Marketplace - Let’s zoom in

Episode Date: July 25, 2024

New gross domestic product data just came in — GDP grew a healthy 2.8% annually in the second quarter, better than predicted. Meanwhile, consumers are focused on buying essentials and credit card debt is growing. In this episode, we’ll examine why GDP is strong while many everyday people feel squeezed for cash. Plus: New real estate broker fee rules take effect next month and the number of Americans who predict they’ll retire young is up.

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Not that I'm saying you should, but are all y'all ever gonna stop spending? From American public media, this is Marketplace. In Los Angeles, I'm Kyle Rizal. It is Thursday today, the 25th of July. Good as always to have you along, everybody. Well, how about that? It turns out the American economy is growing just fine. Thank you very much.

Our first whack at gross domestic product for the second quarter, that is April through June, came out this morning. Early guesses had been somewhere near 2% annualized, give or take a couple of tenths of a percent. What we got was 2.8, that is double GDP growth in Q1. The big categories, vehicles, recreational goods, services and furniture, as well as the essentials, healthcare and housing. And while, yes, direct investment and trade matter too. What really drove GDP last quarter were consumers.

Consumers who are, according to the Fed, struggling to pay off their credit cards. Consumers who are, according to the stars like Target and Walmart, focusing more on essentials. And consumers who are, according to both formal surveys and less formal dinner table talk, downright grumpy. And yet, they keep on spending. Marketplace at Kristin Schwab gets us going. When you look at this GDP report from different distances, you see different things. Take the broad 50,000-foot view, and the economic picture and how consumers live in it looks

blurry. Oren Klatschkin is an economist at Nationwide. The economy continues to outperform expectations. And it's been really hard, frankly, to kind of get a firm handle on what's going on in the economy overall. Comforting takeaway, I know. But Klatschkin says it's actually not so surprising that consumers aren't behaving the way we think they should. If we zoom way in from 50,000 feet to say 50, we'll see that... We're still in many ways in the aftermath of the pandemic and at least from an economic data perspective, that's certainly the case.

If the value of your home or investments went up, you have a cushion. Meanwhile, if you're a low- income renter, inflation's probably still hitting you pretty hard. Camelia Kunin researches household finances at UNC at Chapel Hill. There could be a story here of sort of two different types of American consumer, those who have assets, who have net worth, and those who kind of have lived

always sort of from month to month. And Cunin says unless something dramatic happens in the labor market, homeowners may continue to spend. And I think it's because people are like, OK, that's how much a car costs. Consumers may be starting to accept that these prices are here to stay. Francesco Bianchi, an economist at Johns Hopkins, argues maybe when we look at this GDP report, we need to take a middle view, like from 500 feet. Sometimes it's hard to see that if you just look quarter by quarter, but when you look

at the trend and average over a couple of quarters, you see that it is trending down. That 2.8% increase, that's still less growth than right before the Fed started hiking interest rates, which is what the Fed is going for. I'm Kristin Schwab for Marketplace. Wall Street today, well, nothing like yesterday, let's just say. We'll have the details Reserve and Chair Jay Powell. The central bank meets Tuesday and Wednesday to talk, yes, interest rates. The key rate that the Fed controls, it's called the federal funds rate, sits at just about

five and a half percent right now, up from, well, you know, zero before the pandemic. Inflation, of course, has been the proximate cause, and we have talked about that and the monetary policy responses to it. Thing is, antiseptic discussions about data and policy totally miss the messy reality of the way things play out on the ground, as Marketplace's Stacey Vanik-Smith reports. It's early afternoon on the Lower East Side of Manhattan, and Erin McKenna's bakery is buzzing.

The cozy little shop has pink walls, Christmas lights, knickknacks, and of course, desserts. A glass case with rows and rows of vibrant cupcakes, donuts, cookies. Can I please get a lemon tea cake? Alessandra Fabiani is a regular. I have a severe nut allergy and my sister can't do dairy so we found a place that we could both safely eat at. And yeah, we've been loyal customers ever since.

Everything in this bakery is gluten-free and vegan and kosher. McKenna opened the bakery in 2005. And, as it turned out, the food-allergic kosher vegans of New York were very excited that someone was finally letting them eat cake. People were coming in droves and then I got on Martha Stewart. That TV spot was a very good thing for McKenna and had orders pouring in from all across the country. By 2019, McKenna had a multi-million dollar business with stores in Los Angeles and Disney World. And she was ready to take things to the next level. She opened her biggest store ever in a wealthy Santa Monica neighborhood.

This location was going to be transformative for us. I knew the customer. I'm like, this is a slam dunk. So I took out this massive loan and we opened in July of 2019. We all know what happens next. The pandemic, lockdown. It just completely destroyed the business. I was trying to make that location work and using all my resources to keep it open. I said, I just can't do it anymore. I had to close it. I just was done.

What she wasn't done with, the loan. McKenna's original loan for the Santa Monica store was $800,000. That five-year loan just reached maturity, and McKenna still needs to pay off about $330,000. But when she went to refinance, the interest rate on her loan was jacked up to 15%, which put all of her bakeries at risk. I'm facing a dilemma of how to refinance my loan without bankrupting my company. McKenna would have to pay $8,000 a month

in interest and fees alone. That was going to put me in a position where I wouldn't be able to make payroll. McKenna is doing everything she can to work out a deal. But if she can't, the lender could foreclose on her business. What is it like to be looking at these horrible decisions after like 20 years? 19 years. Yeah.

I'm sorry. I'm sorry. Give me a second. Yeah, it's like being fed to the vultures. Yeah. Are other small business owners you know in similar positions? Oh yeah. I know a lot of neighboring businesses just shuttering because no one can keep up really. This year, small businesses are declaring bankruptcy in numbers not seen

since 2010. Julia Pollack is chief economist with ZipRecruiter. This is small businesses going to refinance, as one does, and suddenly getting quotes that would more than double their monthly payments. But this is the Federal Reserve's plan. Raise interest rates, make loans more expensive so people borrow less and spend less, so companies sell less and cut their prices to try to boost sales. That is how prices fall. That is how inflation comes down. So far everyone's been saying, wow, it's been a huge miracle. We have cooled inflation without massive job losses, right? So the question is, will there be a point where we lose

too many businesses and too many jobs? Meanwhile, as Erin McKenna has been trying to find a way forward for her bakery, an exciting offer has come up. Disney wants to serve her desserts on its cruises. It is a game changer, but it requires a huge investment from McKenna. And right now, things are tight. I have the opportunity at my feet, and yet I'm just being choked by these current circumstances.

In order to meet this moment, McKenna is pinching every penny she can at her bakeries. Everything from paring down her menu to ordering fewer cake boxes. We're low on boxes because we had to use the money to pay the loan this month and then rent gets pushed back another week and then you're paying late fees there. McKenna is hopeful she will find a way forward. After all, she has successfully steered her business through two decades of economic ups and downs. And she has always found a way to keep the cupcakes coming. In New York, I'm Stacey Vanek Smith for Marketplace.

There are changes coming to the way we buy and sell homes in this country. Traditionally, if you sell a house through a realtor, you pay a commission, something near 5%, give or take, that's split between your agent and the buyer's agent. And the way these things work, that commission gets factored into the sale price of the home in question. Starting next month, though, listings can no longer include an offer of compensation for the buyer's agent. It's part of a settlement between the National Association of Realtors and a group of plaintiffs

who claim that that practice of bundling commissions led to inflated fees. Marketplace's Amy Scott has been looking into how much is actually going to change. Let's say I want to buy a house in Denver, and I check out a listing on Redfin. So I can see it's a townhome built in 2018. Oh, and it's offering a 2.5% buyer's agent fee. That's the commission my agent would get if I buy that house. So if you're a buyer agent, you have a real incentive to care about that number,

because that's what you get paid. The problem with that, says Jordan Barry, a law professor at USC, is that when I'm looking for a house, my agent may be less inclined to show me ones that offer lower commissions. That's called commission-based steering. And Barry recently published a study suggesting it happens, looking at thousands of listings on Redfin in more than 30 different markets. We find that homes that offer below market commissions, they tend to get less attention

on Redfin. They get fewer page views. But more importantly, from a seller's perspective, those homes take longer to sell, and they're less likely to sell at all. The researchers also found training materials from major brokerages coaching agents to warn sellers against offering lower commissions because they'd get fewer showings. The Realtors Settlement aims to address those concerns in a few ways. Starting August 17th, listing agents will no longer be allowed to offer a buyer's agent fee on the MLS. That's the multiple listing service agents use to share information about properties for sale.

Brad Twist owns Neighbors Realty in Portland, Oregon. So what that means is for both buyers and their agents, they will no longer know if or how much a seller is willing to contribute towards the cost of the buyer's agent representation. So no incentive to steer buyers toward one listing or another. In another change, buyers who work with an agent will need to have a written agreement spelling out their agent's compensation before touring any properties. Twist says a seller can still agree to cover the buyer's agent's commission, they just can't advertise it on the MLS. I'm starting to think that not a ton is going to change.

I think that based on the conversations that I've had with buyers, they're very keen on us asking sellers to cover my compensation as part of their offer. And he thinks many sellers will agree in order to attract more offers. Dorica Bonds with Plum Tree Realty in Cincinnati, Ohio, says buyers have essentially been paying commissions all along. They're just rolled into the sale price. That allows buyers to cover those costs through their mortgage. The commissions are then paid out of the seller's proceeds.

So you think that the seller pays for it, but the money came from the buyer. And all of that was already in your price upfront, so really the buyer paid for it. Now, if sellers decide they don't want to cover both commissions, buyers will have to pay their own agents out of pocket. And some worry that creates another upfront cost that could hurt people already struggling to compete in an expensive market. Ted Tozer is a longtime mortgage industry executive now with the Urban Institute. He

says buyers may be able to negotiate lower fees for fewer services, but some will likely decide to go it alone, leaving them at a potential disadvantage. I'm just really fearful that we could have some really bad outcomes for some buyers, potentially, during this transitioning. Tozer, along with pretty much everyone I talk to, says the good thing about these changes will be more transparency about commissions and more room for negotiation. I'm Amy Scott for Marketplace. Coming up.

We have a lot of hikes that start at 6 p.m. I'm an early morning guy myself. First though, let's do the numbers. Dow Industrial is up 81 points today. Two tenths percent landed at 39,935. Nasdaq down 160, about nine tenths percent. Finished at 17,181. The S&P 500 gave back 27 points.

A half percent, 53 and at 99. Uber slowed 6.10% today. That's despite a favorable ruling this morning from the California Supreme Court that upheld a voter-approved initiative, law now actually, allowing ride-sharing companies to treat their drivers as contract workers rather than employees. It's a big deal. Lyft dipped one and four tenths percent today. Southwest Airlines ascended five and a half percent today after posting better than expected earnings in the second quarter. And oh, by the way, that open seating system, gone. Bond prices rose. Yield on the 10-year T-note, 4.24 percent. Remarkably steady, actually, the past couple of weeks. 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 Kai Rizdahl. Expectations, squishy though they may be, actually play a big part in what happens

in this economy. We've talked about it most recently, I think, with an eye on inflation, what consumers think is going to happen with prices can affect what does happen with prices. Today the retirement expectations game. There's some research out from the Federal Reserve Bank of New York building on what happened in the labor market in the first half-ish of the pandemic, the great resignation, right? People leaving their jobs in the expectation they would get a better one, and for older workers in particular, leaving the workforce altogether. Now, the New York Fed says, American workers' expectations of how old they are going to be when they stop working full- time is down from the before times.

Marketplace of Mitchell Hartman has that one. The New York Fed survey of consumer expectations asks respondents if they think they'll still be working full time when they're 62 and 67. In the past 10 years, the percentage you expect to work past 62 has fallen by 10 points to around 46%. Expectations of working past 67 have also declined. Alicia Munnell directs the Center for Retirement Research at Boston College. And I hope you're not going to ask me why it occurred because I have no idea.

But actually, she does have some educated guesses. First, a wealth effect. Pandemic benefits followed by a soaring stock market and home prices led more people to retire early voluntarily. So they were feeling rich and they just didn't need to work any longer. There's also been a rise in involuntary early retirement, people leaving jobs for health or safety reasons during the pandemic, and being unable or unwilling to come back. In fact, says Munao, people often expect they'll keep working

longer than they actually do. They end up getting sort of moved out or they have health issue or spouse has a health issue. All these factors were behind Julie Michael's decision to retire about five years ago. She's now 61. I was a public health policy analyst and I ended up retiring early because of health reasons and then went back to work part time and then decided to completely retire when the pandemic happened. At that point, Michael's and her husband moved from the Bay Area to Portland, Oregon to be closer to family.

They just welcomed a new grandchild. Initially, Michaels didn't want to fully retire. I do volunteer work, childhood grief work that I enjoy. But I thought when we moved here that I would find other part-time work. And that just didn't happen. Moving to a new city, I just didn't have the connections. After Michael stopped working, there

was a period when no paychecks were coming in. Her husband, Doug Honnold, had also retired early from his job as an environmental litigator for Earth Justice. Honnold says they had to stretch their savings until full social security benefits kicked in. Retiring early, there's no magic financial number that you have. I was religious about funding my 401k, but even with all of that, there were many months

where we didn't know if we could make the mortgage payment. And the couple's retirement savings were basically in good shape. Most Americans aren't. Over 50% of people who approach retirement age don't have enough money to maintain their living standards. Economist Teresa Ghilarducci at the New School says half of U.S. workers have no savings in a personal retirement account like a 401k or IRA. Ghilarducci says folks who retired during the pandemic weren't necessarily ready.

Many older people who eventually retired passed through a period of unemployment which revealed that much of their so-called retirement was involuntary. And what of the New York Fed economists finding that more Americans now expect to retire early by age 62? Even though they know that they don't have enough money, they also know, especially after the pandemic, that the labor market often doesn't want older people, especially those without college educations. And older women seem to have a lot more difficulty

than older men. Meanwhile, retirement age can be a moving target. Alicia Munnell at Boston College planned to retire when she was 65. But she's still running the Center for Retirement Research at 82. Because it's fun. I mean, I like it.

I care, also. I want a good retirement system so people after a lifetime of work can retire with dignity. And she says for most people if they're able working at least until age 67 when full Social Security benefits typically kick in will make for a financially healthier retirement. I'm Mitchell Hartman for Marketplace. Chris and Schwab started us off today talking about how consumers continue to drive this economy. All the stuff we've been spending our money on that pushed GDP past expectations, again, includes goods, of course, stuff.

Also though, services. So we thought today would be as good a time as ever to hear from one of our service oriented small business regulars. Lisa Pena owns Urban Hikes, Kansas City. Summer started out really busy. If we consider summer starting in May when it starts to get warmer here in Kansas City, May was really full of lots of urban hikes as well as June. However, in July, we had, we just, it's been really hot and we haven't had as many urban hikes. But that's been something that is usually the same every single year that we have some hot months where people wait a little bit before rebooking their

urban hikes. The way that we're managing the summer heat is we have put a lot of our hikes in the evenings. Often our hikes start in the mornings, but at this time in July and August, we have a lot of hikes that start at 6 p.m. And 6 p.m. still, it's warm outside in Kansas City. However, there is a lot of shade from the buildings, so we're able to walk on the sides of the street that are a lot shadier. And then we find that there's usually an evening breeze. That has really helped us so that nobody really gets that

hot. When I first started my business, my focus was on locals. And now that tourism has really been growing in the last few years in Kansas City, I have been working to reach tourists more. I have a plan to talk to different hotels and talk to their concierges so that they can have Urban Hikes KC on their radar. So often people come to a hotel and they ask the staff, what can we do in Kansas City? And I really want them to be able to have Urban Hikes

Kansas City on their radar so they can tell their guests. What are your plans for the upcoming year? One thing that I'm happy to reflect on is that in one of our busiest months, May, I actually was able, my husband and I were able to take a vacation to Denmark and Switzerland and still have a very busy month because of the excellent work of all of my guides and actually having a group of eight different guides out giving hikes, we were able to take a vacation

and still have a really good month income-wise. Lisa Pena, Urban Hikes Kansas City is her company. This final note on the way out today, interest rate news from a perhaps unexpected quarter. The Bank of China doesn't usually get top billing among the world's central banks. You know that list as well as I do, right? The Fed, the Bank of England, the European Central Bank, the Bank of Japan. But the Bank of China helps run the second biggest economy on the planet, so it is news when they unexpectedly

cut one of their main rates, which they did today. There are some economic challenges over there, a really troubled property sector, slack demand, things are kind of tricky. John Buckley, John Gordon, Noya Carr, Diantha Park, Amanda Pietra and Stephanie Sieck are the marketplace editing staff. Amir Bibawe is the managing editor, and I'm Kyle Rizdall. We will see you tomorrow everybody. This is APM.

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.