Marketplace - GDP keeps climbing

Episode Date: February 29, 2024

U.S. gross domestic product grew at a 3.2% annual rate in the fourth quarter of last year, demonstrating the persistent strength of the economy. America is an outlier — at least for now — among world economies that have hiked interest rates to quell inflation. Plus: Some New York office towers are being repurposed and repopulated as apartment buildings, airlines are expanding routes between smaller cities and analysts say consolidation could settle the streaming wars.

Hey, if you don't like this economy, you ought to check out all the others. From American Public Media, this is Marketplace. In Los Angeles, I'm Kai Rizal. It is Wednesday today, the 28th of February. Good as always to have you along, everybody. With the understanding that any given national economy is complicated, we begin today with a deceptively simple question about the big picture economic news of the day. Why? The Bureau of Economic Analysis updated its figures on economic growth in this country this morning. Gross domestic product grew at 3.2 percent, annualized, of course, in the fourth quarter of last year.

That is down just a hair from the first pass we got, which was 3.3 percent. But the relevant point here is this. This economy has been growing at a very healthy clip for a solid year and a half now. And when you poke your head up and look around at the rest of the world, that is real, real good. So, again, why? Marketplace's Sabri Beneshour has that and what might be coming around the economic bend. Canada, the UK, Germany, they raised interest rates to fight inflation just like we did. And you know what happened to their economies?

Not good things. They've all faltered to the point where the market is running close to zero. Paul Ashworth is chief U.S. economist at Capital Economics. More than faltered, those economies actually shrank at times last year because high and rising interest rates are a back-breaking burden, economically speaking. And yet, the U.S. has grown for six quarters in a row. It's almost incredible that the U.S. economy has taken that in its stride. So why did things turn out so differently here?

Part of that is the fact that the disinflation process has been more rapid than anticipated. Lydia Boussour is senior economist at EY. We got inflation down pretty fast. And that has allowed for some recovery in real disposable income. And so we consumers were able to spend more. Also helping us spend more, all that stimulus. Lauren Seidel-Baker is an economist with ITR Economics.

We got a little extra boost in our consumer from all of that pandemic-era stimulus. We're still feeling the echoes of that. Also helping, the U.S. has raked in a ton of investment from abroad, and government spending has helped too, says Matthew Luzzetti, chief U.S. economist at Deutsche Bank.

The government sector added around three-quarters of a percentage point to growth on average per quarter, which is a big additional boost to the economy. But on top of all that, higher interest rates just don't sting as many people in the U.S. because of a peculiarity in how we do mortgages in this country. They are long. They last for 30 years. Households are able to lock in 30-year fixed-rate mortgages at historically low rates.

So homeowners aren't hit over the head as often when interest rates go up, and they still have money to spend out in the rest of the economy. In Canada, mortgages are often reset after just five years, so more people are exposed when rates suddenly rise. But if the U.S. has been such an outlier for all these reasons, is it going to stay that way? I do see GDP growth coming back down to earth. Again, Lauren Seidel-Baker with ITR. Growth will slow down, she and many other economists predict,

but we should still be in good shape through the rest of the year. Knock on wood. In New York, I'm Sabri Beneshour for Marketplace. Wall Street today, traders really liked that GDP report. Until they didn't, we'll have the details when we do the numbers. Yesterday on the program, Amy Scott and Matt Levin told us all about starter homes, which historically have been a nice entry point for a lot of Americans into the real estate market. More challenging now, as Matt and Amy's story pointed out. Today, we turn to another slice of American real estate, a newer slice to be sure, and one not without its challenges, office conversions. On the face of it, post-pandemic, it just makes a whole bunch of sense to turn all those empty office buildings into affordable housing. It's happening in New York City, where the vacancy rate for rental apartments

is just 1.4 percent, the lowest it's been since the city started measuring in 1968. The city has set up what it's calling an office-to-housing accelerator to help owners and developers who do want to convert office buildings get through what can be a cumbersome process more quickly. But as Marketplace's Samantha Fields explains, smooth sailing it is not. For about 50 years, 160 Water Street in downtown Manhattan was an office building. And from the outside, it still looks like one, a 30-story glass box. But by the front, there's a sign, now leasing, studio one- and two-bedroom residences.

Hi. Hey, Malik. Samantha, yeah, how are you? Sam, nice to meet you. I met Malik Hajar in the lobby a couple of weeks ago. He's a senior project manager of real estate development for the Van Barton Group, which owns the building. The building was built in 1971.

You know, offices on the perimeter, cubicles right in the middle, carpet. The lighting wasn't the building. The building was built in 1971. You know, offices on the perimeter, cubicles right in the middle, carpet. The lighting wasn't the best. And so it definitely had an old office vibe. It definitely needed to be revamped. We're going to take the elevator up here. Instead of revamping the offices, the Van Barton Group focused on a different market opportunity, housing.

It spent the last two years converting this whole building into 588 high-end apartments. Right now we are in construction mode. You can see we have our appliances that are in the unit waiting to be installed. This is one of just four former office buildings in New York currently being converted into apartments. There are a number of challenges that explain why it really hasn't happened so far. Arpit Gupta is at the NYU Stern School of Business. That includes the physical challenges of how to literally transform the space from one use to the other. It includes the cost both of buying a building and doing major renovations. And then finally, there are regulatory hurdles,

which mean the rules may not be in place to allow such a conversion to take place. In New York today, only older office buildings in Midtown and Lower Manhattan are even eligible to be converted. That includes 160 Water Street. Two years into construction, Malik Hajar says some of the lower floors are done, and a few dozen tenants have even moved in. This is a studio. There's a galley kitchen along the wall to the right when you walk in,

a little table for two, and a double bed by the big windows, which reach almost to the ceiling. So this was an office. This was somebody's office. It doesn't feel like it. Hajar says there are a bunch of reasons this particular building was a good candidate for converting. We have windows on all three sides of our building, so we're lucky in regards to having the light and air. Though to get air flow, they had to replace more than 2,000 windows, because when this was an office building, they didn't open, which is a requirement for apartments.

because when this was an office building, they didn't open, which is a requirement for apartments. Other pluses? The building already had high ceilings, wide staircases, and a lot of elevators. However, from the elevator to the window line, you're having these very long, you know, 100-foot corridors that are just not going to get you the best kind of layouts. Remember, that's something Arpit Gupta mentioned as a common challenge with these kinds of conversions, finding a way to break up the long, dark floors of old office buildings. Here, they ended up basically cutting a hole and making a shaft in the middle of the building. Another challenge? Where do all my kitchen sinks and bathroom pipes go? Typically, Hajar says, on each floor in an office building, you have a men's room and a women's room in a central location, usually back to back on opposite sides of a wall. And maybe a kitchen. So if you want to turn each floor into 22 apartments. You have, you know, 22 kitchens per floor and 23 bathrooms.

The costs add up. It was definitely not cheap. And the apartments here won't be either. Studios start around $3,500 a month and two bedrooms at around $6,000 a month. He says that's the only way the math works. If the city or the state gives us an incentive component, you can add more affordable units as well. New York does not currently offer developers tax abatements for office-to-housing conversions. That is on the table this legislative session. But for now, without it, all these offices are just being turned into more expensive apartments. I'm Samantha Fields for Marketplace. As we just heard from Sam, housing comes in all shapes and sizes. Offices, sure. Another more mobile space, the more adventurous among us have converted

into housing. Vans, outfitted with a bed and cabinets, and if you're lucky, even a toilet. Here's today's installment of our series, Adventures in Housing. My name is Abby Jocelyn. I am currently living in my van in San Diego. van in San Diego. I officially moved into my van full-time in October of 2022. And since then, I have been all across the country. I had dreamt up van life. I had seen it on social media. I had, I remember telling my parents that I wanted to do it. And I mean, especially my dad was kind of skeptical. I had done everything in what parents would think of as the right way. You know, I had my master's, I got my CPA, I had a really good job. And he was like, you're going to give all that up to go live in a van?

Like, you're crazy. And I was like, no, this is what I want to do. At the time, I had posted on TikTok a little bit. I had like 100,000 followers. I wasn't monetizing it at all at the time. So I hit the road. I just started putting my all into social media. And within six months, I was no longer pulling anything from my savings. And I was able to just do social media full-time, which I'm also extremely grateful for. In total, my fixed expenses are about $2,000 a month. That being said, I do have a car payment that's $750 because I bought this van new, but that is technically my rent and my car payment. my car payment. Every van lifer's biggest fear is getting into an accident. And unfortunately,

that did happen to me this summer. Four of my airbags went off. There was a lot of parts on back order and it ended up taking me five months to get my van back. At the time I was in Bend, Oregon. I do feel really lucky that my parents are very supportive, but they're in Charlotte, Oregon. I do feel really lucky that my parents are very supportive, but they're in Charlotte, North Carolina. I was alone in Oregon. Now I have no vehicle. I also have no place to live. So it was just a very stressful situation. Now I'm back from running and I'm in San Diego and things are going really well. So I'm happy to be here. When I left, I had planned on a one to two year timeline. I was thinking that I was going to take a little sabbatical, probably after those two years, go back and get a normal corporate job again. And since I've been on the road for a year and a half now, and I have no plans of stopping, I can't imagine being done in six months. I feel like I haven't done everything that I wanted to do.

But I think it's just as long as I'm happy doing it, I'm going to continue to do it. And once I'm no longer happy doing it, then I'll consider making other arrangements. Abby Jocelyn, living life on the road right now in San Diego. Next month, though, who knows? Tell us, would you, about your adventure in housing? Marketplace.org is where you do that.

Coming up. It left. It came back with bullet holes. And they're like, now we need to cover this up and repaint it. And it's going back out and it's going to get blown up tonight. Stunt cars. They go through a lot, it turns out. First, though, let's do the numbers. Dow Industrials off 23 points today. about a tenth percent, 38,949. The Nasdaq gave back 87 points, half of 1 percent, finished at 15,947.

The S&P 500 dwindled eight points, two-tenths percent, 5,069 there. Paramount Global sank one and seven-tenths percent today for reasons you shall soon hear about. Netflix off nine tenths percent. Comcast down three tenths percent. Walt Disney Company added one and three tenths percent today. The online travel platform Expedia is cutting nearly nine percent of its workforce. That amounts to about fifteen hundred jobs. Expedia shares travel down about a half percent today. Bond prices went up. When that happens, the yield goes down. The yield on the 10-year T-note fell to 4.26%.

You're listening to Marketplace. This is Marketplace. I'm Kai Risdahl. Spring is in the air, if not in the actual weather in some parts of the country. But the point is that summer and summer travel season aren't far away. And airlines are bracing themselves, queuing up new routes and promotional deals as people plan for warmer days ahead in far-off locations. Part of that strategy, according Leisure Travelers, is by adding direct

flights to less-traveled destinations at a cheaper price. Marketplace's Elizabeth Troval has this story. Thanks to remote work, many airlines are hitting a plateau when it comes to corporate travel, says Haley Berg, an economist with travel app Hopper. And that means airlines need to make up that difference in revenue on the leisure side. So airlines are adding direct routes that cater to vacationers, domestically and abroad. We've seen some low-cost carriers expanding shorter routes, like connecting Philadelphia and Pittsburgh for low fares, but also expansion of some of those international carriers into cities like Lisbon, Portugal and Porto. They're looking for

pockets of opportunity. Navina Luru with the University of Central Florida says low-cost carriers are targeting places major airlines ignore, so they can be the only game in town. Which can potentially generate more revenue than what a major city will generate. Right now, those new routes are being rolled out for cheap, so a family who would have driven between Philly and Pittsburgh may choose to fly on a promotional fare. The family saves a lot of money and gets there in three hours. But in a couple of months, they're so used to this direct flight that even if the price becomes a $50 more, they will continue to use this because now they're used to it.

While the hub-and-spoke model isn't going anywhere, the focus on less-traveled routes has been lucrative for low-cost carriers, says David Slotnick with the travel site The Point Sky. There's a new airline, Breeze, that just started flying in 2021. And their whole idea is to basically just connect random city pairs that don't have any nonstop flights between them. For the most part, they've been pretty successful. He says it shows people who travel are still price conscious. And there's more to the world than New York, London, and Paris. I'm Elizabeth Troval for Marketplace. Paramount Global reported fourth quarter earnings today mixed, you might say, lower than expected revenue, better than expected new subscribers to its Paramount Plus streaming service. We mention that because that company

has been the subject of some acquisitions rumors lately. Paramount and Warner Brothers Discovery have been in what are now said to be stalled talks, though other potential buyers have also been circling. Because its recent struggles to sell enough ads and meet investors' profit expectations notwithstanding, Paramount is a player as the streaming wars tend toward consolidation. Marketplaces of NMR has more now on what makes a good match in that highly competitive business. Streaming is in an awkward spot, with a crowded field of services struggling to turn a profit and grumpy consumers cycling through increasingly expensive subscriptions. We're not in equilibrium right now, says Michael Smith at Carnegie Mellon. The equilibrium can't be 10 different streaming services where I can't remember which one has Big Bang Theory.

That's where consolidation could be a good thing. For any of those streamers to increase revenue, Smith says there needs to be less choice. And David Offenberg, a professor at Loyola Marymount University, says companies want to merge with streamers that have something they don't. Well, I think they really need to complement each other well. In terms of content. One brings movies, the other brings TV, or one brings TV, the other brings sports rights. And Offenberg says they're looking for complementary subscriber bases,

like a service that's popular with men might want to acquire stars, which has been targeting women subscribers, or one that's looking to attract families might be interested in Paramount+. God knows my nephew loves his Paw Patrol, and so my brother and sister-in-law can never unsubscribe to Paramount+. Charlotte Howell at Boston University says kids' content is one thing that makes Paramount Plus a target for acquisition, not to mention a big NFL contract. As well as a number of their key film franchises. Ever heard of Star Trek? Michael Smith at Carnegie Mellon says like a lot of legacy media companies, Paramount's streaming arm has plenty of popular movies and shows, but its online presence needs work. They really don't have the platform to deliver that to the customer. The Silicon Valley

firms have the platform. And the name recognition and tons of subscribers. What they need is the content. So Smith wouldn't be surprised to see more tech firms, think Netflix, joining forces with names we recognize from the days of cable. I'm Savannah Marr for Marketplace. Given the dollar amounts at stake, low tens to medium high hundreds of millions of dollars, Mistake. Low tens to medium high hundreds of millions of dollars. There is not a thing that shows up on a movie screen that somebody in the production process hasn't put a ton of thought into. Set design, costumes, hair and makeup, lighting and sound, everything, including cars. By the time a car or a truck appears in a film, there have been layers and layers of production happening to get it ready for camera. Makeup for a vehicle, if you will.

Producers might need NYPD cruisers for a crime show set in New York, or maybe there's a scene set in the 1980s that calls for a vintage beat-up station wagon. A company in Norcross, Georgia, has just what you need. From WABE in Atlanta, Marlon Hyde paid a visit to Cinema Vehicles. In the belly of Cinema Vehicles' shop, Andy Servin is working on a shiny black Model T.

It's one of those old-timey Fords with a small windshield and tires that look like they belong on a mountain bike. Even though it's a hundred years old, it still starts. Servin flicks a few switches behind the steering wheel. Servin is a mechanic here. He's the kind of guy who is more comfortable with his head under the hood of a vehicle rather than in front of a microphone. Servin is no stranger to this business. Back when I was a kid, watching my dad create Eleanor kind of gave me the path to get into loving classics and loving anything. Eleanor is the classic Mustang from the 2000 film Gone in 60 Seconds.

Cinema Vehicles built it for the remake of the movie starring Nicolas Cage. There's Eleanor. Servin says his specialty is older cars. Antiques like 1920s and on. I mean, I worked on 1910s. I've worked on pretty much anything gasoline powered. Servin is part of a team of seven that creates the vehicles here in Georgia. There is also a Hollywood facility.

He works here alongside his dad, the general manager, and Ron Servin says they often take on some specialty builds. We've done everything including building spaceships, so there's really no limit. I mean, if it's going to be on the screen and they can dream it up, we'll figure out how to build it. Part of the shop is an enormous warehouse that stores vehicles grouped by decade. Ron Servin says the right vehicle can make or break a scene. There might be 15 cars from 1920s running around a block to make it look like a street scene, you know, so they've all got to run and drive and,

you know, do what they do. It can cost up to $100,000 to build up a single vehicle. When Hollywood production stopped because of the strikes, work here also slowed down. Now with productions back in swing, it seems like every movie needs a car. Chaos. Absolute chaos. Tina Wall does a little bit of everything for the shop, and she says she likes the chaos. We do have more stuff coming in. So it's been a change of pace, a change of dynamic, and I've thoroughly enjoyed it. Her job is like costuming for cars and trucks. Imagine the typical movie scene where a car gets shot up and then explodes on a remote stretch of highway. Before that, Wall might remove the gas lines, strip the car of all flammable material,

and drain all the fluid. And because directors often need multiple takes, Wall might prep the same vehicle over and over. Take one car that appeared in a crime scene chase. It left, it came back with bullet holes, and they're like, now we need to cover this up and repaint it, and it's going back out, and it's going to get blown up tonight. Work at cinema vehicles can be high-paced and stressful, but Andy Servin says the job has its perks. It can be fun, especially when we're stunt prepping cars, and I go out and cut donuts and make sure that they're doing that,

and slide brakes, a little bit of drifting. We have some fun. He says it's also fun to see his work on the big screen when his cars get their 15 minutes of fame or a cliche ride off into the sunset. In Atlanta, I'm Marlon Hyde for Marketplace. This final note on the way out today in which Wendy's, the burger chain, says it didn't mean what its CEO said and tries to explain what it did mean. I think. In a conference call with investors this month, Wendy's CEO Kirk Tanner said, and this is a quote, beginning as early as 2025, we will begin testing more enhanced features like dynamic pricing.

Well, that story started to get picked up, as happens. Wendy's read the room, as also happens. And today, the company gave a statement to the Associated Press that read, in relevant part, Wendy's will not implement surge pricing. Surge and dynamic? Not exactly the same thing. Our media production team includes Brian Allison, Jake Cherry, Jessen Duhler, Drew Jostad, Gary O'Keefe, Charlton Thorpe, Juan Carlos Torado, and Becca Weinman. Jeff Peters is the manager of media production around here. I'm Kyle Risdell. We will see you tomorrow, everybody.

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