Marketplace - Playing an economic guessing game

Episode Date: April 15, 2024

The economy has historically been a major factor in election forecasting. But right now, the economy is kinda all over the place. In this episode, how some experts are adjusting their models to account for increased polarization and others are throwing in the towel. Plus, more guessing games: Will BYD crush Tesla? Should firms make big deals before inflation cools? And wait — when am I scheduled to work?

Hey Marketplace listeners, you know around here we like to think you're never too young to learn about the economy and financial basics. That's why we're bringing the Million Bazillion Live Tour to schools to teach important lessons about budgeting, investing, saving, and more. It's all the fun of the podcast, but now live, immersive and interactive. Special thanks to our tour partner, Greenlight, the debit card and money app for kids and teens. Learn more about Greenlight at greenlight.com slash million.

That is greenlight.com slash million. On the program today, you, a certain electric car that shall not be named, and it's the economy, stupid, or is it? From American public media, this is Marketplace. In Los Angeles, I'm Kyle Rizdall. It is Monday, today the 15th of April. Good as always to have you along, everybody.

I think it's probably been a while since I've said this and it's especially relevant today, so here goes. Spending by or on behalf of consumers is responsible for something near 70% of everything that happens in this economy. And one disregards it at one's peril. So we won't. And in fact, we'll begin today with most recent data point in the macroeconomic constellation retail sales.

They were up in March from February 7 tenths of 1%, much higher than had been expected. And actually, February's numbers were revised upward as well. So well done out there, everybody. All of that spending is happening we should say despite still elevated prices but it does look a little bit different now than it has the past couple of years. Marketplace's Samantha Fields gets us going. A lot of people bought stuff on the internet last month. Spending at non-store retailers, think Amazon, rose

2.7% more than any other category. People are spending less in department stores and more online. Christine McDaniel at the Mercatus Center at George Mason University says while that's not exactly a new trend, the increase is notable. It just shows you how much Americans rely on e-commerce. In addition to all that online shopping, Gregory Dacco at EY says people did go out and spend money in person last month. They were also spending freely at restaurants and bars and in general merchandise stores.

They were also spending a little bit more at gasoline stations. Though he says part of that was gas prices were higher. At the same time, they were exercising a little bit more caution when it comes to spending on electronics, clothing and sporting goods. Spending in all three of those categories dropped in March. Jack Kleinhens at the National Retail Federation says people also spent less on stuff for their homes, another trend that's persisting. For many months, almost a couple years now, we haven't seen any strength in furniture and home furnishings. There's been mixed data on electronics and appliance stores, and even to a certain extent,

building material and garden supplies. Some of that is because people bought a lot of furniture and appliances early in the pandemic. And he says some of it is because interest rates and mortgage rates are high. These high interest rates have really prohibited people from buying homes. And things that go in them. But Kleinhenz says even though people have pulled back in some places, overall consumer spending remains strong. I'm Samantha Fields for Marketplace.

You know what people aren't buying as much of as they used to? That certain electric car, Tesla's, the company said this morning it's cutting 10 percent of its global workforce in the face of softer demand and more intense competition. Marketplace's Sabri Benishore has that one. Last year, Tesla had to resort to steep price cuts to stimulate sales. It hasn't quite worked. These are some dark days for Tesla. Dan Ives is the managing director at Wedbush Securities.

Growth has slowed globally for Tesla. Its deliveries declined 8.5% in the first quarter, the first decline in four years. This has gone from a Cinderella ride to a bit of a horror show in the near term. There are a few things behind it. Too many electric cars and not enough buyers. Mike Ramsey is a VP analyst at Gartner. Electric vehicle sales are still growing in the U.S., but they are slowing down.

The availability of public charging in the U.S. is still not really what it needs to be to give most people confidence to switch over to EVs. People are buying more hybrids. Sales increased 50% this year. Interest rates are high, and EVs are still more expensive than regular cars here in the U.S.

And Tesla has a price problem globally, says Seth Goldstein, an equity strategist at Morningstar Research Services. Tesla does not sell any affordable vehicles. Competitors in China do. Lots of them. Competitors who do are still seeing faster growth rates, largely in the affordable vehicle market, whereas Tesla is somewhat limited to the luxury market, which is growing slower because it's more saturated.

Tesla can still salvage the budget electric vehicle niche in the US and Europe, Goldstein says. There are still generally a lack of a lot of affordable vehicle options that also have the adequate range. So I think they are not late in those markets. But Tesla's competitors in China are eyeing those markets too. In New York, I'm Sabri Beneshor for Marketplace. Tesla shares off six and a half percent today, down 34% year to date.

Widening our field of view just a bit, the three major indices down as well. Geopolitics, if you're looking for a one word answer. We'll have the details when we do the numbers. Nobody, repeat nobody, should feel sorry for the big Wall Street banks. They are still making billions of dollars at a pop. See also quarterly profit reports late last week and this morning from Goldman Sachs, JPMorgan and others. That said, they are dealing with persistently higher interest rates and a bewildering economic

outlook. They're feeling some stress as a result of consumer and business stresses as well. Riskier loans, for instance. But they do, those big banks, have other lines of business that have been doing pretty well, including, as Marketplace's Justin Ho reports, good old-fashioned investment banking. If a corporation wants to raise a bunch of money by selling stock or issuing bonds, it might call up someone like Drew Pascarella. I spent 10 years as an investment banker at Citi covering the technology media and telecom

sector. Pascarella now teaches finance at Cornell University. He says investment bankers help companies find buyers for those stocks and bonds. They also help companies purchase other companies or get purchased. So there's lots of different flavors, but an investment bank would help a company think through those merger and acquisition transactions and help them actually affect those transactions in the market. And they charge their clients fees for doing all that. But up until the end of last year, investment bankers phones were pretty quiet. Steve Bigger, a bank analyst at Argus Research, says last year corporations were

kind of nervous about doing deals because when the economy is uncertain... You pull back and you say, I don't want to do any expansions. Maybe now is not the time. I want to see how this, you know, everything shakes out in the economy and, you know, do we're going to get this off landing and so forth? Companies are also facing higher interest rates and greater regulatory scrutiny. But Christina Soder, a law professor at Southern Methodist University, says by now, companies have gotten used to those challenges and? Since they're getting used to it, they're more inclined to do deals when they feel like

they should or must do deals. This morning, Goldman Sachs reported that investment banking revenue was up 32% last quarter compared to the same time a year ago. Gerard Cassidy, a bank analyst at RBC Capital Market, says it helps that the economy this year is a lot more certain than it was in 2023. So corporate dealmakers and investment bankers are likely to stay busy. More companies are in the pipeline to go public. More mergers and acquisitions are likely to take place this year, which also will

drive investment banking fees. Put another way, if investment bankers are getting a lot of calls, Cassidy says the economy is probably looking pretty good. I'm Justin Ho from ARKiPLICE. Political consultants, polling strategists of all persuasions, and candidates themselves spend untold amounts of time and energy wondering how to shape voters' perceptions of the economy. Actually, the amount is told. Hundreds of millions of dollars get spent every cycle on economic messaging. There is a reason it's the economy, stupid is an enduring political slogan.

But the reality is that how much the economy really matters in any given election isn't as clear as it used to be. Marketplace's Kimberly Adams has that one. There are basically two main ways to try to predict the outcome of an election before any votes are cast, says Michael Lewis Beck, who teaches political science at the University of Iowa. One is using the polls, you know, based on vote intention. That's the most popular one.

That's in the media all the time. New CNN polling out this morning with a fresh look at what voters are thinking. In a new national NBC News poll. New national polling Finds President Joe Biden and Donald Trump tied in November the other one is models which are Statistical models which heavily emphasize the economy Over his career Lewis Beck has written hundreds of books and articles on election forecasting And with his colleagues developed a forecasting model that's been right 15 out of the last 18 presidential

elections. There's a lot of math but suffice it to say the model uses a mix of data including how fast the economy is growing and how popular the incumbent president is. And there are plenty of other ways of building models most of which include polling. Sabato's crystal ball at the University of Virginia Center for Politics. According to Moody's election model. A new analysis from the Cook Political Report takes a look at- But just like it's been getting harder for polls to accurately capture a picture of public opinion—

answer your phones, people—many experts in the field say forecasting has been getting a lot harder as well. But for different reasons. Prior to the age of polarization, if you map out the incumbent party's vote share with performance indicators of the economy, you get a very reliable forecast model. Rachel Bidicoffer is a political scientist and Democratic political strategist. But over time, instead of, you know, growth of the economy, GDP, unemployment, things like that, being highly predictive, the main predictor became polarization. People's opinions of the economy

have always depended, to some extent, on whether their party is in power. And as people entrench deeper into their party affiliation? These sorts of forecasting models that incorporate measures of economic conditions are just not working very well anymore. Alan Abramowitz is a professor emeritus of political science at Emory University and says there's another reason forecasting is harder these days. These detailed mathematical models can be good at predicting national popular vote, but... What ultimately matters, of course, is the electoral vote.

And the electoral vote hinges on the outcomes in a handful of closely contested states. Well, that's very difficult to predict. And since that math is not really math-ing when it comes to the Electoral College, this cycle, for the first time in his decades-long career, Abramowitz isn't even going to bother trying to put together a forecasting model. I know that the enterprise continues, people will continue to do this, but I'd rather leave it to others to try to figure out how to do this. And I think a lot of us who've been in this game for a long time probably feel the same

way right now. Others still have hope for predictive models. Michael Lewis Beck at the University of Iowa says you can build them to control for increasing polarization. He also says right now it's too early. Most people won't start thinking about the economy or how it plays into the presidential race for a few months.

At the end of the day, the elections in this millennium, after party identification, the most important thing for voters is how they perceive the economy. That has happened every time. So he says, we shouldn't write off the role of the economy just yet. We'll only know for sure come November.

In Washington, I'm Kimberly Adams from Marketplace. Coming up. When you go in person, it's definitely more about the thrill of the hunt. I mean, who doesn't like a good thrift store find? Am I right? First, though, let's do the hunt. I mean who doesn't like a good thrift store find am i right? First though let's do the numbers. Dow industrials down 248 today six tenths percent 37,735 gets worse from their gang the Nasdaq down 290 points one and eight tenths percent 15,000 to 885 the S&P 500 fell 61 points that is one in two tenths percent, 5,061. We heard from Samantha Fields about retail spending and what it looks like these days.

A chunk of it online, she said. So in related stocks, Alibaba Group holding lost 9 tenths percent. Amazon down 1.3 percent. Etsy down about a half percent or so. Heard from Sabri about Tesla. So some other EV stocks. Rivian sputtered 8% today. I don't think EVs sputter actually.

Lucid Group down 2.4% of 1% today. Peloton removed an unlimited free membership tier on its app less than a year after introducing it. Too much fanfare. The plan was apparently not convincing new users to turn into paid subscribers. Peloton Interactive slumped 7.3% today. Trump Media and Technology Group announced 21.5 million additional shares for sale, a full 15% more stock than was already available.

That's called dilution or devaluation. Shares of the company traded as DJT, which is not repeat not. The Dow Jones transports down 18.3%. Today you're listening to Marketplace. This is Marketplace. I'm Kai Rizdal. There is something to be said, there's a lot to be said actually, about predictability in this economy.

We want it in our supply chains, we want it in our regulations and policies, and we want it in our jobs. If you've ever done hourly shift work, as is the case in much of the service sector, you know that companies often set work schedules without giving much advance notice. How's tomorrow? That good for you? That kind of thing. But there are changes

happening where businesses are moving to what's called predictive scheduling because they are legally required to get schedules out earlier or because they have realized it would be good for business. Marketplace's Stephanie Hughes has that one. When Adam Orman was bartending, he used to find out from his boss on Sunday if he'd be working on Monday. Yeah, it's the worst. I did not have kids, but I wanted to have a life. Now Orman's the boss. He owns two restaurants in Austin.

He does have kids and tries to get schedules out a month in advance. Predictive scheduling is one of the things that I think is probably most appreciated by the team and doesn't cost us a penny. At one of Orman's restaurants, an Italian spot called Locadoro, manager Mallory Valentine is getting ready for the dinner rush. Awesome, thank you so much. That might be her. Valentine says knowing when she's working helps her plan her custody schedule for her kids. It also helps her be mentally prepared for work. So that I can be there for my staff, so that I can be there for my coworkers, so that I can not, you know, bring a chaotic energy into the workplace with me.

But it can be hard to stay on top of this kind of scheduling. It's been busy here. Lucadoro just opened a sister restaurant. And the schedule for the kitchen staff slid to coming out just two weeks in advance. Still, that's better than average for the service industry. So it's really the norm to provide shorter notice. Kristin Harknett is co-director of the SHIFT project, which collects data on hourly workers. Her research on hourly employees, including those at large fast food and restaurant chains in the U.S., finds that two-thirds of them get less than two weeks' notice. And a majority say their schedules often change at the last minute.

Your shift might be canceled, or you might be asked to stay late. So things do shift around a lot. Harknett points out that one state, Oregon, and a handful of cities now have laws requiring some employers hand out their schedules at least two weeks in advance. She studied the effects of this in Seattle and found workers there reported improvements in sleep, economic security, and overall level of happiness. And that means? Employees are more loyal.

They're less likely to say that they're looking for a new job, and turnover is very costly for businesses. So if it helps the bottom line, why do so many employers in the service sector keep their workers in suspense? It's a bad habit. You know, it's a business culture where there's been this single-minded focus on minimizing labor costs. Harknett says one possible solution is technology.

John Waldman leads Homebase, a payroll and scheduling app. He found one challenge was restaurants were creating the schedule from scratch each time. So his company provided different templates, even for weeks that were different. Templates helped a lot. Instead of feeling like, oh, I'm building a new schedule every week. It's like, well, we really have like three variations of the schedule. So they can pop in the Valentine's Day is on a Tuesday schedule or the it's Memorial Day and everybody will be out of town schedule back at Locodoro in Austin. Adam Orman says it's also a matter of prioritizing these kinds of administrative tasks.

It is an easy thing to let fall through the cracks. Paperwork inventory is a really important part of the job, but it doesn't seem as important as cooking. But Orman has seen the payoff of doing this paperwork. He says turnover for his staff is about 40%. That's way better than the rest of the hospitality industry, where it was about 76% last year. And Orman wants his workers to stick around. We wanted to make sure that it's a thing

that grownups can do, that people can be at the restaurant for a long time so that our customers recognize their servers and that our servers recognize them. We wanted to be a place for regulars. Orman says if the restaurant industry wants to be taken seriously, then it has to grow up too. And that means not leaving things like scheduling to the very last minute. I'm Stephanie Hughes for Marketplace. Sam Fields was talking up top about how our spending habits have changed, what we're

buying and where we're buying it from. Here's another slice of the retail economy. Thrifting. It has kind of blown up, especially with Gen Z. And while thrifting used to mean digging through racks of clothes and hoping to find something amazing, there has been a rise in more curated and vintage stores, and that is changing how the whole thrifting game works. Kelsey Vlamis wrote about it for Business Insider the other day.

Kelsey, thanks for joining us. Thanks for having me. All right, so the basic outline of thrifting I gave up on top. Here's my question, though. It has changed a lot. Yeah, it has. It's really changed a lot. A lot of people, myself included as a millennial, think of as thrifting is you go to a Goodwill

or a Salvation Army, basically a donation center, and you have to sort through recs to find something you like. But now there's also many other avenues to buy used clothing, either online and physical boutiques on Instagram. There's just a lot of different ways to buy secondhand. So here's the $64,000 question. Why and how did that happen? Basically, there's just been more avenues for people to get rid of their, the clothes they no longer want.

The growth has largely been driven by Gen Z, which is really interested in individuality and trying to find pieces that nobody else has. I mean, with the growth of sites like Depop and the RealReal and Poshmark and the combination of Gen Z wanting new and unique things, it's just really taken off. It's interesting because, you know, you mentioned the RealReal and all the rest of those. I think and look,

this is definitely a generational thing. I was about to say maybe it's a generational thing, but it's definitely a generational thing. There are people out there, some of them younger people actually, like my kids, they will go to Goodwill and Salvation Army and do their thrifting there as opposed to online. Definitely. And when you go in person, it's definitely more about the thrill of the hunt. You really don't know if you're going to find anything, but there is some really good feeling about sifting through a ton of racks and just stumbling across something perfect. Whereas when you're online or on these curated shops, it doesn't have quite the same level of excitement

when you just stumble across a treasure at a thrift store. Yeah. It also has turned Goodwill and Salvation Army into actual retailers too, right? I mean, they've got like retail centers. Yeah, absolutely. And I mean, Goodwill has specific shops where they've curated secondhand things and also online. I mean, you can look through tons of secondhand things like people have donated and they've recognized this is something people want. We can curate this into an online shop. People will seek it out and they'll pay a little bit more for it.

One of the things you mentioned in this piece that struck me was the role, I guess, of fast fashion in this change in the thrift environment. Definitely. I mean, fast fashion obviously is growing and you can just, I mean, you go on TikTok, you can see hauls from fast fashion shops where TikTokers are just sorting through dozens of things they bought from a fast fashion shop online and the things are very cheap. And so if they don't like it or it doesn't fit, instead of going through the effort to return it, a lot of people will just donate it. What's the price equation, right? I mean, there's all this volume out there now has the price equation.

That is to say, generally speaking, secondhand goods are cheaper, right? Is that still the case? And if so, are people being priced out? Yeah, secondhand goods are still cheaper, but even those traditional donation type thrift stores are seeing an increase in prices. And then part of that, I think, is just regular price increases and also just knowing that people will pay a little bit more because there is more popularity in thrifting. So the problem is a lot of times with secondhand shoppers, there's need-based shoppers and

then there's trend-based shoppers and need-based shoppers are increasingly getting priced out And it's getting harder to find those like special pieces at an affordable price Right back to the thrill of the hunt thing. Are you a practitioner? Do you go out there and you know try to find those goodies? Yeah, I am. I mean I I will say as I've gotten older. I definitely stick more to more curated shops honestly, I wrote this story because I did go to a traditional donation center thrift store and I just couldn't find anything on the racks that felt like, you know, really quality clothing which is, you know, not my experience of thrifting when I did it when I was younger. So I am a practitioner. There's definitely still a thrill of a hunt. It still feels great,

but I did notice personally it was getting a little harder to find the good stuff. Kelsey Vlamis at Business Insider. Kelsey, thanks a lot. I appreciate your time. Thanks for having me. This final note on the way out today with the caveat that depending on when you hear this, rather, you'll either have your hours to file or if you're a next morning walking your dog kind of podcast listener, well, it's going to be too late. Saw this on the Associated Press that according to the latest statistics from the Internal Revenue Service, the average refund so far this year, $3,011. That is up $123 from a year ago. Two out of three taxpayers figure they will get money back.

Here's hoping you are one of them. Our daily production team includes Andy Corbin, Elisa Hassan, Maria Hollenhorst, Sarah Leeson, Sean McHenry and Sophia Terenzio. I'm Kyle Rizdal. We will see you tomorrow, everybody. This is APM. All over the country, schools are changing the way they teach reading. And it's happening because of a podcast. I think your podcast has changed my life. And I'm going to share this podcast with everyone I meet. Sold a Story investigates how teaching kids to read went wrong.

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