Marketplace - It’s a good time to be an asset owner

Episode Date: April 19, 2024

Thanks to a strong stock market and record home prices, asset owners are feeling richer, even if it’s only on paper. Today, we get into the “wealth effect” and how it may play out in the presidential election. Also: Higher prices slow Procter & Gamble sales, the “catastrophic” halt to a Baltimore port business, and why companies change the metrics they report to investors.

Okay, so look, serious question. Do you feel like you're wealthier than you were maybe a year, year or two ago? From American Public Media, this is MarketPlanets. In Los Angeles, I'm Kyle Rizdall. It is Friday today, the 19th of April. Good as always to have you along everybody. The Wealth Effect and Mitchell Hartman coming up at the bottom of the program. First though, this, in no particular order, the following things have happened this week

in this economy. Retail sales figures came out. The International Monetary Fund had some things to say. Various and sundry officials from the Federal Reserve opined. What does it all mean do you suppose? That's why Courtney Brown is here. She's with Axios. Jordan Holman is here as well. She's at the New York Times. Hey you two. Hey Kai. Jordan, let me start with you. Retail sales came out Monday, I guess. That puts this in chronological order. Higher than expected. Yay consumers, riddle me this.

If we keep buying, what is going to bring inflation down? That is a riddle in itself. But when I talk to the retailers, of course, that's welcome news. People keep buying, people keep consuming. It makes it easier for them to plan their business. But it doesn't take away the sting that shoppers say they feel when they're buying things that have higher prices. I think one kind of asterisk here is that when you look at the retail sales report from

this week, it does paint the picture of people are buying things that they need, gas, food, restaurants, personal care, and they're pulling back the scenes on buying things that they need, gas, food, restaurants, personal care, and they're pulling back the scenes on the things that they already have too much of or that they're seeing high prices on. So people complain about electronics, furniture, clothes. Those sales were down overall. So you see people making these trade-offs. So but, all right, so I'm going to change gears a little bit here, and then Courtney,

and ask you about services inflation, right? Because goods inflation has largely maintained. Services inflation is stickier right now, right? The things like haircuts and all of those things. And that is not really susceptible to interest rate adjustments, right? So what do we do with that? Yeah. I think if I were Federal Reserve Chair Jerome Powell, my-

Go on. Yes, huge promotion, obviously. But if I were him, I think my big question would be, why can't we just have the 2023 economy back? You might remember things were really good then. Consumer spending was really strong, yet inflation was falling alongside that strong consumer spending, really kind of setting up this soft landing story. Now we have this strong consumer spending definitely on the good side, which is measured in the retail sales report, not so much reflected the services side of the

economy in this report, but we know that that side of the economy in this report, but we know that that side of the economy is doing really well. So what is it going to take to get prices on the services side of the economy? If not down, just prices rising more slowly. We don't seem to have the answer to that question yet. And when you think about what's keeping inflation high, it is on the services side of the economy. There isn't this giant disinflationary wave on the good side anymore that's kind of making up

for the hot thing we're seeing on the services side. So this is the big puzzle or riddle, as you will, for the Federal Reserve. The theme of the program today. So Jordan, look, if we've got all that going on, and as Courtney said, the economy is growing. The International Monetary Fund came out this week and said the global economy is gonna grow at 3.2-ish percent.

The United States is doing really, really well. We are in fundamentally in this country good shape, yes? Yes. But what we keep hearing is that people don't feel that way. And then that's also this concern. If people don't feel that way, then maybe their actions won't show it. And kind of going back to the goods, services, another thing that could help is if people just feel like it's too expensive to eat out

or it's just too expensive to get your hair cut, maybe that's another way that you pull back. But consumer behavior is confusing. And so this is the big riddle to continue this trend. Well, I'm always staying with riddles, but let me ask you this, Jordan. Since you are both a consumer in this economy and an expert on the retail economy,

have your retail habits changed? Yeah, I definitely cook at home so much more. I think a lot about those trade-offs of, is it really worth paying gratuity and sitting down and getting a drink outside my house or I'm just gonna eat inside. Interesting. Courtney Moore with the International Monetary Fund and you and Neil pointed this out in the Axios macro newsletter either this morning or yesterday frankly sorry time is a blur. The IMF is not at all

happy with the fiscal stance of the United States in fact I think The IMF is not at all happy with the fiscal stance of the United States. In fact, I think the IMF said it's the fiscal path, the fiscal stance, which is to say how much debt we have is of concern. What do we do with that now? Yeah, the IMF gave the US kind of a lecture like a kid who is in big trouble with its mom. Yeah, I think it's one of the sharper worded warnings that we've gotten from the IMF on what they call this unsustainable fiscal path that the US is on. They called us out, they called China out, and they said, look, something's got to give. They literally said something's got to give. Either the path that we're on continues and there are huge global spillovers and you kind of further prevent the disinflationary process because you've got government spending that's

so strong, it's kind of stimulative on one hand, but then you have monetary policy, which the Fed is in charge of, trying to constrain the economy. So these two things are at odds, and the IMF is basically saying that we have to get our house in order, and several other big economies around the globe also have to get our house in order. Okay, but look, hang on, Courtney, because the big credit rating agencies have been yelling at the United States for, when was the downgrade, right? 2011 was the first downgrade. We just had another warning about it, and now we have the IMF and lo and behold

nothing has changed in our fiscal stance. Yeah and the I it's so funny not ha ha funny but interesting funny that the IMF essentially said that this is a year in which we're probably not gonna get much progress in terms of getting into a healthier fiscal situation because we have we have elections and you know, President Biden wants to do more spending. President Trump has said he wants to, you know, cut taxes. So you know, it seems like any candidate you get, I'm not really sure how the deficit is going to shrink in the years ahead. Right.

And it's not only elections here, it's elections in many, many other places. Jordan, super quick, with an eye toward my computer monitor here, which is saying that the TikTok bill could come up in the House this week. You guys, you and your colleagues at the time has had a big spread on the TikTok phenomenon in this economy, and the ways it has woven itself into our daily lives, even if you're not a user,

which, oh, by the way, is me. Totally fascinating, totally fascinating. Yes, it is already warping your brain. You don't know it. And the way we cook, we shop, yeah, we talk, we diagnose ourselves. And so we just thought it was a good moment ahead of this vote tomorrow to really like step back

and say, even no matter what happens tomorrow, TikTok has already infiltrated our lives. So please check it out. Absolutely read that piece. Jordan Holman and the New York Times and her colleagues there on that story. Courtney Brown at Axios, the newsletter she writes is called Axios Macro and Neil Irwin. Thanks you two. Have a good Friday. Thanks, Kai. Have a good weekend. See you. Wall Street to end the week. Not a great day for tech stocks actually,

which is not a great sign for tech earnings that are coming next week. We will have the details when we do the numbers. All right, Jordan was talking about this a second ago. Some of the stuff that people keep spending on despite higher prices, consumer packaged goods is high on that list. Shampoos, laundry detergents, diapers, razors, and so on and so on. Demand there has been pretty resilient, even with prices where they are. The consumer package good conglomerate Procter & Gamble released quarterly earnings this morning.

Sales were up a bit, but they were short of expectations to impart, the company says, to, wait for it, higher prices. Marketplace's Kimberly Adams has that one. Even though sales were up for P&G, it wasn't really because more consumers were buying their stuff. It just cost more. And in some parts of the business, prices drove down sales. That matches trends Natalie Gallagher,

principal economist at forecasting firm Previdere, is seeing from consumers. They're experiencing a lot of price fatigue. They might have taken price in stride a little bit more in 2022 and even into 2023, but we're absolutely seeing that consumers are really responding to the weight on their wallets. And they're responding in several ways, says Charmaine Adiran, a professor of marketing at Bryant University in Rhode Island. Some consumers use products more sparingly, right, or reduce the frequency of their purchase to manage their budgets.

Consumers are also looking for more sales. Using coupons or maybe even buying in bulk during promotions to kind of mitigate the impact of these price rises. Others are giving up and switching to private label brands. But when you're as big as Procter & Gamble, you can fight back. Because P&G is able to spend the type of dollars they spend in marketing, they can keep themselves ahead or in parity with the private label brands that are in that category. Phil Kaffarakis is president of the International Food Service Manufacturers Association. or parity with the private label brands that are in that category.

Phil Kaffarakis is president of the International Food Service Manufacturers Association. P&G has increased ad spending by 14%. They're not going to lose too much market share. They might be more aggressive in one quarter versus another and then back off because I think they have that flexibility and that keeps them in a game. Because at the end of the day, if you really like your shampoo and you can afford it, you'll probably just stick to what you like, even if you're bitter about the price. In Washington, I'm Kimberly Adams for Marketplace. The state of Maryland says that last year the port of Baltimore handled a record 52

million tons of international cargo valued at more than $80 billion. Since the collapse of the Francis Scott Key Bridge though, the port is mostly at a standstill. And while Savage crews are working hard to clear the wreckage, many others are waiting in the wings to be able to get back to work. Here's today's installment of our series, My Economy. I'm Dawn Speakman. I'm the owner of Drayage Solutions. We're a woman-owned Drayage company, and we operate out of the Port of Baltimore.

The terminology for Drayage is that you basically pick up a container and you take it to the warehouse. We move about 120 to 150 containers a week, so it's about 7,000 a year. And now we're down to nothing. It's pretty catastrophic for us. We had some work for a few days that was already in the pipeline, but after that we were 100% shut down, so it is catastrophic. We are at a complete standstill halt.

Me personally, I didn't really think it happened. My brother contacted me at three o'clock in the morning and sent me a text message and I thought he was kidding. I thought his phone got hacked or something. So I called him up and he was like, no, it really did collapse. And then I was up from three o'clock on watching the news. We actually did have containers to pull out of the port that day. So I did have drivers in the port that day that had

happened and I had sent them a message that said, you know, please be careful. It was an interesting day as more of the media came out and we watched them different videos of it. You know, it was then reality set in. And it was like, okay, this is, this is a horrific event. And how are we going to recover from this? We have a staff of seven drivers that have not had work for them since April the 1st. I've been able to keep paying them. I started this business with my own money. And didn't have any loans until COVID.

So we haven't used the Small Business Administration until COVID. And we may use it now, but I would prefer that's like a last resort. We did apply for a grant through the state of Maryland. So we're hoping to hear back by the end of the week with that. The intention is to keep them on the payroll and pay them their full salary until we can get things back to normal. We are very optimistic. I'm a very positive and optimistic person.

We have to be patient though, and we have to pray for the specialists and the professionals that are working to remove the debris and open up that channel. And this is a very large undertaking, and we're gonna just do whatever we have to do to make it through. We made it through COVID, we're gonna make it through this, and whatever we have to do to make it through. We made it through COVID.

We're going to make it through this. And ultimately we will get back to normal. It's just how long is it going to take for us to get there? Dawn Speakman there, founder and president of Drayage Solutions in Baltimore, Maryland. We cannot do this series without you. So let us know what's up, would you? Marketplace.org slash My Economy. Coming up. We're going to have countertops in about five days, which will be a lifesaver.

Oh, the renovation blues. But first, let's do the numbers. Dow Industrial is up 211 points today, a half percent 37,986. The Nasdaq fell 319 points just over 2 percent. 15,282 Big Tech reports next week. S&P 500 down 43 points, 9 tenths percent, 49 and 67. For the week, the five days gone by, the Dow was unchanged. The Nasdaq off five and a half percent%. S&P 500 lost just over 3%. We heard from Kimberly Adams about Procter & Gamble. Well, they foamed up about a half percent today. Looking at some competitors.

Colgate, Palmolive up just over 1%. Arm and Hammer Maker Church and Dwight grew 1.1% today. Bond prices went up when that happens. The yield goes down. The yield on the 10-year treasury note fell to 4.62%. You're listening to Marketplace. ["The New York Times"]

Hey there, I'm Bridget, co-host of Million Bazillion, Marketplace's podcast for kids about money. I want to tell you about our email newsletter course, Million Bazillion Academy. In this new and improved course, we'll help your kids learn about crypto, credit cards, and inflation in just six weeks. Each lesson comes with a podcast episode, a fun cartoon, discussion questions, and an activity that lets kids apply what they're learning in the real world. You can start at any time and work at your own pace. Sign up today at marketplace.org slash academy. This is Marketplace.

I'm Kai Rizdal. Megan McCarty-Corino was telling us yesterday about how Netflix is getting more into mobile gaming, looking for new ways to grow beyond just adding new subscribers. Speaking of which, subscribers, that is, Netflix also says it's going to stop disclosing exactly how many of them it has. Disclosing company metrics, beyond profits and losses and other general financials, is something a lot of companies usually do. So we at Marketplace's Henriette, spend some time today looking into why companies choose to share those kinds of numbers and why they might choose to stop.

When a company is in its infancy, there's a decent chance it's not yet turning a profit. So instead of focusing on just how much money it might be losing, company leaders may point investors to some other metric that tells them, hey, we matter. In the beginning, it's all about getting mindshare. It's all about land grab. Santosh Rao is at Manhattan Venture Partners. You need to show that, hey, we're growing, we're here, we're a sizable company.

And in the place of profit margins, subscriber numbers or retail foot traffic or time spent on an app can show investors that a company could make more money in the future. It's sort of like how parents talk about their kids when they're really little, says Sarah Kunst, managing director of Clio Capital. When a kid is born, you say this baby is five days old and then it turns to five months old. But at some point, she says those early measures evolve. Like it would be weird if my parents started bragging about how I'm turning 405 months old tomorrow. I think I'm doing that math, right?

And so in general, as something is around longer, how we measure this changes. In Netflix's case, subscriber numbers aren't the company's whole story anymore, says Mateo Arena, a professor of finance at Marquette University. There might be other ways to increase their revenue and profits outside just simply increasing subscribers. Selling ads on its cheaper subscription tiers, for example. It's also a sign that the company is profitable now and more mature, Arena says. Reaching maturity for a company is almost another word for slower growth.

Which is kind of inevitable for a company that grew really fast for years. At some point, that level of growth is unsustainable. But now, says Steve Kaplan, a professor at the University of Chicago, Netflix has the luxury of telling investors to focus on their bottom line. Look at our revenues, look at our cash flows,

and judge us on that. And if we're growing those, then good things are happening. And subscriber numbers are probably doing fine. I'm Henry Abb for Marketplace. Kimberly Adams has been doing a series for us the past couple of weeks, exploring the disconnect between the strength of the economic fundamentals, GDP growth, the unemployment rate, all y'all know the list as well as I do. She's been looking at the disconnect between them and how people are feeling about the economy which, broadly speaking, is not that great.

A pause here then for the flip side of that coin, specifically something called the wealth effect. The thing that happens when the stock market is up and home values are up and the people who own stocks and homes feel wealthier, which they are, at least on paper. As promised, here's Marketplace's Mitchell Harmon. It's a good time to be an asset owner in America. According to the Fed, from 2019 to 2022, the median net value of a home, that's the current market value minus mortgage debt, rose from $139,000 to $201,000. That's a 45%

increase in value for the typical homeowner in just three years. Evan Carr has been riding this home equity train. Just moved in about a week and a half ago. At this point, we've done all new hardwoods. Carr is walking me through his new mid-century modern home, full of glass and wood paneling. We're going to have countertops in about five days, which will be a lifesaver.

You must be doing a lot of takeout. It's a lot of takeout. We have a wall oven and a microwave. a lifesaver. You must be doing a lot of takeout. It's a lot of takeout. We have a wall oven and a microwave. Carr and his wife paid 960,000 to get into this leafy suburb of Portland, Oregon. And their previous home? We bought at about 520, sold it for 860. It took about four years to renovate, but we were able to gain that market appreciation. Israel Hill is Carr's realtor. The leveraging of equity, that's a big thing. Houses took a monster jump through COVID and people are cashing out of that equity. For most middle and upper middle class families, the majority of their wealth is tied up in their homes. When home prices plummeted in the

Great Recession, median household wealth fell by nearly half, says NYU economist Edward Wolf. The good news is that it finally recovered by 2022. In the early years of the pandemic, soaring home prices helped drive median household wealth up by 37 percent. And the recent bull market has driven it up even more. The very wealthy whose wealth is heavily invested in stocks saw a good rise in their wealth. The middle class does benefit when the stock market rises, mainly through pension accounts like 401ks.

All this has a knock-on effect for the consumer economy. When the Zillow estimate on your house goes up, you feel a little richer, even if you can't or don't want to sell right now. Mayor Statman studies behavioral finance at Santa Clara University. If the value of the house has gone up, you might spend one, two, or three percent of this increase. If that increase is in the value of your 401k, even though it is long term, you might spend a bit more. While the wealth effect may be boosting consumer spending, it doesn't seem to be doing much

for consumer sentiment, says Chris Jackson at public opinion firm Ipsos. We're waiting to see if the current bull market is reflected in public sentiment of like, oh, the economy is back on track. Things are doing well. Or if inflation continues to keep people depressed. The wealth effect may also have political implications. In every presidential election since 1984, when the S&P 500 rose in the three months before the election, the party holding the White House won in November. When the market fell, that party lost.

Theoretically, a rising stock market should benefit the incumbent. Princeton presidential historian Julian Zelizer. Even if you're not investing in the stock market, you see it on the news. It's a kind of tell about whether a president is doing good or bad. So there's many reasons you'd think it would help, but it's not clear that it is. Zelizer doubts it'll make much difference if the bull market continues into the fall. For one thing, with President Biden in the White House, Republicans feel more negative and Democrats more positive, no matter how well the economy is doing.

And Zelizer says there are other reasons the wealth effect might not pull much weight right now. Structural costs that Americans face, such as student debt, are much more pertinent in terms of how someone evaluates the economy than what they read about a bull market. Which only affects slightly more than half of Americans who even own stock directly or in a retirement account. I'm Mitchell Hartman for Marketplace. This final note on the way out today, two numbers for you. The first is 1.92.

That is measured in percent. It is also the drop in Tesla shares today. Number number two is 3,878. That is measured in Cybertrucks, the total number of them that Tesla has shipped to date, all of which, every single one, have now been recalled because, says the National Highway Traffic Safety Administration, the accelerator pedal could get stuck in the Acceler accelerate position. Our theme music was composed by BJ Liederman, Marketplace's executive producer is Nancy Fargalli, Donna Tam is the executive editor, Neal Scarborough is the vice president and

general manager, I'm Kai Rizdall. Have yourselves a great weekend everybody, we will see you again on Monday, all right? This is APM. Hey there, I'm Bridget, co-host of Million Bazillion, Marketplace's podcast for kids about money. I want to tell you about our email newsletter course, Million Bazillion Academy. In this new and improved course, we'll help your kids learn about crypto, credit cards and inflation in just six weeks.

Each lesson comes with a podcast episode, a fun cartoon, discussion questions, and an activity that lets kids apply what they're learning in the real world. You can start at any time and work at your own pace. Sign up today at marketplace.org slash academy.