Marketplace - Shrinking spread

Episode Date: December 17, 2024

Government bond yields are typically lower than corporate ones, since corporations can’t print their own money. The difference between the two is called a spread, and that spread has narrowed in recent months. In this episode, why that shrinking spread is a sign that investors feel optimistic. Plus: Retailers struggle with excess brick-and-mortar space, nationwide household net worth hits a record high and Vermont ski areas battle climate change.

On the program today, bond yields, retail, and then we'll go apple picking. From American Public Media, this is Market Plans. In Los Angeles, I'm Kai Rizal. It is Monday, today, 16 December. Good as always to have you along, everybody. The big calendar item this week, of course, amid various and sundry data releases, November retail sales and an update on inflation among them, the biggie is the Fed meeting tomorrow and Wednesday.

Expectations are for another quarter percentage point cut along with some wait and see language from Chair Powell. But even though the Fed has been cutting rates, something else entirely has been going on in the bond market. Over the past couple of months, yields on 10-year government bonds have been going up and corporate bond yields have been going up too. Marketplace's Justin Ho gets us going with what that is telling us about where things might be going. Bond investors like to look at government bond yields

and corporate bond yields and compare them. The difference in bond market speak is called a spread. For instance, if a 10-year government bond is offering 4%, but a 10-year corporate bond's offering five. The difference between those two is 1%. That would be your credit spread for that one bond. That's Guy LeBah, Chief Fixed Income Strategist at Janney Montgomery Scott. He says spreads exist because corporate bonds typically offer more interest.

That's because they're seen as riskier. After all, companies don't have treasury departments that can just print money to pay off debt. They can try to earn more, but things go wrong from time to time. And so by nature, it has a bit more risk than the government. But in the last few months, corporate bond yields have been rising more slowly than government bond yields. Spreads have narrowed. LeBah says that's a sign that companies aren't looking so risky.

Profits have generally been solid this year, and many companies expect that to continue. Winnie Caesar, global head of strategy at the research company Credit Sites, says investors also expect that the new Trump administration will help companies jack up profits even more. Investors are looking at the prospects of a looser regulatory environment, the potential for an extension of corporate tax breaks. Meanwhile, government bond yields have been rising in a faster clip because demand has slowed down. Caesar says that's a sign the economy is strong, which gives investors a reason

to take on more risk. When investors are expecting that the economy is going to fare well, they're probably not buying treasuries. In other words, the narrowing spread between government and corporate bond yields is a sign that investors are feeling pretty optimistic. I'm Justin Ho for Marketplace. Wall Street on this Monday. The yield on the 10-year went up.

The NASDAQ hit a record. The S&P almost. The Dow 8 losing sessions in a row, if you are keeping track, which we are. Details numbers when we get there. There is news of another troubled retailer abroad in the land. Bloomberg is reporting the container store is going to file for bankruptcy protection and join the 49 other retailers that have filed so far this year. That is almost double the number from last year.

Upwards of 7,000 brick and mortar stores have closed across the country this year despite consumers continuing to spend, spend, spend. Marketplace's Kristin Schwab looked into what's going on. KSK Tell me, how many drug stores are in your town? SWARNS Around where I live, I mean, you can walk from one Walgreens to the other seemingly all day. KSK David Swartz in Chicago is a senior equity analyst at Morningstar. And he says Walgreens to the other seemingly all day. Lauren Henry David Swartz in Chicago is a senior equity analyst at Morningstar, and he says Walgreens, CVS, and Rite Aid have seen some of the highest store closure rates at retail this year. Because in general, the US has too much retail space.

And that... David Swartz Combined with the rise of online shopping is forcing these retailers to downsize. Lauren Henry There's also been the rise of inflation and everything that's come with it. John Mercer, head of global research at CoreSight, says retailers like the container store that sell furniture or home improvement

or anything related to buying a house are hurting. So that combination of kind of more muted discretionary spending, softer big ticket spending, pressures from interest rates have really kind of compounded. And it's all happened during what Mark Cohen, former director of the retail studies program at Columbia, calls a COVID hangover. During the pandemic, many stores got a break on what is one of the most expensive parts of their business, real estate. Lease adjustments, rent deferrals. They helped keep troubled retailers afloat. And now?

Those accommodations are pretty much all gone. It means businesses that would have probably failed years ago are finally failing now. And commercial real estate owners? Those landlords are eagerly looking for new tenants who are apparently signing up. It's all part of the churn of retail. Just instead of Big Lots and Footlocker, we're getting more Wawa and Aldi. I'm Kristin Schwab for Marketplace. While it's not at all true, as you sometimes hear, that we don't make anything in this country anymore, it is very true that manufacturing in America just ain't what it used to be.

In 1970, about a quarter of Americans had jobs in manufacturing. As of last year, less than 10% of all workers in this economy were employed in factories and the like. So what happened to all those people who lost their jobs when manufacturing fell off an employment cliff. Matt Nodowedigdo is a professor of economics at the University of Chicago's Booth School

where he studies, among other things, the decline of manufacturing. Matt, thanks for coming on. Thanks for having me. With the acknowledgement that this is only a half hour program, what broadly speaking happened to American manufacturing in the last like 50-ish years just to set the table? Thanks for the reminder that it's only half an hour. So I would say the broad consensus among labor economists is that the decline in manufacturing comes primarily from two main forces.

The first is technological changes that have resulted in essentially the automation of work. You could think of manufacturing firms replacing workers with industrial robots, and that's been going on for several decades. And then the second main factor is what we call the China shock, which is just simply the sharp increase in Chinese imports. Started around the early 2000s when China entered the WTO.

So think of these as being the two main push factors that led to the decline in the demand for manufacturing workers. Okay, so on that topic, manufacturing workers, which is why we're here, the BLS, the Bureau of Labor Statistics, says give or take, the American economy has lost seven and a half million manufacturing jobs since 1980. Here's my question. Where did they go? Yeah, it's a good question.

A lot of them sadly just left the labor market. So, you know, another fact to keep in mind is that the number of workers, the employment population ratio has been falling for many decades. Yeah, sorry, layman's terms, employment to population ratio, just for those unfamiliar. Sure thing. So the employment population ratio is the number of workers that are employed divided by the total population of workers who could be working. And that ratio has gone down by several million over the last couple of decades, and a lot

of that's coming from declining manufacturing. So what happened to these people? I mean, some of them left the labor force, which I want to follow up on in a second. Some of them didn't though. What kinds of jobs are they doing now? Well when workers lose their job in manufacturing, as I said, a lot of them struggle to get back and finding another job. And if they really struggle to find another job, then they leave the labor force. They don't work. They go to early retirement. In some cases, they collect

government benefits like Social Security, disability insurance. For the workers that have higher levels of education, they tend to just find a way to move out of manufacturing and do something else. Like? Well, it's hard to say because we don't have great data tracking workers over time in panel data. In some of the research I've done, it looks like some of them took jobs in the sectors that were booming during the housing boom that people might remember.

So, you know, remember in early 2000s, 2003, 2004, 2005, house prices were booming, construction was going up a lot, real estate jobs are going up a lot. It does look like those jobs provided an opportunity for manufacturing workers that had lost their jobs in the early 2000s. So it's been a while since this has been in sort of the ether out there, but there was a point in this economy, I'm going to say like 10, 15 years ago, where there was a lot to talk about job retraining programs and government investment in that.

Did that go anywhere? What happened to that? We've been trying job training for a really long time and it's really hard. It's hard to come up with training programs that look effective when people are older. I think the bigger adjustment that's happened is for the workers that are entering the labor force, if they see all these changes that we're talking about, they can start college with a different mentality. They could go to college in the first place and try to do something else. That seems like that's been a much bigger factor than retraining, which we don't have

a lot of successes to point to, unfortunately. Can I ask you about the towns and the people in the towns where these mostly men lost their jobs. Much has been made of the Rust Belt and hollered out American cities and all that. What happened to the people in these towns, the families of these, again, I'm assuming mostly men who lost their jobs? Well, one of the sad consequences when you look at people's health outcomes, when workers in manufacturing lose their jobs, suppose there's mass layoffs from like a plant closure. It looks quite bad for people's health. So mortality rates Spike up people in middle age, you know end up being being more likely to die prematurely

You know a kind of silver lining that I've seen in more recent research Is that when you go and look at the younger generation of people who are observing what's happening around them, what we found is that in those areas that are most effective, you see people disproportionately increasing the likelihood they go to college. They decide to get a four-year college degree rather than just entering the labor force with a high school education. And that turns out to offset some of the income declines that you might have otherwise observed because as long as the college education pays off, this is an investment that you're making

for your lifetime. That provides one way that you can try to adjust to the ongoing manufacturing decline. Well, we'll take the silver lining. Matt Nodowedigdo at the Boo School in Chicago. Matt, thanks a lot. Appreciate your time. Thanks for having me. The first big test for the ski industry is coming up. Christmas week is when most resorts get their first big rush of visitors.

But weather sometimes has other plans. For big ski conglomerates like Vale Resorts, which own ski areas across the United States and in Europe and Australia, a lack of snow and or weather cold enough to make snow in one part of the world can be hedged by a good winter someplace else. For smaller, independent resorts, though, spreading the risk like that just isn't an option. Instead, they've got to make snow, a lot of snow. But as the planet gets hotter, even that is becoming more challenging, as Marketplace's Henry Epp reports from Northern Vermont.

A few days before Thanksgiving, Mark Nelson had hoped to be making snow at Bolton Valley Resort. He's the independent ski area's snowmaking supervisor. But instead, hoses hooked up to air compressors are just blowing air out over the icy ground to keep the system in working order in case the temperatures drop later in the day. We call it marginal when the conditions are like this. That's marginal snowmaking. At 30 degrees Fahrenheit this afternoon is just a bit too warm. Since the humidity is high, Nelson says, he'd like to see the temperature drop to 26. Though in a couple spots they've already covered trails with at least two feet of snow.

That's a pretty good amount to start with, but we need some more. So what's a good base layer that you're looking for? Oh, a couple of feet spread across the whole width of the trail and top to bottom. Meaning there's a lot more work to do and not much time to do it. But as soon as it gets cold enough, Bolton is ready, says President Lindsay Deloria. Since her family bought the resort in 2017, she says they've spent about a million dollars on their snowmaking system. Bought a lot of guns, more hoses, updated pumps, added compressors,

which has been totally transformational, to be honest. Now the system can get up and running faster and pump out about twice as much snow as it used to, which is becoming essential because at least anecdotally, she says, the periods when temperatures are cold enough to make snow are getting shorter. We're getting these really short windows and we really have to capitalize on it. According to a state climate report, Vermont's winters have warmed more than

three degrees Fahrenheit over the past century and the state has lost several weeks when temperatures fall below freezing. And across much of the U.S., winter is warming faster than other seasons are. But until recently, ski resorts could counteract that with snowmaking, says Daniel Scott, who's studied climate change and tourism at the University of Waterloo. From the 1980s to the 90s and the 90s to the 2000s, average ski season length across the US, all the different regional markets was actually getting longer. But that's started to change.

We've seen that shift so that the ski season lengths have stabilized or declined in most regional markets over the last few years. And those declines could get worse, especially for certain resorts. The truth is the biggest fight you're fighting is probably altitude. Sean Kelly analyzes the ski industry for Bank of America. If more urgent action isn't taken to cut climate warming emissions, he says, lower lying areas will face the biggest challenges. Lower elevation ski resorts, those are going to be more prone to either melting events or to rain events. And at some point,

it's just not going to be worth the sort of incremental investment. Lucky for Bolton Valley in Vermont, says President Lindsay Deloria. We have a very high base elevation and you know we're in the northern part of the state. So Deloria says they plan to invest more in snowmaking in the years ahead but they're spreading out their risk by spending on summer attractions too adding mountain bike trails and a wedding venue. Still the real moneymaker she says says, is winter, which means riding the season's inevitable roller coaster. We know that we're going to have some thaws. We know it's going to probably rain at some

point in December or January and make us all cry. But you know, you kind of get used to it and you know, you just got to weather through it and it'll turn around. It'll be all right. Usually it is. Despite its efforts, Bolton wasn't able to make enough snow to open for Thanksgiving. But then the weather started to cooperate. Temperatures dropped and they got some real snow too, enough to open the first weekend of December. In Bolton, Vermont, I'm Henry Epp from Marketplace. Coming up! The first year we did it, we didn't get a spot.

So now I make a reservation in January. Early bird gets the worm, right? First though, let's do the numbers. Dow Industrial is down 110 points, a quarter percent, 43,717. The Nasdaq jumped 247 points, one and a quarter percent, a record high, 20,173. The S&P 500 gained 22 points, 4 tenths percent ended things at 6,074. Big tech as I was saying hit an all-time high for a number of companies which helped boost the tech heavy Nasdaq. Tesla accelerated 6.1 percent today. Apple grew one and two tenths percent. Alphabet charged up 3.6 percent today. Chris and Schwab was telling us about tough time for some retailers. CVS Health dripped 5 and 6 tenths of 1% today. Walgreens Boots Alliance

subtracted 2%. Foot Locker rang up 3 and 2 tenths of 1% today. Bonds fail. Yield on the 10-year T-note up as I said 4.40%. You're listening to Marketplace. You turn to Marketplace for up-to-the-minute news, for stories that show you the connections between global events and your personal economy. And you're not alone. Marketplace is the most widely consumed business and economic news program in the country. We're proud to make fact-based journalism freely accessible. And Marketplace investors make it all possible. Your year-end donation today will make a real difference

in our nonprofit newsroom and in the lives of millions of Marketplace listeners every single day. So please contribute what you can today at marketplace.org slash donate can today at Marketplace.org. This is Marketplace. I'm Kai Rizdall. Household net worth, the sum in total of all assets owned by American households minus their debts, is up. And it is up a lot. A new record high. In fact, that's according to the Federal Reserve. In the third quarter of this year, $4.8 trillion to the good to just shy of in total $169 trillion. The caveat here is that the increase is coming primarily from stock market gains and rising home values, parts of this economy, which as we know, not everyone participates.

And in fact, the increase doesn't seem to be cheering Americans a whole lot. Consumer sentiment is of course still pretty meh. But as Marketplace as Mitchell-Harman reports, it probably is helping us keep up the spending. There's a name for what happens when better off Americans see lots of plus signs show up in their brokerage accounts, and folks with 401Ks see their balances going up, and the cost of homes keeps rising. The wealth effect. Eric Friedman at US Bank explains.

We have this gradual, consistent increase in both home prices as well as the stock market. That's led to people spending more money and the cycle continues. These gains haven't exactly been evenly distributed. Take stocks, for instance. Top 10% of wealth strata owns roughly 92 percent of all equities. So that's a very disproportionate gain. Still, ever more Americans are getting a bit of a bump as the stock market rises, says Sam Stovall at CFRA Research.

Stock ownership certainly is much more broad today than it was 20, 40 years ago because there are 401Ks. Now, there is a risk here. Consumers could count on their paper profits on stocks and real estate, overspend and get into debt, says Tuan Nguyen at consulting firm RSM. It is true that credit card debt hit a new record high in recent quarters, but so did household assets, total income because of the labor market and the stock market. Americans' debt to assets ratio is now near a multi-decade low. The lower the debt ratio, the better it is for American consumers to keep spending without

having to worry about how they are able to afford it. Except lower-income Americans with fewer assets are putting more on credit cards and falling further behind. I'm Mitchell Hartman for Marketplace. This is a busy time of year. The shopping, the travel, the decorating, the family time and the festivities. If you're in the Mountain West though, there is another thing you gotta find time for the festivities. If you're in the Mountain West, though, there is another thing you got to find time for. Apple picking. Seriously, not for now, but for next fall.

KUNC's Ray Solon has this story from Colorado, where the arid climate makes apple picking so competitive, it's just about time right now to make that orchard reservation for next September. Jay Williams is the orchard guide at Yahya Farm and Orchard on the outskirts of Longmont, Colorado, about 30 minutes north of Boulder. Down here we've got Golden Delicious and Honeycrisp, another Macintosh tree. During the autumn rush, this is her day, orienting visitors before releasing them to frolic among

the trees. And she stays busy. Apple pickers come through in 15-minute intervals. Every single time slot is filled. This is where you'll be picking straight down. There's a variety of trees. This September morning, she's welcoming three generations of the DeZubla clan. Three kids, parents, and grandparents.

Eight-year-old Gabe has grand ambitions. We're gonna make an apple pie. As the kids run from apple-heavy tree to apple-heavy tree, their mom Carly confides that this picture of breezy autumnal wholesomeness took some serious Type A planning. The first year we did it, we didn't get a spot, so now I make a reservation in January. January! Forget about Taylor Swift. When autumn comes to Colorado, the hottest tickets in town

are at the local pick your own orchard. It's just demand versus supply. Yaya's owner, Sharon Perdue, says she had to start the reservation system years ago just to keep from being overrun. Sharon Perdue, demand simply because apple farming is a risky proposition in northern Colorado, where the summers are brutally hot and dry and the growing season notoriously short. If I have a crop that produces 50 percent, I consider it a success. It's not the best climate for apple trees, so why would you do that? Even if she wanted to keep up with the apple pickers, Purdue says it's not like new apple trees can suddenly hype up production.

They find a tree five to seven years until you get fruit. And according to Colorado State University ag economist Dawn Filmini, if opportunities for Colorado apple picking are slim, that's because opportunities for local orchards are disappearing. Most of the urban corridor farms, there's nowhere to expand to. So we're just losing agricultural land. And it's got the highest development pressure near urban areas where exactly you'd put a UPIC farm.

Apple farmers can charge a premium for the UPIC experience, but many shy away from the model. It comes with its own costs and liabilities. And Thilmini says hospitality takes an entirely different skill set than farming. If you do it well, you really do have to manage crowds. Everybody wants to do the apple picking on the same four Saturdays in the fall when the weather's pretty. That certainly rings true for Mary Pacini up by the orchard parking lot. She is more like the rest of us. She did not book

an apple picking outing eight full months in advance, but she showed up hoping for a cancellation and she's out of luck. I've tried the last three years and every time it's too late, it's already full. Meanwhile, the forward-thinking Dizublas are soaking up the pretty weather this morning. After about 20 minutes dashing about the orchard, eight-year-old Gabe declares mission accomplished. We're done with apple picking? His sack is full of fruit, more than enough for that pie. Before they leave, one last autumn treat, this one from the farm stand. Now can we go get an apple donut? Yes we can. Yay! And almost as soon as that pie comes out of the oven, it'll be time to make next year's

reservation. In Longmont, Colorado, I'm Rae Solomon for Marketplace. This final note on the way out today, another nod to the American consumer. I saw this on the verge. The most popular app in the Apple store this year, the App Store? Not TikTok, not Chat Cheap E.T. Tmoo, the oh so cheap online shopping app. Hmm. Our daily production team includes Andy Corbin, Nicholas Guillaume, Maria Hollenhorst, Sarah Leeson, Sean McHenry, and Sophia Terenzio. I'm Kyle Rizdal. We will see you tomorrow, everybody. This is APM.

You turn to Marketplace for up-to-the-minute news, for stories that show you the connections between global events and your personal economy. And you're not alone. Marketplace is the most widely consumed business and economic news program in the country. We're proud to make fact-based journalism freely accessible. And Marketplace investors make it all possible. Your year-end donation today will make a real difference in our nonprofit newsroom and in the lives of millions

of Marketplace listeners every single day. So please contribute what you can today at marketplace.org slash donate.