Marketplace - Slow and steady global growth

Episode Date: April 16, 2024

The International Monetary Fund reported today that the global economy has shown “remarkable resilience” and that growth is expected to hold steady at 3.2% this year. But that’s low by historical standards. Plus, why there’s weaker demand for Treasurys, how restaurant chains scout locations and why Warner Bros. is shelving “Coyote vs. Acme.” Beep beep!

On the program today, no particular order. The global economic vibe, location, location, location scouts, and the Coyote versus Acme, or, you know, not. From American public media, this is MarketPlanets. In Los Angeles, I'm Conn Rizdali.

I'm a Coyote fan, and I'm a Coyote fan, and I'm a Coyote fan, and I'm a Coyote fan, and I'm a Coyote fan, and I'm Tom Rizdall. It is Tuesday today. This one is the 16th of April. Good as always to have you along, everybody. We are going to start with income and outflows today of the federal variety. It has surely not escaped your notice that the government spends more, a lot more, than it takes in, which means the Treasury Department does a lot of borrowing to make up the difference.

Selling bonds is how the government does that. And they are going to have to do a lot of it, selling of bonds, over the next year. And how do you suppose that is going to go? And I ask because recently it hasn't been going all that great. Marketplaces of Rebenishore gets us going. The last few times the U.S. Treasury issued bonds, investors were not impressed. Demand is not as robust as it was before. Marvin Lowe is senior global macro strategist at State Street Global Markets.

The Treasury Department offered investors an interest rate and investors said, I don't think so, do better. So the Treasury had to do better. If we go into an auction and the interest rate that's required is higher than where we were before the auction, then it looks like the auction is weaker. It was weaker because of uncertainty. The last thing an investor wants is to lock up their money in a 10-year bond only to find out that they could have put their money someplace else just as safe, locked it up for less time, and gotten more money for it. You've kind of lost out on some of that income.

Samir Samana is Senior Global Market Strategist for the Wells Fargo Investment Institute. This fear of missing out is very possible right now. Bond investors could put their money in short-term bonds, whose interest rates are strongly influenced, it just so happens, by the Federal Reserve. So investors kind of want to know what the Fed's gonna do. But because inflation has been cuckoo bananas unpredictable recently, they don't. Marvin Lowe again. The lack of interest in some of these treasury auctions is reflecting that uncertainty.

For a given price, investors only have so much appetite. That is important because they're going to need a very big appetite very soon. The overall amount of government bonds coming to the market is more than $10 trillion over the next 12 months. Torsten Sluck is chief economist at Apollo Global Management. And yes, he said $10 trillion with AT. That is a third of US GDP. So to grow bond investors' appetites that big, that may not come cheap.

The ultimate result of that would be that interest rates would be moving up. The government would have to pay more to take out loans, which could drive up a lot of interest rates in the economy. It means that mortgage rates are going up. That means that the price you have to pay on your monthly lease for your car becomes more expensive. So government borrowing isn't just a problem for the government. It could be a problem for everyone. In New York, I'm Sabri Beneshor for Marketplace. Wall Street on this Tuesday, no problems, really. The bond market, since we're on the topic, down, which means yields went up. We'll have the details when we of the day. It came from the International Monetary Fund in describing the global economy this morning

in its world economic outlook. The IMF says it expects global growth to hold steady at 3.2% this year, a cheerier estimate than they'd had just a couple of months ago. And it comes in the face of geopolitical challenges, shall we say, and a still uneven recovery from the pandemic. Marketplace's Stephanie Hughes has more. Stephanie Huxley Economists seem kind of surprised by the resilience of the global economy, almost like it's a student whom everyone expected to do poorly on a test.

Eswar Prasad It sounds like the world is falling apart, but somewhat remarkably, the world economy is doing not too badly. Iswar Prasad is a professor of economics at Cornell and used to work at the IMF. He points out some economies like India and the US are really zipping along, while others like the UK and Germany? It's really a much more of a meh story. But one driver of resilience, even in those meh economies, stock markets are doing pretty well.

And Prasad says that, combined with a slight bump in consumer confidence, is stoking pretty robust consumption by households. Still, the IMF's projected pace of growth this year and next is low by historical standards. Karen Matheson with the Center for Global Development says this is partly to do with the ongoing wars in Ukraine and the Middle East. It makes investors nervous, right? I mean if you're just a global investor and you see this happening you're gonna want to pull back and be in safer assets. And a lot of those safer assets also have pretty decent returns right now, like US Treasuries. Matheson says those high interest rates here are limiting growth abroad.

Beth Dombkowski So if, for example, we were at a near zero interest rate level as we've been in the past, there'd be a real search for yield. So there would be more appetite for riskier debt. Stephanie McLaughlin And she says if investors hold off on putting their money into riskier ventures in the developing world that means there's less potential for growth overall. I'm Stephanie Hughes from Marketplace. Even with a bit of economic uncertainty and a bit of inflation, yes, for not a few restaurant chains, the business plan right now is all about expansion.

Popular names are moving into new communities or adding a second or a third or even fourth locations in cities where they already do business. And not only are they looking for new spaces, they're looking for different kinds of spaces because changes in consumer behavior have changed what restaurants need from a space. And that, as happens when you're talking real estate, brings us to that old phrase, location, location, yes, location. How important is it really, though?

And how does a growing chain go about finding the right location? Marketplaces Kristen Schwab has that one. Talia Berman is a New York City matchmaker. No, not the romantic kind, the kind that pairs real estate owners and restaurants. She's a hospitality advisor at a firm called Friend of a Chef. It's a rainy day and we're in Manhattan standing outside a sit down pizza joint. One of her clients. She says there are a few reasons why this was a great location. First of all, Park Avenue has done historically amazingly well for restaurants.

There are plenty of notable spots around here, and it's always good to be in good company. It's also two blocks from the subway, one block from a university, which honestly college students, pizza, no brainer. And Madison Square Park is a three minute walk. Proximity to the park is always going to be a winner for any kind of dining. Especially when that park has a Shake Shack like this one, because apparently Shake Shack is a restaurant others want to be around. Berman says the burger chain has cracked the code on scouting new locations.

Shake Shack is famous for looking at analytics, to looking at things like traffic counts and median household incomes and building their business, their cases for sites around that. And then there are all these other brands that just follow them. Every growing restaurant has to have some kind of location strategy. Nick Setion, a restaurant analyst at Web Bush Securities, says some of the fastest expanding chains right now include Cava, Domino's Pizza, and Chick-fil-A. Now is the time to grow, not shrink, and especially since we didn't grow a lot

during COVID. And so you have a lot of, you know, pent-up growth ahead of us. Seteon says this is especially true for fast casual chains, because with inflation, people are very value sensitive right now. Fast casual is also where the money is. Take Chipotle. Satyan says a new Chipotle costs about a million dollars to build and brings in nearly three million dollars a year in sales. You already have your payback, you know, essentially in less than a year and a half. He says the payback for something that requires more space and labor, like the Cheesecake Factory, takes nearly five years. Chipotle is looking

to open as many as 300 locations this year. Chris Brandt, who's the chain's chief brand officer, says its real estate team has more than 100 workers who hunt for potential new sites. There's a lot of science and a little bit of art. Science, like the number 50,000, that's how many residents a community needs for a Chipotle to succeed. And art, like will drivers want a chicken al pastor burrito badly enough to make a left turn? Cars play a big role in this because Brandt says locations with a Chipotle lane, yes, Chipotle lane for online orders, get more traffic. Nearly 40% of the company's sales are digital. So adding the

Chipotle is worth it. It increases the cost a little bit, but the return far outweighs the increased cost. Chipotle pays a premium for standalone or corner properties because you can't put a Chipotle in the middle of a strip mall. Where else can't Chipotle go? Anywhere it's hard to source ingredients. We would love to open restaurants in Hawaii, but Hawaii is a very difficult supply chain for us. These are all things a restaurant has to think about in advance. One wrong move can ruin

business. So can bad luck. Back at the pizza place in New York, Talia Berman points across the street to an office building that used to house a big investment bank. And they're no longer in the building. There's about 100 people in that building today. That's demand for morning coffee and lunch salads and business dinners that, poof, dried up overnight. In New York, I'm Kristin Schwab for Marketplace. If somehow you miss something on the air, not just today, but whenever, you know, it happens we get it.

Check out our podcast, Marketplace.org is where you can find that, or obviously the platform of your choice. We talked about thrifting on the program yesterday and how that's become trendy among younger consumers. Another fashion-related hobby that's come back and in a big way, sewing, making and fixing your own clothes as a personal style thing or simply to be a more conscious consumer. And if there is a market in sewing, which there is, there will surely be and there surely are businesses to serve that market. And that gets us to today's installment of our series, My Economy.

I'm Kate Sprout, owner and technician of Alaska Selling Machine Repair in Anchorage, Alaska. People bring me their machines, and I repair and service them. I also do the marketing and the accounting and the customer service. I do it all. Before I started my business, there and the accounting and the customer service, I do it all. Before I started my business, there was a local sew-in-back shop

and unfortunately they had to close down. But as I was starting, I found out that all of their equipment, parts, manuals were going on auction. We were able to get a lot of the equipment for, it was pretty economical, we were able to get a pretty good deal, so my startup costs were significantly brought down by that. The average cost for a machine is about $170 for a service and adjust. And repairs are a little bit more, it just depends on what's going on with the machine. On average, a week I work on anywhere from five to eight machines, I can do up to ten.

Since I opened to now, business has picked up. My name is getting out there, it's great. I've had to slow down my sales and my marketing because I need to make sure that there's not a huge wait time for each machine. But as I get faster, as I learn, and I am more confident I'm able to take on more. It's a very big word-of-mouth community, the sewing community, because they all meet in groups and they all talk to each other and hopefully they're saying nice things about me. I think it's going well. My life has changed significantly since I started doing this. I'm now making less than half of what I was making at my corporate job and it's a good move for me. Now I'm able to work on my own

timeline and I don't spend time commuting. I can spend time with my family when they need me, with my daughters while they're in school. I'm really learning how to be calm and not have all that stress. And it's worth every bit of sacrifice I'm making. I don't travel as much. I don't shop as much. I just have to watch what I'm spending and that's okay. I just know that this is the lifestyle that I want. Kate Sprout, fixing sewing machines and doing so much more, honestly, up in Anchorage, Alaska. We cannot do this series without you, so please tell us what's up with you at marketplace.org slash my economy. Coming up. It would be sort of an embarrassing failure for, you know, unnamed exact A.

Indeed it would. One reason among many that some movies never see the light of day. First though, let's do the numbers. Dow Industrial is up 63 points today, about two tenths percent, 37,798. The Nasdaq down 19 points, about a tenth percent, 15,865. The S&P 500 gave back 10 points, two tenths percent, 5,051. Earnings season continues today with Bank of America, which reported an 18 percent drop in quarterly profits.

B of A shares lost 3.5 percent. Also reporting today Morgan Stanley, where overall profit rose 14 percent, lifted by Justin Hoad did this for us the other day. Yesterday, I think, investment banking shares gained about 2.5 percent. Bank of New York Mellon, BNY Mellon, reported the highest quarterly earnings in its history. That income soared to $953 million. Shares, however, went the other way, down 2%. The number of single-family homes being built dropped by 12.4% in March. That's according to Commerce Department's data on housing starts today.

The seasonally adjusted rate was a little bit over one million units. In homebuilding stocks, then, Toll Brothers gave back 3%. Pulte Group dropped 1.8%. Lennar sank 2.2%. Today, the bond market, I mentioned that earlier. Bond prices fell. The yield on the 10-year T-note rose 4.67%. You're listening to Marketplace. This is Marketplace.

I'm Kai Rizdal. I preface this next story by pointing out to you that it is April, mid-April, in fact, and it has not been especially hot of late in Texas. Low 90s in and around Laredo, sure, but the rest of the state, 80s, even 70s. And yet, ERCOT, the Electrical Reliability Council of Texas, that is, which operates the power grid there, is already worried about not being able to keep the lights on and has asked electricity suppliers not to schedule any maintenance today for fear the temperatures in the 80s are going to strain the grid. Marketplace's Elizabeth Trowall is on the if it's that bad now what the heck

is summer going to be like beat for us today. For a lot of Texans it doesn't really feel like the kind of day you might need to worry about the grid. Most people, you know, will walk outside and say, hey, it's not 100 degrees outside. Why is there an issue? Joshua Rhodes with the University of Texas at Austin says the issue is April is when power plants do annual maintenance. That brings thousands of megawatts offline, making it harder for the grid to handle a

burst of heat. Rhodes says climate change is shrinking those maintenance windows. And so that puts an additional strain on the system because these power plants, they do need to take these outages. Texas had a big outage in April of 2006, says energy consultant Doug Lewin. At least some of the major metros had a hundred degrees in April. Too many power plants were under maintenance to meet demand during that temperature spike. But Lewin says one of the big differences between then and now is. We do have a lot of wind and solar. About 40,000 megawatts of wind

and 20,000 of solar. Daniel Cohen is with Bryce University. That extra solar supply, which of course comes when it's sunny and when our air conditioners are running most, that provided the difference last summer. But energy demand in Texas keeps growing thanks to crypto mining, data centers, EVs, manufacturing, and more people moving to the state. Energy consultant David Blackman worries about having the right mix of energy sources since the sun doesn't always shine. We don't really have adequate battery capacity to store the wind and solar electricity when it's

generated in midday. He says Texas shouldn't transition away from using natural gas to generate electricity until there are more advanced ways to store renewable energy. there are more advanced ways to store renewable energy. I'm Elizabeth Troval for Marketplace. A movie gets made, you hear about it, you hear it's supposed to be pretty good, in fact you think, yeah, I'll go see that. And then you can't. Such seems to be the case with a film called Coyote vs. Acme, made by Warner Bros. to the tune of some $70 million, but not, again, it seems, destined for the big screen or small

screen or any screen anywhere. Teddy Brown wrote about it in the New York Times magazine the other day about why this film and others wind up never actually being released. Teddy, welcome to the program. Hey, great to be here, Kai. Those of a certain age will remember the Roadrunner cartoons and all of that, and I guess my question is why aren't we gonna get to see it in the movies, man? Well, I have to make sure I use my words very deliberately here, because when we reached out to Warner Brothers for this story, the rumor going around was that they had spiked this movie, Kyja vs. Acme, over some tax implications they were trying to save on their tax bill

after quite a large merger with Discovery. And that was denied to us by the studio. But that was sort of the news swirling around for quite a while. There is history though with Warner Bros. through HBO Max and all of that with the Batgirl movie, which was never released either. So it's not tough to, you know, put two and two together here. Yeah, of course. And, you know, the qualitative arguments for movies like that is that, you know, for Batgirl, the accusation was the movie wasn't very good. So the studio decided to spike it rather than deal with a flop of theaters. Everything that's been reported

from, you know, from test audiences to the folks that worked in the movie. Say, Coyote vs. Acme is a pretty wonderful film. So this is sort of a case of what is apparently a very good movie, being sort of a memory hold in favor of some accounting. Let's do the accounting here as best we can, and at a high level and a four minute interview. A studio spends X tens of millions of dollars to make a movie, decides it doesn't want to release it and then how does that figure in their taxes? Yeah of course so they can write off the total production costs of that movie if they refuse to release it they can claim the value of the production on their tax ledger for the for the year so if it

costs them about 40 million dollars to make Coyote vs. Acme then if they they've been it you know they sort of never release it then or they never make money off of it They're allowed to claim the fact really the total value of the movie as a tax loss and write down that debt on their On their tax statement. Why not sell it to Netflix or somebody else who will pay them some You know percentage of of it and and get it out that way and make some kind of money. There's a couple different theories here. And Warner told us that they had not actually received any official bids from anyone. I'm going to take them out of the word there.

But a theory that was floated to me by someone who worked the movie was that if this was a massive success for someone, say Amazon bought it for $70 million and it made a global gross of $200 to $300 million. That would be a black eye for Warner. So it would be sort of an embarrassing failure for, you know, unnamed exec A. Yeah. You point out in the piece that art has always been commerce

and these kinds of decisions by companies are not new. Going back to, you know, what videotapes wound up on the shelves of blockbusters to what gets on streaming. It is though a situation now where consumers are more aware of it, right? We're becoming more clued into the machinations. Absolutely, we sort of, these are the kinds of things

that were really only privy to people to over-reading variety, who are reading the sort of Hollywood trades. But now we're sort of seeing how this stuff works. It doesn't change what our influence is though, which I think is a little frustrating and a little maddening for folks. We can see all this stuff happening, but still have no way to actually change it. Well it is, and I suppose this is a value judgment I'm about to make here, but it is

deeply, deeply cynical no matter how much debt Discovering the Warm Brothers piled on during that merger. It is a deeply cynical thing to take years of people's work and pretend it doesn't exist so that your accounting looks better. Absolutely. People are really passionate about this movie. And you know, I think people might turn their nose up at a B in a cartoon, but there's still hundreds of folks who put their you know

their time and effort and really and their passion into making this you know I think that if if this ends up being a tax write-off for Warner you know that they there's a there's an argument made that this should just go into the public record and we should all be able to see it for free. Teddy Brown writing in the New York Times magazine the other day about Coyote versus Acme, which we may or may not be able to see. Teddy, thanks a lot. Appreciate your time.

Thanks so much, Kai. This final note on the way out today, you remember that whole Amazon HQ2 Palooza from five or six years ago? The frenzy, and I don't think that's too strong a word, tax incentives, subsidies, you name it, were offered by cities eager to get Amazon's second headquarters and the tens of thousands of jobs that would come with it. Well, about that. Saw this in the Washington Post today that instead of the 25,000 new jobs in Northern Virginia that were promised by 2030, Amazon actually cut hundreds of jobs last year.

Our digital and on-demand team includes Carrie Barber, Jordan Mangy, Dylan Miethinen, Janet Nguyen, Olga Oxman, Ellen Rolfes, Virginia K. Smith, and Tony Wagner. Francesca Levy is the executive director of digital and on-demand. I'm Kai Rizdal. We will see you tomorrow, everybody. MUSIC This is APM.

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