Marketplace - Slowly, but surely, the economy is cooling 

Episode Date: May 31, 2024

The economy is cooling, based on the latest inflation report, in part because American consumers are pulling back on spending. That’s good news for the Federal Reserve and its 2% inflation target. Also in this episode: GM says goodbye to the Malibu, OPEC+ members to talk about production quotas, and teen boys flock to luxury perfume counters.

From all of us at Marketplace, we wanted to say thank you to everybody that stepped up to donate and helped us stay on track this year. The support of our Marketplace investors is so important to keeping our public service newsroom running strong. We made great progress toward our goal and every donation is critical to helping us stay on track as we approach the end of our budget year. And if you didn't have a chance to donate, now's a great time to do that. Give now at marketplace.org slash donate. And thanks again.

Give us seven minutes. We will give you the last five days in this economy from American public media. This is Market Class. In Los Angeles, I'm Conn Rizdall. It is Friday today. This one is the last day of May. Good as always to have you along, everybody. The news of this day and of the week really has been political. I get that.

Yes. But one ignores the economy at one's peril, so we are not going to. Amara Mokwe is at Bloomberg, Heather Long is at the Washington Post. Hey, you two. Hi, Guy. Hi. Heather, let me begin with you.

Inflation, PCE, the Personal Consumption Expenditures Price Index, the Federal Reserve's favored measure of inflation. I think it's a law that we have to say that after we say PCE Three tenths percent up month on month two point seven percent year on year not so bad, right? Yeah, I think that was pretty good and the biggest biggest surprise of all was cooling spending It sort of feels like all this air conditioning. It's finally working in the economy and things are indeed cooling down.

This is obviously what the Federal Reserve wants. I would argue that the choosy consumer coming back is also a good thing after all that revenge spending that many of us did in the past couple of years. Obviously we've got credit card debt surging. We've got a little bit of a softer labor market. So it's good to see people not splurging quite as much anymore Amara let me ask you this GDP came in at 1.3 percent the second look at it for Q1 The economy is indeed slowing right the air conditioning to you know torture Heather's phrase a little bit

Is kind of working right slowly but surely Slowly but surely I think we've been seeing signs for a while now that things have been cooling down. Definitely seeing that on the labor market side. We've seen job openings come down. We've seen the pace of hiring slow down. We've seen people quitting their jobs less, which means they're less confident about going out there into the labor market. But it is interesting because you have seen Fed officials recently really talking about whether the force of their interest rate hikes, is that really restrictive enough, right?

Has it really done enough? So the economy is cooling, but I still think there are questions about what's next for the Fed and whether it's working enough. Well, wait, keep going on that one, Amera, because that's an important point, right? Whether the Fed is being restrictive enough, whether it's high policy rate,

the federal funds rate is restrictive enough. What does that mean? Well, basically the level to which they have raised their key policy rate is supposed to be a restraint on the economy. And although the economy has cooled, overall things are still pretty solid, right? Like consumers are still spending, it has cooled down a little bit, but they're still

spending their dollars. The labor market has slowed, but we are still seeing the economy add jobs that are pretty solid pace. And I think people are wondering whether the Fed has done enough with its policy rate to get inflation down to its 2% target. And of course, this concern really started to come up after that first quarter of inflation data that we got that many Fed officials described as disappointing.

So Heather, let's keep going with this, right? It sure looks now, well, because they're actually saying it, that the Fed's gonna keep their interest rates higher for longer. Discuss sort of net effects. What's that actually gonna mean for this economy? Yeah, it means a little bit more pain. It means these 5.5% interest rates

are probably not going down anytime soon, which is kind of mind boggling when you think about it. We may see a cut in September, maybe by December, but it's crazy that at the start of this year, we were talking about five or six rate cuts and that probably by the time we're talking today, end of May, that we would be at 5% or below and instead we're not.

So what does this translate to in the real world? We've seen the housing market slow down again, anemic again, we've seen auto sales slow down, and it's really starting to be a factor in these vibes that you were talking about with Kyla Scanlon earlier this week. You know, we're hearing people bring up in the focus groups. They're not just angry about prices. They're angry that borrowing costs are so high. I think too, a bigger question is not just when does it get,

when does the first cut happen, but also what's the pace after that? What happens in 2025? And we're starting to see people revise up and up and up their expectations that it's going to be a really slow cycle down. Amer, what do you think, what's the key indicator? And look, the Fed looks at a zillion different things. Take me inside Jay Powell's brain.

What's the thing he's looking for? I think they are looking for a continued trend of inflation readings that are moving in the direction that they want it to move. Yeah, but sorry, wait. What I meant was what's the prerequisite for that? What's the thing that has to happen in the economy that's going to let them see that inflation signal really moving? I think that a lot of them have been looking at What's happening with services right and what's happening with housing like some of these areas that they have they are still waiting to show

Uh disinflation, right? Those are some of the places where inflation has been stickier, and they're waiting for those places to kind of start to cool off. And that will then in turn translate to overall inflation kind of moving in the direction that they want it to. Heather, what about labor market? How do you weight that in this equation? I think it's a really tricky one. I mean, as Amara was saying, we are seeing a lot of signs of cooling, particularly wage growth starting to cool down a little bit. We'll see what next week, what the jobs report brings. But you don't want to wait too long that you really start to see job losses. You

don't want to kind of be in the position that Europe is in where they've had almost no growth in the past year. So it's a tricky calculation so far. Things are holding up pretty well, but it's just hard to know how quickly that starts to turn. And I think you can see in a lot of the earnings reports we just saw from a lot of these companies in the stock market that a lot of people are starting to cut costs and that's why their earnings are so high. Quick question, Heather, before we go about financial conditions, right? And you wrote about this a little bit. The market is having a grand old time, very sort of AI powered.

Interest rates are, you know, they're high-ish for the last couple of years relatively speaking, but they're not out of control. It's not like the market is feeling a squeeze. Yes and no. I mean, we sort of have this NVIDIA stock which I keep describing as the Caitlin Clark and LeBron James combined of the stock market. You know it's just on a whole other plane but much like we've seen if you watch any

basketball like me you know that one superstar player cannot win a championship. You know you really need the full team and a good deep bench and And that's really the debate right now. If you're someone who's not a day trader, you need to be paying attention to are other companies starting to do well too, because that's a sign of a healthier economy and a healthier stock market. It looks a little bit better than it did last year. We've started to see companies like Caterpillar and Goldman Sachs that are really surging. Some of those industrial companies are starting to take a little bit of a turn

and do well. But we really need to continue this summer to see a lot more companies having strong earnings and being able to see their stocks go up to feel that we're not in a bubble and that we have something sustainable going on. Thing I learned today, Heather Long is a basketball fan. Heather Long is at the Washington Post. Avera Mokwe is at Bloomberg. Thanks you two. Keep hitting those threes. Bye. Have a nice weekend. Wall Street today, the month ends on a mostly up note. We will have the details when we do the numbers. As we were just talking about, the three of us, the economy is starting to slow down enough

for inflation to hit the Fed's target, eventually, because starting was the key word there. And that slowing depends a whole lot on what the American consumer decides to do, as Heather was alluding to since, as we point out on this program all the time, we the American consumer are responsible for more than two-thirds of everything that happens around here. Low-income consumers are already pulling back a little bit or switching to cheaper options. That's according to retailers that reported results this week. Heather alluded to that as well. Question is, when is the rest of the economy going to follow suit? Marketplace's Kimberly Adams spent her day trying to find the answer to that. How long does it take between consumers having enough of higher prices and cutting back and

an actual economy-wide slowdown? This is where you'll get the wishy-washy answers from all economists. Skanda Amarnath is executive director at the think tank and advocacy organization, Employ America. He says consumer spending is doing better than many CEOs and market watchers expected by now. You can call that a slowdown if you want. It's probably, the economy is normalizing out

after I'd say three to four years of historic volatility, you call it, especially since the onset of the pa consumers are starting to sustained higher prices, and pushed more people to the beginning of 2021, the that have less than $4,000

today has increased. Jenn senior director at JD Power. It's gone from 40% up to 58%. And what that means is that there's just less money to spend for more than half of the population. And that's bound to eventually show up in the rest of the economy. It's just hard to pin down exactly when. Joshua Stillwagon teaches economics at Babson College.

He says every economic cool down is different. But in general, I think you start to see the pullback in spending and then the labor market reacts and then you tend to see it on the inflation side but you could get an early warning signal from financial markets much earlier than that. If they flash red, Stillwagon says the Fed will react, just like it reacts to big macroeconomic data releases like today's PCE numbers.

In Washington, I'm Kimberly Adams for Marketplace. A barrel of oil today, the global benchmark Brent North Sea Crude closes afternoon in New York off about three tenths percent, $81.62 a barrel to end a down week. Told you that so I could tell you this, OPEC Plus thinks that $81 is way too low. The cartel is set to meet on Sunday to talk production quotas. Marketplace's Nancy Marshall-Ganzer has that one. OPEC's decision-making? It's all about supply and demand, and the cartel wants to manipulate production to push

up prices and demand. Price is always in the background as part of the discussion. Mark Finley is a fellow at Rice University's Baker Institute. He says the OPEC Plus members will decide whether to continue voluntarily cutting production by about two million barrels per day. They have influence but not control over the price. It is a fluid situation. For example, OPEC has to keep an eye on whether its members are producing more oil than they're supposed to. Tom Closa is global head of energy analysis for Opus.

It is going to be like herding cats to get all the different members that have additional crude oil. It's going to be difficult to make sure that they maintain the discipline. OPEC also has to think about the non-OPEC countries like the U.S. and Canada that pump out oil. Then there are the wild cards, says Andrew Lepau, president of the consulting firm Lepau Oil Associates. Things like whether

hurricanes will hit the U.S. Gulf of Mexico. Where production is just shy of two million barrels a day. OPEC also has to monitor interest rates because higher for longer can put a damper on global growth. A sputtering economic engine doesn't need a lot of oil. Then Lapao says there's China. As the Chinese economy slows, so will the demand for increasing amounts of crude oil. Still, Lopau says OPEC's supply and demand forecasts are usually rosier than the markets. If they were more gloomy, that might spook traders and cause oil prices to fall.

OPEC certainly doesn't want that. I'm Nancy Marshall Genzer for Marketplace. Coming up. Thinking back to my own teenage days and people were into cologne, but it was not the good stuff. It was Axe. Kids today, not so much. First though, let's do the numbers.

Dow Industrial is up 574 today, 1.5% finished at 38,686. The Nasdaq subtracted two points. We'll call that unchanged percentage-wise. 16,735 unchanged in absolute terms too. S&P 500 picked up 42.8%, 52.77. For the week, the Dow gave up 9.10%. The Nasdaq slid one and a tenth percent S&P 500 fell about a half percent.

For the month, the Dow added 2.4 percent, the Nasdaq pocketed 6.9 percent S&P 500, a four and eight tenths percent sell in May and go away indeed. Not. Before Kimberly's piece, I mentioned retailers saying consumers are pulling back. Did not hear that from the Gap.

Today, the retailer reported rising sales on track to top last year's number. Shares in Gap rang up close to 29%. You're listening to Marketplace. Seasons change. Why not your tech? Upgrade now during the Dell Technologies Summer Sale event and save on select PCs like the XPS 16 powered by Intel Core processors. You'll be able to bring your most intensive projects to life with built-in AI, minimalistic design, immersive visuals, and cinematic audio. Plus, complete your dream setup with deals on select monitors, mice, and more must-have electronics and accessories. When you shop online at dell.com slash deals, you'll have access to exceptional tech

and electronics, plus free shipping on everything. Amazing prices await you for a limited time only at dell.com slash deals. That's dell.com slash deals. For all of us at Marketplace, we wanted to say thank you to everybody that stepped up to donate and helped us stay on track this year. The support of our Marketplace investors is so important to keeping our public service newsroom running strong. We made great progress toward our goal and every donation is critical to helping us stay

on track as we approach the end of our budget year. And if you didn't have a chance to donate, now's a great time to do that. Give now at marketplace.org slash donate. And thanks again. My name is Lee Hawkins. I've been a journalist for over 25 years. On my new podcast, What Happened in Alabama, I get answers to some of the hardest questions about how things came to be for many black Americans and the truth that must come before

any reconciliation can happen. I investigate my family history, my upbringing in Minnesota, and my father's painful nightmares about growing up in Alabama. What Happened in Alabama is a new series confronting the cycles of trauma for myself, my family, and for many black Americans. Listen now. This is Marketplace. I'm Kai Rizdal. Come November, at a General Motors assembly plant in Kansas City, Kansas,

the very last Chevy Malibu is gonna roll off the line. More than 10 million of them have been made over the past 60 years or so, but GM said not too long ago, it's gonna shut the line down, than 10 million of them have been made over the past 60 years or so. But GM said not too long ago it's going to shut the line down, retool it to the tune of $390 million. And in late 2025, this is Marketplace, I'm Kai Rizdal. EV What does it mean, though, when a car model like the Malibu, which has no small pop culture footprint, think Pulp Fiction, Repo Man, also say anything, what does it mean when a car like that disappears? Here's Marketplace's Mitchell Hartman.

GM introduced the Malibu in the early 1960s, discontinued it in the 1980s, reintroduced in the 90s, redesigned in the early 2000s. I wanted to get an idea of what that first Malibu model was like, so I headed to the Vintage Automobile Museum of New Jersey at the Jersey Shore. Founding board member John Mahoney showed me around. The one-room museum next to a boat marina has early Fords.

We thought people were going to forget what a Model T looks like. Last year, they exhibited classic summer rides, including a 1965 Malibu convertible. It belongs to the museum's treasurer. Her husband bought it for her. It's a pristine condition, gold color. 1965 was the year she graduated high school. Second year for Malibu, and now they're going out. One thing that's kept the Malibu going for six decades, it's evolved, says Ned Hill at Ohio State's Manufacturing Institute.

Somehow, in the muscle car days, morphed into a family sedan with racing stripes. Malibu, at one point, was the number two selling name brand in the country, but isn't selling anymore. It's really a sign of the times. Auto analyst Carl Brower at iccars.com says after the Malibu goes away, Chevy will only have one sedan left, the Corvette. Ford's down to just the Mustang. People have discovered the SUV and the SUV car companies they can use the same unibody platform that they would make a sedan on

make an SUV and get a higher profit at a higher price. Brower is a bit wistful. I'm able to look out my window right now and see a 2004 Malibu. He sent me a picture it's boxy black with an oddly out oddly out of place racing fin on the back. I bought it one year old. It had 20,000 miles. It now has 165,000 miles and my son is still driving it. It's not making any fashion statements. I would not say it's got the most compelling or exciting design, but the drivetrain, very

typical GM, is very robust and relatively fuel efficient and it just keeps going. For Malibu drivers and the people who love them, they're Malibus that is, let's get to the practicalities of car model discontinuation. What about repair parts? Ned Hill at Ohio State says don't worry. There's either the tier three supplier that made the part or someone else is going to step up junkyards will do a pretty good business. How about Malibu's on the used car market? Karl Brauer at IC cars says no big loss there. Sedans resale value, generally speaking, isn't that good and especially American sedans.

And the auto workers in Kansas City who've been making Malibu's? GM told us around 1,400 workers will be on layoff for about a year under terms of the UAW contract while the plant retools for EVs. So who loses from one more American car biting the dust? Consumers, says Garrett Nelson at CFRA Research. They're going to end up having fewer options in terms of smaller, less expensive vehicles. New Malibu's sell for roughly 25 to $30,000. Every time one of these lower price models is discontinued, it drives up the average price of vehicles overall at a time when affordability is a real issue. But the truth is that automakers are more than happy to do this because it helps boost their bottom line. You know, a lot of these smaller

models are just low margin at best. The biggest winners, Japanese and Korean automakers. They already have top selling small sedans, including the Camry and Accord. Nelson says as the Malibu drives off into the sunset, domestic automakers leave that market wide open to the foreign competition. I'm Mitchell Hartman for Marketplace. There's a thing happening with kids these days, think mid-ish teenagers, that unless you are deep in pop culture, you might have missed. Thanks to social media trendsetters, teenagers are flocking to cosmetic stores, think Sephora and Ulta, to buy products designed with much older customers in mind.

But as Callie Holterman wrote in the New York Times the other day, there is a new product on the adolescent obsession list, Luxury Cologne, wafting soon from a teenage boy near you. Callie, welcome to the program. Thank you so much for having me. How did you come upon this story? Because teenage boys and Luxury Cologne does not for having me. How did you come upon this story? Because teenage boys and luxury cologne does not compute for me.

Yeah, and I'm not a teenage boy, I should say. Nor am I, but I was once and it didn't compute for me back then either. Totally. I heard about the beginning of this story from two of my colleagues, both of whom have teenagers and they were talking about hearing that teenage boys, their kid's age, were really, really into these high-end colognes. And I have to say, I was really surprised when I heard that because I was thinking back to my own teenage days and people were into cologne, but it was not the good stuff. It was Axe.

Sorry to laugh. One doesn't think of Axe when one thinks of cologne. We're talking high end here. These are like $300 bottles of cologne. These are really expensive. So yeah, for comparison, a bottle of X, the sort of body spray that was really popular among teenagers in the early 2000s, that's about $7 for five ounces. Some of these colognes that these kids were talking about were things like Jean-Paul Gaultier

Le Maill, which is around $152 for a similar amount, all the way up to Tom Ford's Tobacco Venie, which is $445 for 3.4 ounces. Oh, man. Sorry, this whole story has just set me back a tad. The fact that these things cost $300, $400 a bottle does sort of make it a very specific set of kids who can afford this with their parents' help, right? Totally. Yeah, this is not all kids in the slightest.

It's definitely happening among wealthier families. At the same time, one thing I'll note is that I spent a lot of time in Sephora and Ulta and at different fragrance counters. And the thing about fragrance is anybody can get a free sample. And a lot of the people who worked at those fragrance counters said, you know, even the kids who are not able to buy this kind of perfume or cologne are often coming in and getting tests of all these different scents. What do the brands themselves have to say about this? Because, you know, it's not like they...

Well, they want everybody to be wearing it, but they want everybody in a certain strata to be wearing their brands, right? Not necessarily kids who smell like a locker room. Exactly. Well, interestingly, the brands have very little to say about this. I reached out to a lot of them. Not one of the brands got back to me, which signals to me perhaps that there's a little bit of uneasiness about being associated with a really young customer.

Although it's sort of an open secret and one spending analyst told me this, that it's really profitable for these brands to be getting in the hands of really young people. Cologne is the kind of thing that someone will select one maybe at 15 or 16 or 18 and they might stick to that brand for life. So companies do sort of compete and they have this race to the bottom with age, it seems like, but they don't want to admit it. Just on the kids today note, it's not terrible that teenage boys are doing this as opposed to sitting there staring at their screens all day, right?

I mean, it was really interesting talking to parents. There were some parents who were concerned about kind of the marketing that was happening with their kids and that, you know, their kids were coming to them and feeling like they needed this really expensive stuff. There were other parents who said, you know what, there's a lot of concerning stuff that my 15 year old boy could be getting up to. There's a lot of scary online forums he could be in. And if the online forum that he's in is Fragrantica, which is a online fragrance forum, and he's talking about bass notes with other 15 year olds, they're like, that's a little more harmless

than some of the other stuff he could be doing. There's also just sorry, speaking of screens, there's this influencer, I think he's a German guy, I can't remember the name of it was in your piece, he's got like 8 million followers on TikTok or something? Approaching 9 million followers, his name is Jeremy Fragrance, he's kind of the big name in the fragrance influencer space. He's this German guy, a lot of the young men I spoke to kind of really look up to him or idolize him or watch all his videos.

He does things like show off his Rolex and his Ferrari and talk about kind of the importance of brands and the way that these colognes can sort of make you seem perhaps more masculine or more mature to the people you're around. Wow. It's kind of wild and also super interesting. Kellyie Holterman at the New York Times. Callie, thanks a lot. Appreciate your time and your story. Of course. It was great to be here. This final note on the way out today in which a buck and a half, $1.50, will buy you now and for the foreseeable future at Hot Dog at Costco.

The company reported profits this week nearly $1.7 billion. The new chief financial officer though did go out of his way to say, and this is a quote, to clear up some recent media speculation. I also want to confirm the $1.50 Hot Dog price is safe. Been that price for like 40 years, by the way. Our theme music was composed by BJ Liederman, Marketplace's executive producer is Nancy Fargolli. Donna Tam is the executive editor, Neal Scarborough is vice president and general manager, and

I'm Kyle Rizal. We will see you on Monday, everybody. Have yourselves a great weekend, all right? This is 8PM. My name is Lee Hawkins. I've been a journalist for over 25 years. On my new podcast, What Happened in Alabama, I get answers to some of the hardest questions about how things came to be for many Black Americans and the truth that must come before any reconciliation can happen.

I investigate my family history, my upbringing in Minnesota, and my father's painful nightmares about growing up in Alabama. What Happened in Alabama is a new series confronting the cycles of trauma for myself, my family, and for many Black Americans. Listen now.