Marketplace - Holding space for uncertainty

Episode Date: December 3, 2024

Manufacturers have held back on big investments because of high interest rates and inflation. Those have eased, but companies are worried that potential tariffs and tax cuts could stoke them again. Also in this episode, more uncertainty: A customs broker isn’t sure what to expect if there’s another round of tariffs, and the number of “permanent job losers” climbed the highest its been since November 2021.

The big three on the program today or, you know, the big three of the moment anyway, interest rates, tariffs and jobs coming at you from American public media. This is Marketplace. In Los Angeles, I'm Kai Rizdal. It is Monday today, the 2nd of December. Good as always to have you along, everybody. We will hear elsewhere in the program today about the politics of this economy, tariffs, that is, and we will hear about the labor market in this economy, jobs, that is, but

we begin with perhaps the most fundamental item in this economy right now, the cost of money, interest rates, that is. And the general vibe at the moment, well, not so much vibe, but the actual minutes from the most recent meeting of the central bank, say that after a general expectation of a quarter percentage point cut this month, there's, and this is a quote, considerably more uncertainty about where rates are headed. You do not have to be a regular listener to this program to understand that businesses just do not care for uncertainty, especially in manufacturing.

Marketplace's Justin Ho gets us going. One type of manufacturing that's been feeling the pinch of high interest rates is the pharmaceutical industry. There definitely has been a lull in their pipelines. That's Wayne Woodard, CEO of Argonaut Manufacturing Services, a company in Carlsbad, California that manufactures drugs and diagnostic tests for other companies. Woodard says high interest rates have made it harder for his clients to raise the money they need to research and develop drugs. And as a result, they get forced to deal with having a smaller amount of capital

to work with, ultimately making very tough decisions about what's in their pipeline. And while the Federal Reserve has begun to cut interest rates, I don't really think that people have yet been convinced that that policy is going to be continuing in the direction that it is. And who knows, right? We don't really know. That's because the Fed could change course if inflation picks up again. Scott Paul, with the Alliance for American Manufacturing, says that is a concern, depending on what the new Trump administration decides to do this coming

year. Tax cuts potentially could put some upward pressure on inflation, depending on how they're structured. Tariffs, depending on how they're structured, can impact prices somewhat or a lot. That said, manufacturers surveyed by the Institute for Supply Management last month said they were more concerned with selling products than with interest rates. ISM's Tim Fiore runs the survey. What the business community is saying here is that my order book has gotten so weak that I need orders. If there's no demand, there's no reason for being. Fiore says manufacturers can afford to focus on sales right now because prices are pretty

stable. And if prices become unstable and start to grow, then the feds are going to have to do what they're there to do. And we'll deal with that when it happens. And since any potential tax cuts or tariffs would take some time to enact, Fiori says inflation probably won't pick up until at least the second half of next year. I'm Justin Ho for Marketplace. Wall Street starting the first week of the last month of the year, betwixt and between. We'll have the

details when we do the numbers. There is a certain groundhog day quality to some of the economic policies President-elect Trump is promising, most particularly on tariffs. There will be some new ones, that much is clear, but exactly how high and on whom we can't quite know yet, despite what the president-elect is saying. So imagine for a minute that tariffs are literally your job. And while you handled the first four years of a Trump presidency, this time might well be different.

So we've gotten Gretchen Blau on the phone to discuss. She's the Customs Brokerage Manager at Logistics Plus in Erie, Pennsylvania. time might well be different. So we've gotten Gretchen Blau on the phone to discuss. She's the Customs Brokerage Manager at Logistics Plus in Erie, Pennsylvania. Gretchen, good to talk to you again. Thank you. Good to be here. With the understanding that tariff news changes, one might say, at the drop of a hat these days, what is the vibe at Logistics Plus in Erie, Pennsylvania, given the news of late?

Well, we've been getting a lot of phone calls and emails asking if we have any kind of information as to what the tariffs will be on on Commodities that people import and long story short, we don't have any inside information So we're just kind of you know holding hands with our customers and letting them know the most likely targets, but not making any promises as to knowing what exactly will occur. Without being able to see their faces, I imagine the stress level amongst your customers is

pretty high. Anybody is importing anything into this country, right? Oh, for sure. And everyone that was importing from Mexico and Canada probably thought they were on the safe side and that's not looking good either now. So, you know, the 25% tariff for goods from China was leftover from Trump's last administration. So that's kind of been part of normal life for everyone, but the 60% that

could happen is scaring people a lot. Well since you mention it, you know, you have, we have all done this before. You specifically were on the pointing into the sword with tariffs last time. That must stand you in some kind of good stead with your clients come the 20th of January. You'll have some kind of, you know, background in this. Yeah, that's for sure. And you know, we can help them look at,

we have offices all over the world, so we can help them look at different sourcing where maybe the tariffs are low or nonexistent, or it just kind of depends on how it goes. It's really unpredictable at this point, and we're just doing our best to help walk people through it. Anyone that's asking for any kind of estimate on tariffs is being told this is the estimate for today. We can't predict what's going to

happen in January, but here we are. I mean, we've been warning everyone trying to get the word out that it could be a new world for sourcing come January. Right. So you're helping people think through their supply chains, right? Yes. We've been helping with that all along for the tariffs and the forced labor and whatnot where people have to check and see where things are in their supply chain, who is actually building those parts and whatnot, but it's going to get a little bit stickier. Yeah. So just on the nuts and bolts of this thing,

let's say on the afternoon of January 20th, after he's sworn in, President Trump reinstates or instates or does whatever he's going to do with tariffs. Do you get an email from the Commerce Department that says, OK, now it's 25% on everything? Or what happens? We actually get an alert from Customs and Border Protection.

They send out what's happening with the computer system, what happens with trade policy, like a myriad of subjects that affect us as customs brokers and importers and exporters. So we will get some sort of notice. Typically they wait until it's published in the Federal Register, but I think in this case we might get a little bit better warning. Which would be nice, right? Oh yeah, it would be. Gretchen Blau at Logistics Plus in Erie, Pennsylvania, thinking about the next four years of her job. Gretchen, thanks a bunch. Appreciate your time. Thank you. Inflation isn't quite the problem it was a year or two ago, but if you peruse surveys

of business owners or talk to them yourself, both of which we do here, you hear time and time again that the still rising cost of materials and labor is still top of mind. So as we know, companies have raised prices and worked to cut costs. For a fast food restaurant, that might mean replacing workers with kiosks. For potato chip maker, that might mean putting fewer chips in the bag, right? Clothing manufacturers are facing the same kind of challenges. For businesses, textile and apparel inputs are up more than 50%, 5-0% since the start of 2020.

For consumers though, the cost of apparel has risen just 7%. So how are clothing brands making up that gap? As Marketplace's Kristin Schwab reports, it usually comes down to quality. It's a Friday morning during the holiday shopping season at Macy's flagship store in Manhattan. The lights are twinkling, the wreaths are up, and the place is packed with tourists. I'm here with Phyllis Savatchko from Stateless, a fashion consulting firm. And we're a little lost among the store's 11 floors. There's gotta be a map somewhere. I know, right?

We are on women's contemporary fashion. Maybe we'll try this. We'll stroll around here. We're strolling around today because we're on a mission to take stock of the quality of clothing on the racks. Savatchko grabs a red holiday sweater bedazzled with silver stones for $99. She flips it inside out and inspects the stitching. The stones are all attached by a single strand of thread. And that is cheaper. Because can you imagine one person tying off 100 pieces individually? That would take more time.

And of course, time is money. It's a shortcut a shopper might not notice until one of the stone snags and all of them fall off. Savatchko says this is just one of many ways clothing manufacturers cut costs. Instead of taking time to sew in zippers and buttons, they'll use elastic waistbands. Instead of pricey natural fabrics like wool, they'll use synthetics like acrylic. But other tactics are less obvious. For instance, shrinkflation? It's not just cereal brands putting less cereal in the box. Shrinkflation happens in clothing too.

So that size 6 that you used to wear might fit a little snugger because the specs might be a little bit smaller? If you ever think you've gained weight when you step in the dressing room, turns out it might just be gaslighting. There's actually less fabric. Saving on a few millimeters of material might sound insignificant, but multiply that by thousands of shirts and you've saved a lot. Sometimes, cost-cutting even influences fashion trends. Crop sweaters. Why do you think crop sweaters are—it's a sweater, but it's cropped now. So you've saved all that yarn.

Now, some brands will use these cost-cutting measures more than others. An expensive designer label, its shoppers aren't so sensitive to price increases. But Margaret Bishop at Parsons and the Fashion Institute of Technology says lower priced mass market stores. There are already pretty slim margins on those products. So there's not a lot of room for brands and retailers to absorb increased costs. It's why lower price brands are more likely to decrease quality,

a shift that's been happening for some time now. It's sort of a slow decline, but if you look at the fiber content of clothing labels, and if you've been doing that over time, you may notice some differences. Jennifer Wang has taken notice. She's a content creator with nearly 400,000 followers on TikTok, and she's known for going into stores and highlighting apparel that's well or poorly made. Wang started making these videos because she was tired of buying sweaters that fell apart. You wash it once according to the wash

instructions on the label and then it kind of creates little balls on the surface, pills up and of course that leads to disappointment. Wang does have some sympathy for brands. She's learned it's not easy to balance quality and cost because she's currently designing her own clothing line using natural fabrics. I think that opened my eyes to a lot of nuances of fabric compositions, what I thought was possibly for, now I know isn't. Back at Macy's, Savachko gives me some tips for finding quality clothes. She picks up a cream-colored skirt that's fully lined and has thick, wavy lace. First of all, it's got all this rounded seam. This is more costly because it's faster to

go in a straight line. The fact that you've got gathering, that's expensive because you've got excess fabric. Clean finish, that's money. Savatchko says for the quality, she'd expect the skirt to cost $20 more. The sticker price is $60. In New York, I'm Kristin Schwab for Marketplace. If the landlord isn't able to pay the mortgage on the property, it could go into foreclosure. Debt and bills don't just go away, you know. First though, let's do the numbers. Dow Industrial is off 128 points today, about 3 tenths percent, 44,782 for the blue chips. The Nasdaq gained 185 points, 1 percent ended things at 19,403.

The S&P 500 found 14 points in the couch cushions, about a quarter percent, 6047. It's only Monday, but I'll tell you what, the auto industry has already been having a weak Stellantis, which makes Cheaps and Chrysler's, among other models, said its CEO will step down. The company cited different views of the chief executive and the board of directors. Share slowed six and three-tenths percent. It's Volkswagen, which slipped one percent, tens of thousands of workers at nine plants in Germany went on strike.

That's in response to a $19 billion budget cut in Hyundai. Recall, more than 226,000 vehicles, citing problems with the rear-view mirror camera. Share stalled 5.25%. Today, you're listening to Marketplace. I'm Kai Rizdal. While the political news careens from topic of the moment to topic of the moment, we here in the world of business and the economy are focused this week on jobs. There is labor market data aplenty these five days, including the biggie, the November jobs

report which is going to be out with us on Friday. One line item in that data set that's going to be of particular note is the number of permanent job losers, people who weren't temporarily laid off but instead have been let go or laid off from a particular position, obviously permanently. In October, permanent job losers topped 1.8 million people. That's the highest it's been since November of 2021. Marketplace's Stephanie Hughes looks at what's going on there. Mia Trujillo has been working without a break for three decades now. Most recently, that was at a big tech company. But earlier this year, her whole team was laid off.

I don't think anybody ever expects it to happen to them. Trujillo was able to treat the break as a kind of sabbatical. She traveled some, caught up on sleep, finished books instead of abandoning them part way through. She's planning to rev up her job search in January and hopes to land at a smaller tech company. You can kind of see your impact a little bit more directly on the work. The tech sector has been harder hit than others when it comes to layoffs, says Brad Hirschbein,

a senior economist at the Upjohn Institute. But he says many of those tech workers are able to find new jobs. We know that their unemployment rate is slightly higher than it was, but it's still relatively low. Herschbein also points out that the number of permanent job losers comes to just over 1% of the labor force. That's slightly higher than it was right after the pandemic, but it's also right about where it was in 2017 or 2007 or 1997, which were hardly bad years in the labor market.

Also when seasoning the October jobs report, it's probably good to add more salt than usual. There were strikes and storms that soured things for the month. I think it's a potentially worrisome trend if it continues for several more months. Lonnie Goldin's a professor of economics at Penn State Abingdon. He says if the labor market continues to add jobs at the rate it has been, then those job losers will be job winners soon enough. But if it doesn't, Golden says more of them could stay unemployed for a longer time. It can hurt workers' earnings permanently and therefore undermine their spending and undermine the well-being of a segment of our workforce.

Tech worker Mia Trujillo says her job search will probably take longer than she'd like, and she's ready for the prep to be kind of intense this time around. Because she says a lot has changed in technology, even in the last year. I'm Stephanie Hugh bit kidding when I say we're going to start a pool here in the shop on how many times a week the word tariffs gets said on our air in the months and years to come. It will be, one supposes, a lot. Much of the recent news, of course, is of President-elect Trump's plans for across-the-board duties on imports from, for now, China, Canada and Mexico. But President Biden is still in office,

and he has imposed some new tariffs of his own aimed at boosting domestic solar manufacturing. On Friday, the White House announced new tariffs on solar cell manufacturers in Malaysia, Cambodia, Vietnam, and Thailand, which, as it happens, are countries where a lot of Chinese solar manufacturers moved after they were targeted by earlier rounds of US tariffs. And there are going to be implications for solar manufacturers and solar installers here, as Marketplace's Henriette reports. There's a tension at the heart of the federal government's policies around solar energy these days.

Noah Kaufman at the Center on Global Energy Policy at Columbia University says on the one hand. We want cheap solar because it will lead to faster deployment of solar. So we'll deploy clean energy faster. On the other hand, US leaders would like those solar panels and cells to be made in America. But for years, it's been way cheaper to import them, which is why the US has repeatedly tried

to raise import costs on Chinese solar, only to see manufacturing move elsewhere in Southeast Asia. Trade tends to be a game of whack-a-mole. Mike Carr is head of the Solar Energy Manufacturers for America coalition. He says these latest tariffs could lead foreign solar companies to just relocate again. But thanks to tax credits and other financial incentives from the Inflation Reduction Act, he says, the domestic solar manufacturing industry is starting to get off the ground. We are talking about, for the first time really in the history of solar, globally scaled factories being built here in the United States.

But a lot of those factories are building solar panels, which are made up of cells, which are mostly imported, says Alyssa Pierce, a solar supply chain analyst at Wood Mackenzie. Because the tariff is on the solar cell, US module manufacturers who are importing cells from those four countries will also face increased costs. Those costs will likely get passed along, making solar installation more expensive, says Steve Ciccalla, an associate professor at Tufts University. The more expensive it is to do that, the fewer people are going to do it.

If we really want to tackle climate change, he argues we should be deploying the most cost-effective solar, even if it's imported. I'm Henry App, for Marketplace. Ashville, North Carolina is still picking up the pieces more than two months after Hurricane Helene hit. 103 people in that state were killed, says the North Carolina Department of Health and Human Services. Tens of billions of dollars in damage. The storm knocked out water and power and internet for weeks.

Businesses closed, something like 12,000 people filed for unemployment benefits. But amid all that destruction, economic life goes on. People still have to pay their bills, including rent. From Blue Ridge Public Radio, Laura Hackett has more on that. At Grace Covenant Presbyterian Church in Asheville, dozens of families are here to pick up supplies like blankets and baby food. And many are also lining up for rent assistance. Jefferson Bravo hasn't gotten a paycheck since Hurricane Helene devastated the region in late September.

He's a handyman, and in the weeks after the storm, he was focused on basic necessities like food and water for his family of four. Bravo says his savings are now mostly gone. A friend told him about the rent relief program, and so he applied. Today he's picking up a check for $1,100, enough to cover the month of rent he missed. We're really trying to respond to the crisis. That's church pastor Marcia Mount Shoup. A lot of our folks are service economy workers

and they not work. So we are trying to take housing insecurity off the stress list. Her church is using private donations to get people rent relief as fast as possible. We're on a razor's edge every day. The church has given out more than $1 million in rent aid. Other groups are helping too, but Mount Shoop says nobody can keep up.

We have a stack this tall that we're working through. You know, we're behind because the amount is a lot. It's a lot. There is some relief coming from the local government, but red tape slows down the process, says Patricia Caddell, a real estate attorney at Pisgah Legal Services. It takes a lot of time to get the government funds. And there's a lot more paperwork involved rather than whenever you are just asking for some resources from a local organization

or a church. Kaddell says evictions can happen fast. A lot of landlords are depending on their rental income as part of their income. And they have mortgages to pay too. And if the landlord isn't able to pay the mortgage on the property, it could go into foreclosure. And an eviction doesn't necessarily mean a landlord will get paid. These landlords, they could file an eviction and remove the tenants from the property, but the likelihood of them getting that money back is little to none because the tenants

just don't have it to pay. This dilemma isn't new. During the peak of the COVID pandemic, North Carolina Governor Roy Cooper signed an eviction moratorium, and both landlords and renters got hundreds of millions of dollars to help keep everyone housed. But that hasn't happened in response to the hurricane, says State Representative Lindsey Prather. We need rental assistance, desperately. The state has dedicated $1 million in rent assistance for the region, but that's split across 39 counties and is not yet available. rent assistance for the region, but that's split across 39 counties and is not yet available. There's a lot of talk and frustration about this in Asheville, including at Grace Covenant Church. Pastor Mount Shoup says the entire community has been hurt by this disaster.

There's nobody here that wants to not pay landlords. We want everybody to be able to stay in business and get our economy back going. And she says if workers are pushed out of the community, that's only going to make the economy worse. In Asheville, I'm Laura Hackett for Marketplace. This final note on the way out today, the marketplace quote of the day goes to Federal Reserve Board Governor Christopher Waller who in a speech today in Washington said this, and here I quote, Overall, I feel like an MMA fighter who keeps getting inflation in a chokehold, waiting

for it to tap out, yet it keeps slipping out of my grasp at the last minute. And he went on, But let me assure you that submission is inevitable. Inflation isn't getting out of the octagon. Come on, right? Our daily production team includes Andy Corbin, Nicholas Guillaume, Elise Haassen, Maria Hollenhorst, Sarah Leeson, Sean McHenry and Sophia Terenzio. I'm Kyle Rizdall, we will see you tomorrow everybody.

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