are still doing okay?

So talking about some of the less positive signs, we have seen credit card balances up. Yesterday, the New York Fed reported an uptick in credit rejection rates. So people getting turned down for credit. You know, what does that say about how this might show up in the future? I think analyzing the economy has been quite easy. In the last year or so, we had a pretty clear picture of strong economic activity.

And most indicators pointed that way. So it was really easy to say, the economy is doing well. Now we have kind of these conflicting data points. As you say, credit card delinquencies are rising, the unemployment rate is going up. But then you have bright spots like this retail sales report. And those mixed signals, I think what that tells you is that the economy is at a turning point. And we're no longer in that state where everything is looking good. Things are a little bit confusing right now. Hmm. Well, it may be hard to answer this next question, but what does all this mean for how the Fed is

thinking about interest rates? I mean yesterday Chair Powell said in an interview that he was gaining some confidence that inflation was moving in the right direction. Does this change anything? I think it changes much. I think the story is still intact and the story has been yes the economy is slowing down but we're still on track for that soft landing. The job market is not as strong as it was before, but it's still good. Maybe consumers haven't been spending as much as they were before,

but they're still spending, as this retail sales report shows. And most importantly, inflation looks to be on a convincing downward path. And so all of that adds up, in theory, to a backdrop against which the Fed could cut interest rates, possibly as soon as September. What data are you going to be watching in the coming months as we get closer to September? I'm really interested in kind of the, quote, two-speed economy that we're seeing right now.

You, of course, have the headline numbers for retail sales, for instance, that look really good. But who's spending? Who is the economy doing well for? We're getting more and more anic data, if you will, that lower end consumers are really under pressure. And so we have to watch data like the retail sales report, another report that kind of gauges consumer spending but has a much bigger presence of the services sector that comes out later this month. We kind of kind of see how spending is holding up and if the lower end consumer is powerful enough is doing so poorly that it changes the whole picture of consumer spending in this country.

All right, Courtney Brown is a reporter at Axios. Thank you so much. Alright, take care. The sound of the human voice can tell you so much about a person beyond words. A pregnant pause here, some nervous laughter there, maybe a catch in the throat. All breadcrumbs for a deeper understanding of how someone is feeling. Maybe it's one reason you're listening to this program, as opposed to reading the news. Of course, guessing someone's emotions from how they sound is an imperfect science at best. But there are some folks in the artificial intelligence world trying to make it more perfect. Marketplace's Matt Levin takes us on a tour of emotionally

intelligent AI. The startup Hume AI has a demo of what it calls the first emotionally intelligent AI voice. It's called EVI, short for Empathic Voice Interface. Although I'm still not sure if I'm pronouncing its name right. My name's not EVI, but no worries. I'm so sorry, what's your name? On the screen appears a list of the emotional expressions the AI is detecting in my apology. Sympathy, empathic pain, and guilt.

Which is kinda how I sounded. I appreciate the sentiment, but just to clarify again, I'm Evie, not Evie. I'm so sorry, Evie, I'm stuck on your name. You said your name was Evie, not Evie. I'm so sorry, Evie. I'm stuck on your name. You said your name was Evie, not Evie? Oh boy, I can hear your frustration, and I totally get it. Well, let's clear this up. Once and for all, my name is Evie. So there's still some bugs to fix on the name thing.

Hume says this will be fixed in Evie 2.0, but Evie did detect I was getting increasingly frustrated. The screen said I was expressing confusion and contempt. Two of 48 emotional expressions, the tech claims to parse. Alan Cowan is Hume AI's CEO. Those 48 go way beyond what emotional scientists have historically studied, because we can collect data at a much larger scale to train these models and we can pick up on much greater variety of nuance. Hume's Empathic AI is trained on podcasts, other media, and recordings from psychological

experiments they conducted. The company also sells AI that analyzes facial expressions, all of which promises to help companies and chatbots better understand their customers. Eevee's price? it'll vary by client, but about 10 cents per minute. We have customers and customer service like lawyer.com. We have big tech companies using different technologies we've developed.

Lawyer.com uses Hume to improve its 1-800 line. Call centers are a natural fit for a technology that recognizes human frustration, but Callen has bigger aspirations, personal AI assistance that can really understand you, optimized for your well-being. And it learns from you over time, so it's more personalized to you. AI trained on your voice and facial expressions could one day tell you, hey, did you notice you get kind of tired and irritated around 3pm every day? Which sounds helpful, until a beguiling robot voice gently

reminds you Starbucks Frappuccinos are half off until four. We are more vulnerable to making unnecessary purchases at certain emotional states at certain times of day. Developer Ben Bland helps set ethical standards for empathic AI. He also worries about AI doing to our emotions what the smartphone did to our attention spans. If you have a computer game, adjust its settings according to some estimate of how excited and how much you're enjoying the game. You could develop an addiction towards the game, You could develop an emotional desensitization. Of course, all this presupposes that a robot can actually infer how you express emotions in some scientifically reliable way, which is still a matter of debate.

Andrew McStay is a professor of technology and society at Bangor University in the UK. I don't think these technologies work as well as is sometimes claimed by those who are marketing these. McStay points to studies of existing emotion recognition tech that assign more negative emotions to black men's faces than white men's, perpetuating harmful stereotypes. But he says there's also a broader question about what emotions really are, phenomena with biological expressions that you can neatly categorize, or something more subjective that varies too much from person to person to be measured.

Hey, I know who we should ask about this, Eevee, or whatever its name is. The variation in how people experience and express emotions is actually a key challenge in developing empathic AI like myself. But here's the thing, while there's definitely individual variation, there are also common patterns that make emotional intelligence possible. Beyond detecting the emotions of the human speaker, the screen also flashes what emotions Eevee is conveying with its tone. One of those emotions? Pride. I'm Matt Levin for marketplace

Coming up... Right now it's just one giant tube where we're obviously fitting these containers. That's one way to describe air travel. But first, let's do the numbers. The Dow Jones Industrial Average had its best day in more than a year, jumping 742 points, 1.8% to close at 40,954. The NASDAQ added 36 points, 0.2% to finish at 18,509, and the S&P 500 found 35 points, 0.6%, to end at 56.67. One of the big gainers today, Caterpillar, which is considered a bellwether company, the heavy equipment maker surged 4.2% after better than predicted results for its second quarter.

Other companies that just reported results in the midst of this earnings season include Bank of America, which spiked 5.3%. B of A turned in better than expected revenue and profits. Morgan Stanley also exceeded expectations and shares lifted 9 tenths percent. Bond prices rose. The yield on the 10-year T-note fell to 4.16 percent. You're listening to Marketplace. The planet is heating up, sea levels are rising, and if you're feeling overwhelmed by it all, you're not alone. There are things we can do to make a difference.

That's why we're answering your burning questions on this season of How We Survive, a podcast for Marketplace. Whether you want to reduce your home's carbon footprint, eat a climate-friendly diet, or you just want to ease your dread about climate change, How We Survive can help you navigate our changing planet. Listen to How We Survive wherever you get your podcasts. This is Marketplace. I'm Amy Scott. You know who doesn't like high interest rates? Homebuilders. Housing is one of the most sensitive parts of the economy to the cost of borrowing and that was evident in the latest housing market index out

today from the National Association of Homebuilders and Wells Fargo. At a time when many parts of the country need a lot more houses, home builder confidence fell for the third month in a row. Tomorrow we'll get the latest on the pace of actual building when residential construction numbers come out for June. Marketplace's Daniel Ackerman has this industry vibe check. The wind is not exactly at the backs of home builders right now. I think decidedly everyone is in the doldrums. Catherine Thompson is CEO of Thompson Research Group. She says the housing market is still kind of stuck thanks to elevated mortgage rates. Owners don't want to sell and give up their low interest rates on their current mortgages,

which means they're not looking for something new. So builders and their suppliers? They're just kind of on the sidelines waiting. The sidelines is where I found George Arroyo. I refuse to jump in because of the uncertainty. Arroyo runs Arroyo Custom Homes in Raleigh, North Carolina. He says his building business is in a holding pattern. Just like new mortgages, loans for construction also have higher interest rates right now.

And Arroyo says it's too risky for him to take one out. I'm not a gambler, right? So I mean, I'm just not going to play. Instead of building, Arroyo says he's focusing on other endeavors. I find that the remodeling right now is a more stable and viable business. But looking ahead a few months, the outlook for home building becomes a bit better. I would say it's cautious optimism. Jim Tobin is CEO of the National Association of Home Builders. And he says builders, like the rest of us, are keeping a close eye on the federal reserve.

We may see one, if not two rate cuts in the back half of this year. He says that would be welcome news for builders. Lending rates for construction loans are also going to fall and that's obviously the lifeblood of the industry to start new projects. A stronger market for new homes could then boost related industries like the renovations George Arroyo does. Catherine Thompson of Thompson Research Group says when current homeowners finally decide to upgrade, then they would sell their existing house, which drives repair and remodel. Because she says sellers might opt for a flashy new paint job and landscaping or shore up that leaky roof. I'm Daniel Ackerman for Marketplace. Kirsten Schwab took us inside a UPS warehouse in Louisville, Kentucky to get a better understanding of how online shopping has transformed the way companies store and ship goods. But

what happens at the warehouse is only one piece of the equation. One or two day shipping often requires air travel and most major logistics companies have their own airport operations. For UPS that's Worldport in Louisville. Most of what the company ships for next day delivery passes through the hub, usually in the middle of the night. Here's Kristen again at around 11 p.m. You know how Disney World is so big it kind of operates like its own tiny town? UPS's Worldport might not be the most magical place on Earth, but it does sort of run like a theme park. There goes one of the Disney shuttles. Jeff Sirota, vice president of Worldport operations, points at one of the employee buses.

Worldport is the size of 90 football fields, employs 13,000 workers, and processes around 2 million packages daily, which is why it has its own infrastructure. There's a hotel of sorts for pilots who need to rest. We have food trucks on property, actually spread out all throughout the facility. This one's slinging tacos. Worldport also has its own meteorologists, mechanics, pilots, and a training facility

with maybe the most Disney-adjacent thing of all, flight simulators. Five hundred. and manage to taxi, take off and fly without too much trouble. Then comes the landing. I don't think I'll be flying a plane anytime soon. Well, what does that have felt like? My back would probably be hurt. All of my back would probably be hurt. I don't think I'll be flying a plane anytime soon. Cirota says around 300 UPS flights take off and land here every day, mostly in the middle of the night when traffic at the commercial side of the airport is practically non-existent. This aircraft literally just arrived, so we're greeting the aircraft with our cruise there right now. It's around midnight. This 767 came from Newark, New Jersey. And the cargo inside is a mix of stuff, mostly products straight from manufacturers

and products ordered by shoppers just hours ago that have already been packaged for delivery. These goods are stopping at Worldport for a layover of sorts before catching a flight to their final destination. We watch as workers wheel out a lift that raises up to a line with the cargo door of the plane. They started loading large steel containers two at a time. From the outside, it looks like a regular airplane, but on the inside, there are no seats or bathrooms or luggage bins. What we're looking at right now is where the people would generally be. The seats would be in that top side.

Right now it's just one giant tube where we're obviously fitting these containers in. Containers shaped exactly like the inside of the airplane, curved on top to match the roof and flat on the front, back, and bottom so they can puzzle piece perfectly together. Some of them have a different shape because of the different compartments of the aircraft have different shapes. So we literally are maximizing as much of that airframe as we possibly can. Air freight is expensive and every inch counts. Workers lower the containers to the ground.

Two people walk over and start pulling one toward the building with relative ease, even though with cargo inside, it could weigh as much as 10,000 pounds. So the wheels on the floor help us move the containers that come off of the aircraft. I look down. There are rows of small wheels everywhere, outside on a floor covering the pavement, inside on the floor of the facility.

They're actually in the planes, too. The wheels are almost flush with the ground, raised up just enough for the containers to roll over them. The only way we're gonna be able to move those around inside the building is on this caster deck system. Two people, we can move the majority of our containers inside the facility. After the containers are rolled inside,

workers unload the cargo and sort it by destination. This part of Worldport is industrial and loud. It's mostly a massive conveyor belt system. I'm talking multiple floors, layers and layers of conveyor belts, 155 miles of them. And they shuttle packages around fast. Because with one day shipping, UPS can't waste a minute. Within 15 minutes, the majority of those packages are gonna be ready for their outbound load.

Everything that's been flown or trucked in today goes out tonight, except in the case of bad weather, which is rare. UPS picked Louisville because it doesn't get a lot of extreme heat or snow. Plus, it's a central-ish American city. At the facility's busiest hour, a UPS plane takes off every minute.

Once we get into the meat of the launch, we're departing one after another. Sure enough, as we're leaving around 2 a.m., the airport is buzzing with activity. Planes with brown UPS tails line up at nearly every gate and taxi around the runway. Worldport will be abuzz until around 5 a.m. when the final planes depart. On a clear night like tonight you can see the aircraft

with little white dots in the sky lined up coming in and when they go out it's literally one after another. And this is what it takes. Thousands of workers, miles of conveyor belts, one plane after another taking flight to get you that avocado slicer or weighted blanket you impulse ordered and get it to you tomorrow. In Louisville, Kentucky, I'm Kristin Schwab for Marketplace. This final note on the way out today, as many parts of the country continue to swelter, today more than a dozen state attorneys general asked FEMA, the Federal Emergency Management Agency to update its rules to make extreme heat and wildfire

smoke events eligible for major disaster declarations. The move, first requested by a coalition of unions and advocacy groups last month, would provide funding and other federal assistance to help protect residents. The letter was signed by 13 Democratic state attorneys general and their counterpart in D.C. And it notes that last year, more than 2,300 Americans died from heat exposure. That's from an AP analysis of federal data. And it's a record. Our digital and on-demand team includes Carrie Barber, Jordan Mangy, Dylan Mietinen, Janet

Nguyen, Olga Oxman, Ellen Ralthus, Virginia K. Smith, and Tony Wagner. Francesca Levy is the Executive Director of Digital and On Demand. And I'm Amy Scott. We will be back tomorrow. This is APN. Hey everyone, it's Rima Grace, host of This Is Uncomfortable, here to let you all know about our summer book club. Every other week, we're going to recommend a book that our team loves that gets at some

uncomfortable topic around money, class, our relationship to work. We'll feature a wide range of recs including classics like E.M. Forrester's A Passage to India, page turning novels like Naomi Alderman's The Future, and personal finance books like Paco de Leon's Finance for the People. Join This is Uncomfortable's Book Club by signing up for our newsletter. Be sure to sign up today at marketplace.org slash book club.