Marketplace - Not too hot, not too cold

Episode Date: March 11, 2024

The Federal Reserve decided that our inflation goal is 2% annually. It hasn’t hit that level, but prices are relatively stable and the economy’s going strong, with a hot labor market and a growing GDP. In this episode, is the landing we have soft enough? Plus, inventory stories: Retailers have recovered from that early COVID supply backlog and more vehicles on dealers’ lots mean a different sales pitch.

Okay, the whole show today, the whole thing, it's all about economic data. Never fear, though, we'll keep it interesting. From American Public Media, this is Marketplace. In Los Angeles, I'm Colin Risdell. Monday today, the 11th of March. Good as always to have you along, everybody. As you might have gathered from the opening about 90 seconds ago, this is a big week for economic data. The headline release comes tomorrow, February's Consumer Price Index.

January's reading clued us into how bumpy the road might be getting inflation down to the Fed's target of 2%. And one thing a lot of people are keeping an eye on is rent, which has stayed higher for longer than people had been guessing, which is in turn kind of confusing because there is some data out there that suggests rent inflation ought to be slowing down. Rachel Siegel wrote about it for The Washington Post. Rachel, thanks for coming on the show. Hey, Kai, thanks so much for having me. So first of all, what does inflation do to the CPI as we know it now? Well, inflation is this snapshot of what price growth looks like for people. And maybe people have their individual baskets, individual sense of what their own inflation report looks like. But rent is often a really big part of that pie. It's often a necessity. It's not something you can work around. And it takes up a huge part of your budget, especially

if it's not budgeting. So what's the disconnect on inflation, right? Because, you know, I mean, I signed a lease in my apartment for a year. How does that get factored in? Yeah. So we pay really close attention to these official inflation snapshots. One of them, as you mentioned, is coming out tomorrow morning. But that data often works with a lag. It doesn't necessarily capture a new lease the second it changes in price. It might survey an apartment only every couple months, even if a new lease starts in the meantime. So that means that we have this lag with what we're seeing in the official data. At the same time, we know that there are some real-time indicators that are showing very

different results, that are showing rents falling, that are showing rents easing in major markets. And the big disconnect then is why it's taking so long for those real-time metrics to show up and look more familiar in what we see in the CPI. Okay, I'll bite. Why is it taking so long? Well, I mean, we know that forecasts and models are having a really hard time catching up to the economy that we're in and that we have been since the pandemic. But even if you were to account for, OK, maybe it takes three quarters of a year for that lag to catch up.

We know it's coming. We can see it in the pipeline. I talk to policymakers and economists who are still really scratching their heads about why month after month after month, you still see this line show up in the CPI report that talks about housing as the main driver of inflation. And we're just not seeing it budge. And at this point, you probably would have thought we would. The Fed's got like 400 PhD economists working for it. I mean, this sounds facetious, but it's not. How can this be that we're not sure? Yeah.

Sounds facetious, but it's not. How can this be that we're not sure? Yeah. So it comes down in some ways to the very wonky technical ways that the Bureau of Labor Statistics calculates the consumer price index. There are ways that mean that the January data is adjusted to reset for a new year that often looks sort of wonky. You can get into the weeds and there is this strong assurance from policymakers even now that they know that this housing relief is coming. They expect it to start showing up eventually. But you're right. It really seems to increasingly fall under this umbrella of, well, why is it turning out that way? And why can't we figure out why it's not changing? Yeah. So let me just correct the record here. It's not like those 400 PhD economists in the Fed are actually responsible for the CPI. That's not the way the government bureaucracy and calculations work. But let me ask you this. Could it be that, you know,

when Powell says we want to have more good data, we want to be more confident. Is this the kind of thing he's looking for? I'm trying to nail that down with everybody I talk to. What exactly is Powell looking for? Yeah, well, he's definitely made clear that they don't need to see something drastically different. It's not like they need to see inflation reports totally do a 180 in order to get more confidence. They want more of the kind of good data that they've been seeing. But it's also true that they cannot get inflation down to that 2% figure. They can't get overall inflation down to something more normal unless housing comes down to. Housing is such a big part of this overall snapshot that until we start to see those real-time figures really break through, they're going to

have a hard time getting inflation down to 2%. Not to put you on the spot, but we've got you on the phone. Spitball it for me. How long do you think it might be before we start to see some of that high-frequency real-time data affecting inflation? Yeah. Well, I am definitely not one of those PhD economists. People who have them, who I do talk to, will say, maybe typically it takes three quarters of a year. I think the answer is less, okay, exactly how long is it going to take, but what is that real-time data showing us now? There's fresh data from apartment lists that show that rates or leases have actually come down. Prices are falling. So we at least have our arms around what the current picture looks like.

But as for when that starts to filter through, someone described it to me as like staring at a glacier and waiting for it to melt and everything turn around. It's just not budging. Rachel Siegel at The Washington Post. Thank you, Rachel. Thanks, Guy. On Wall Street today, a little of this, a little of that. We'll have the details

when we do the numbers. More to come on inflation in a couple of minutes, but we're also going to get new data on business inventories on Thursday morning. That comes from the Commerce Department. Last we heard, which is data for December, inventories were up at retailers, they were up at wholesalers, and they were even up at manufacturers, which is interesting because a lot of companies have been trying real, real hard to get rid of the excess inventory they built up during the pandemic. So Marketplace's Justin Ho looked into what's changed and whether inventories are likely to keep rising this year. Companies have been clearing out excess inventory for more than a year and a half now, and this year. Companies have been clearing out excess inventory for more than a year and a half now, and a lot of them have been pretty successful.

So right now we're sitting probably in the best position that we've been really honestly since the COVID-19 pandemic started. That's Jason Miller, a professor of supply chain management at Michigan State University. Big retailers, including Target and Walmart, have been using discounts to help bring down their inventories. And instead of building them up again, Miller says those retailers are likely to keep inventory stable to stay in line with customer demand. Right now, in an environment where demand is feeling fairly flat at the moment in many sectors, stabilization is what we would desire so long as demand is not changing. There are still some sectors where inventories are elevated.

Miller says alcohol wholesalers are carrying too much product. Same with clothing companies. Those had to deal with very rapid shifts in consumer spending patterns. I mean, the sweatpant phase, once people started going out again, that shift back to more traditional garb. But it's a different story when you talk to manufacturers, says Tim Fiore at the Institute for Supply Management. He surveys manufacturers about their customers and how much product they need. And right now, manufacturers say their customers' inventories are too low. Which then means that they have to turn to the suppliers

and say, ship me more product. And that could cause manufacturers to ramp up production. Fiore says that's welcome news for a sector that's been struggling. I think we hit the trough in manufacturing back in August, September of last year. I'm hoping that the month of March, the month that we're in, is going to be an expansion month. If that happens, it'd be the first expansion in the manufacturing sector in 17 months. I'm Justin Ho for Marketplace. Besides February inflation, we're also going to get a look tomorrow at how small businesses are feeling, courtesy of the Small Business Optimism Index from the National Federation of Independent Businesses. We, as it happens, have our own list of independent businesses who tell us how they are feeling about the economy every now and again. Vanita Cooper is one of them.

She opened her sneaker store. It's called Silhouette Sneakers and Art on the historic Black Wall Street in Tulsa, Oklahoma, back in 2019. Five years later, she has made the decision to sell her business. Here's her update. The decision to sell Silhouette is honestly a part of a thought process that started when I opened Silhouette. open silhouette. I was hopeful that, you know, I could build something that really resonated with the community. And then like, if I could actually, you know, get it to a certain level of success, following in the footsteps of, you know, the Black entrepreneurs that came before me, and using that to kind of pass the torch onto another entrepreneur. The new owner, Kellen James, he is a third generation Tolson, a local firefighter.

Kellen and I have known each other for a few years. He was interested in opening up a sneaker store himself. And I was like, well, you know, I don't know that I'll always be the owner of Silhouette. Is that something that could be of interest to you? And, you know, we've kind of talked around it and he always expressed a lot of interest. I remember the thing that made me think, okay, maybe Kellen is ready. Oklahoma City Thunder played a preseason game in Tulsa, and I had great seats, but I found out that Kellen actually had way better seats. And I was calling my friends like, what's the deal? Why did I not get these incredible seats?

And my friend was like, oh, yeah, I saw Kellen, and we talked. We talked about silhouette and how much he is interested in having it. I reached out to him maybe a week later over text. I was like, hey, you know, I was just trying to get a little feeler. And I was like, are you interested? And he was like, yes. I was like, are you serious? He was like, I'm very serious. I'm a transplant to Tulsa. I've been here for

seven years. And, you know, I said that there was a certain type of person that it was important to me that they would take over Silhouette. And to me, it's like someone from Tulsa, from North Tulsa, who has roots here. So I asked him a couple of weeks ago, I was like, so have you told anyone, you know, about it? And he said, I'm not going to lie. I had to tell my mom. And I was like, what was her reaction? And he said, man, she just started crying because it's always been their family's dream to have a business on Black Wall Street. I am so excited about what's next. Frankly, it's what I've already been working on, which is Arbit.

We are an app that helps buyers and sellers in the sneaker market buy and sell more confidently. I am excited about the prospect of building a huge business that can hire a ton of people in Tulsa. I'm a Tulsan, for sure. I'm of people in Tulsa. I'm a Tulsan for sure. I'm definitely staying in Tulsa. I love this place. Tulsa can't get rid of me. So if there are some people who are like, we're finally through with her,

well, you got another thing coming. That was Vanita Cooper, formerly of Silhouette Sneakers and Art, now the founder and CEO of Arbit, still though's going to go about being a publicly traded thing. The company filed details of its initial public offering with the Securities and Exchange Commission. with the Securities and Exchange Commission. And among them is this tidbit that Reddit's going to reserve about 8% of the shares it's going to be selling for users and moderators alongside board members and friends and family of employees.

That will give those people a chance, unlike with most IPOs, to buy in before the big institutional investors do. Marketplace's Stephanie Hughes looks at what's going on there. The first time the University of Florida's Jay Ritter remembers this kind of thing happening was about 30 years ago. The Boston Beer Company, which makes Sam Adams, went public. And in their six packs included a coupon saying, if you drink our beer, you can buy our IPO. Ritter says the idea is that investors will be more interested in buying your beer or using your internet platform. It's also meant to be a kind of reward for loyalty, says Lehigh finance professor Donald Bowen. They're giving users a chance to get hopefully some day one price pop as opposed to buying

in the middle of day one after the price has already moved. Bowen points out Uber reserves shares for drivers, and Airbnb did it for hosts. So these are all firms that have very important employee-like bases of people that participate in generating their value. Bowen says Reddit wants to keep its dedicated users happy because they generate and police the content that draws its audience. They're essential to the value of the firm because Reddit is essentially an advertising firm. They need traffic and they need the website to meet standards that advertisers require. One potential concern here is that some Reddit users are famous for affecting the prices of meme stocks. Again, the University of Florida's Jay Ritter. There is the possibility of coordinated mass buying or mass selling that could push the price up or down temporarily.

The company is aware of that possibility. In today's filing with the SEC, Reddit warned that interest from individual investors could result in increased price volatility. I'm Stephanie Hughes for Marketplace. Ah yes, increased price volatility coming up. Every factory in the world that produces vehicles for the U.S. market shut down. Well, that sounds bad. First, though, let's do the numbers. Dow Industrial is up 46 today, one-tenth of one percent on a Monday, 38,769. The Nasdaq down 65 points, four-tenths percent to the negative, 16,019. The S&P 500 shed five points, about a tenth percent, 51.17 there.

The U.S. is leading the world in oil production for the sixth year in a row. That's according to the Energy Information Administration. Crude oil production here averaged about 12.9 million barrels a day in 2023. The United States is followed by Russia at 10.1 million barrels a day and Saudi Arabia at 9.7 million barrels a day in 2023. The United States is followed by Russia at 10.1 million barrels a day and Saudi Arabia at 9.7 million barrels a day. In some oil stocks then, ExxonMobil up six-tenths percent. Chevron grew one and four-tenths percent. ConocoPhillips rose two percent. Just a note here, we pump, all of us on the planet, about 100 million barrels a day. We use, all of us on the planet, about 100 million barrels a day. You're listening to Marketplace.

This is Marketplace. I'm Kai Risdahl. When, or I suppose you ought to add if here, the Fed gets inflation under control, there isn't going to be any big announcement from the central bank, much less a victory lap. That was the very clear message from Chair Jay Powell to Congress last week. We told you about that. It is and has been, as I said up at the top of the show, a bumpy road getting to 2% inflation. But honestly, look, how much inflation do we need in this economy right now anyway? GDP is growing. The labor market is strong. So is it possible that the landing we have at the moment is soft enough? Marketplace's Elizabeth Troval has that story. The economy can run too hot, too cold, or it can be just right. And the 2% inflation goal

is what policymakers decided is right. David Wessel is a senior fellow with the Brookings Institution. It's kind of hard to justify 2%. If you were starting from scratch, they might pick a different number. But 2% is the target. And even though inflation is above that right now, Wessel says. I think we're pretty close to that nirvana of not too hot, not too cold. I'm hoping that it'll get a not too hot, not too cold. I'm hoping that it'll get a little cooler over the next few months. That sounds kind of like a soft landing. I think it's definitely feeling soft.

Aditi Sahasrabade is a professor with Brown University. She says the economy has been performing well and growing over the past year. In that sense, I think the thing to consider is then what is the optimum inflation level if we can manage stable and robust growth without overheating an economy? That could be something like 3%, says Zach Bethune, an economist with Rice University. But what really matters is that there's a consistent target.

The most important fact is that an inflation target, some number which everyone can agree and coordinate on, that's the most important feature of what the Fed is trying to achieve. Just because everyone has agreed on this target doesn't mean it will never change. But across decades, across, you know, big, say, demographic shifts in the economy

or, you know, import-export shifts, demographic shifts in the economy or, you know, import-export shifts. I think we'd want some kind of flexible, somewhat flexible inflation target. But changing the target could be seen as a dramatic move. For now, consumers and the Fed are sticking with 2%. I'm Elizabeth Troval for Marketplace. All right, we're going to do the inflation trifecta on the show today. We had Rachel Siegel on rent up at the top. Elizabeth Troval a minute ago on Wither 2%, now Henry Epp, and the rubber meeting the inflation road, if you will, because the inflation story of the past couple of years in microcosm can be found

at your local car dealer. The average price of a new vehicle started rising real fast back in the spring of 2021, and it kept rising and then rising some more until it finally leveled off last fall. Part of that, of course, was a shortage of new cars. Carmakers just couldn't meet demand. But last month, says Cox Automotive, new vehicle inventories hit their highest level since 2020, which means the process of buying and selling new cars is back to its pre-pandemic ways as well, as Marketplace's Henry Epp reports. So I'm on Shelburne Road, south of Burlington, Vermont, which is one of those strips that just has tons of car dealerships on it. Toyota, Ford, Chevy, Acura, Audi, Nissan, all of these different brands. And all of them have pretty full lots right now. And that's really different from a

couple of years ago. We had a lot of customer parking, let's put it that way. Zach Roberts is a sales manager at Heritage Ford on Shelburne Road. At the lowest point of the last few years, Roberts says there were fewer than 10 new cars on his lot. Now? We're looking at a great selection of F-150s, Super Duties, SUVs. About 129 vehicles in total. And Roberts says that's a big relief because now he can give customers time to make decisions, which wasn't really possible over the last few years. You'd be working the same car deal with three different people at the same time.

And you had to kind of let people know, hey, I know you want to think about it overnight, but potentially this might sell before tomorrow. A few things led to that cutthroat market. So a quick recap with Jonathan Smoke, chief economist at Cox Automotive. First, in the spring of 2020, at the onset of COVID. Every factory in the world that produces vehicles for the U.S. market shut down. Then there were supply chain snarls, most notably... The shortage of semiconductors. And because carmakers had a limited supply of chips to work with...

Only the most profitable vehicles and the most expensive vehicles within individual models and segments were being produced. Meanwhile, demand for vehicles didn't let up, Smoke says, leading to those nearly empty dealership lots and... The unprecedented situation of consumers for almost two years paying more for vehicles than what was on their stickers. This is not how the car market normally works. Before the pandemic, you could usually negotiate a lower price for a new car, but not over the last few years. Last year, the chip shortage eased and dealership lots started filling up again. So haggling is coming back, says Stephanie Brindley,

associate director at S&P Global Mobility. This hasn't quite put it into a scenario where consumers now hold all the power, but they certainly have more advantage than they did six months ago, or certainly much more than they did two years ago. Also back are incentives, rebates, discounts, low interest rate offers. According to Cox Automotive, the average value of discounts and incentives on new cars in January was nearly double what it was a year before. But while new car inventories look more like pre-2020, they're not all the way back. Because, Stephanie Brindley says,

car makers and dealerships learned something. If they're at a lower inventory, they can be more profitable. Case in point, at Heritage Ford, sales manager Zach Roberts says inventory now is less than half its pre-pandemic normal. And that cuts down on costs. For one, they don't need to do as much maintenance, because they have fewer vehicles sitting on the lot exposed to rain and snow.

The last thing we want is having vehicles on the lot that have been here for some time, because then you wonder about breaks, you wonder about just conditions. They also no longer rent an off-site parking lot to store extra inventory. And since dealerships take out loans for the cars on their lots, having fewer of them means paying less interest. Roberts thinks the dealership has reached the sweet spot. I'm hopeful that the inventory will stay around this. I don't think we need more inventory. I think we have plenty of options here now. With one exception, the Ford Maverick. Yeah, the Maverick is a small pickup offered in a hybrid front-wheel drive option or a gas all-wheel drive option.

And it sells for under $30,000. He can't keep it in stock. We've had people show up in sweatpants, put their cereal down in the morning and get here without their checkbook and say, oh, I'm the first one in the door, my wife's behind me with the checkbook. So it's amazing to see how popular that vehicle is. And that's another sign of change in the market. Car makers are finally starting to build some more affordable models again, and buyers are eager for them. I'm Henry App for Marketplace. This final note on the way out today, more data of both the not great and the pretty good varieties. Saw this in the Wall Street Journal. It's data from Vanguard that shows more Americans than ever are taking money out of their retirement accounts to cover emergencies.

3.6 percent of people with Vanguard plans last year did that. It was about 2 percent a year on average in the before times. That is the not great news. The pretty good news is that people are saving more in their 401ks than they ever have before. So, there you go. Our daily production team includes Andy Corbin, Avicii Hassan, Richard Cunningham, Maria Hollenhorst,

Sarah Leeson, Sean McHenry, and Sophia Terenzio. I'm Kyle Rizdahl. We will see you tomorrow, everybody. This is APM. All over the country. We need to improve reading in Wisconsin. Schools are changing the way they teach reading. I'm calling for a renewed focus on literacy. We have gotten this wrong in New York and all across the nation.

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