Marketplace - Sorry, we can’t hear you through all the economic noise

Episode Date: January 20, 2025

The economic data of the last few months has reflected more than the typical turbulence. Labor strikes, natural disasters and political uncertainty have affected  consumer sentiment surveys, producer prices, mortgage rates and more. In this episode, we asked economists how they’re separating the significant from the irrelevant. Plus, Sudeep Reddy at Politico talks Trump’s economic messaging, Los Angeles wildfires intensify the region’s housing shortage and bond yields are up globally.

This week on Imperfect Paradise, inside the first five days of LA's destructive wildfires, we sit down with host of Air Talk Larry Mantle. Through moving Collins and Larry's insight, we piece together one of the scariest weeks in LA history. There's nothing else like what we've gone through with these twin fires. On Imperfect Paradise, wherever you get your podcasts. Well, here we go again fromizdall. It is Monday today, the 20th of January. Good as always to have you along, everybody. We have arrived at day one of the second Trump term. There are twists and turns aplenty ahead, to be But we are gonna take a couple of minutes here to set the economic stage for the next four years

So deep ready is at politico. He also moonlights with us on Fridays every now and then haste deep Okay, happy Monday. Happy Monday. I think so look let's let's benchmark this here for a second despite what the president I almost called him president-elect despite what the president said in his inaugural address today, the American economy is strong. Yes, prices are elevated, but by and large, this economy is the envy of the world. Yeah, President Trump could come into office right now and start talking about how we have low unemployment,

record oil production, lower border crossings than we had when he left office, a whole host of things. And just by being a better communicator than his predecessor was, he could take credit for all of this and probably make people believe it. It may be reduce the regulations a little bit across the board and just call it a day. In fact, he did a lot of that the first time around four years ago when he came into office, eight years ago when he came into office, and people believed it. So really the question

is how much he wants to just claim that everything is better because he's in place. How much does he really want to change? Speaking of claiming things, he says we're going to drill baby drill even though the United States produces more oil and gas now than any other country on the planet. He said he's going to set up a Department of external revenue to collect tariff income, even though, as we all know, American consumers pay those tariffs. So there was some disinformation in there. There's a lot that the president is going to say.

And as usual, we have to watch what he does. What he does on tariffs, he came right out this morning, his team did, and said, well, maybe we're not gonna to do these on day one. We'll see if he does them on day two when he's got access to his social media accounts and what that means. Inacting tariffs across the board, as he has said many times he would do right when he takes office, will potentially raise inflation.

It will cause currency ripples around the world and that could blow back on us. If he wants to cut off workers coming in from other countries, then there's a possible shortage of workers and that could raise inflation at the low end. There are a lot of things that could happen if he actually carries through on his promises and we don't know yet because we have not tried a lot of these things in quite a while. Yeah. So put on your Jay Powell hat for me here for a second and talk to me about what the central bank does when a new administration's policies are inherently inflationary, whether

it's limiting the labor supply or increasing the cost of goods. Jay Powell is looking at this going, man, I just got done with inflation and now you're doing this. Every time we see one of these actions, it will raise the expectation that interest rates will have to stay higher to deal with a potential resurgence of inflation or the fact that inflation is not dropping quickly enough. And that will start a war as it had before between a rhetorical war between the president and the Fed chair and that could upset bond markets as well there are a lot of different factors that go into what what drives borrowing costs and this is one of them and it's we've seen this before. Real quick I had this conversation with

Katherine on Friday but I love your take. It seems to me that, you know, just a couple of presidents ago, they had a little leeway in how long they had to be in office before they were like responsible for the economy. You know, it was like three months, six months, you know, presidents get too much credit, too much blame. Seems to me that Trump is on the hook for this economy like now. Presidents get too much credit too much blame seems to me that Trump is on the hook for this economy like now he can decide to take it slow and And gradually implement some of these policies

But if he wants to come in right now and do day one actions Then it becomes his because you can actually put a marker on what we have the data still at least for now to To mark what the changes look like. And it will be very apparent if he does a lot of these things rapidly and disrupts the general flow of the economy and of business. But he could also do things that he could take it slow and do things gradually that some businesses want to see and maybe avoid some of the upset. So it's a choice and we're going to find out, I think, within days or weeks what that choice is.

Sudeep Reddy at Politico on this Inauguration Day 2025. Sudeep, thanks a lot. Appreciate it. Thank you, Kyle. Talk to you soon. Wall Street was off today for the Martin Luther King holiday. We will think of something to say, though, when we do the numbers. As I said, both US equity and bond traders had the day off today, but as of quitting time last Friday, the market for American government debt, that is Treasury bills, bonds,

and notes, stood at roughly $28 trillion. As we've been telling you, bond yields have been rising for months now. In September, the yield on the 10-year treasury note was 3.6%. Now, 4.63%. And those rising yields aren't just happening here. Germany, the UK, and Japan too have on the whole

seen bond yields going up. You know, the reason we talk about the bond market as much as we do is that it can offer hints of our economic future. So what do you suppose it means that yields are rising in so many places all at once? Marketplace to Sabri Benishaw is on it. Whether they're treasuries in the US or guilds in the UK or bunds in Germany, bonds are literally loans to a government. Loans for a long time, loans for a short time.

You can buy two years, five years, ten years, twenty years, thirty year bonds. Sonal Desai is Chief Investment Officer at Franklin Templeton Fixed Income. You can even lend the government money for a very short time. Three month T-Ball, six month T-Ball. The government of course pays you interest, so there's a payoff for owning one of these things, that's the yield. And over the past few months the bond market, that is all the people in firms buying bonds out there, they have been walking away from longer-term bonds because they've decided the yields were too low. It's been a pretty significant move to higher yields. Gargi Palchowdhri is chief investment

and portfolio strategist for the Americas at BlackRock. Investors have been demanding higher yields on a 10-year bond now because their vision of the economy for the next 10 years has changed. So if you think back to the beginning of this year, all of the data, the totality of the data, whether it be on the labor market, the sentiment surveys, all of them have been pointing to a stronger U.S. economy. A stronger U.S. economy still grappling with inflation. Inflation is going to be higher than people had thought. Gershon Distenfeld is director of income strategies at Alliance Bernstein. A future strong economy with stubborn inflation residue means higher interest rates, higher

returns on something like a three-month treasury down the road. But bond investors today are going to miss out on that rosy future if their money is locked up in a decade-long loan to the government that isn't offering enough interest. That is one reason why the bond market has been insisting that long-term yields go up. But all of this, this is the U.S. And longer-term bond yields have been going up all over the world. Again, Gargapal Chaudhry at BlackRock. There is not just a U.S. story in higher rates,

but this is an Australia story, and at least the story of France, the UK, Canada have seen higher rates. Some of it is coincidence, she says, but some of it is not, says Franklin Templeton's Sonal Desai. When US rates go up, it tends to attract capital from the rest of the world. So you might see people exiting German bonds to put money into US treasuries. When people do that, the German bonds, in a sense, have to compete and their yields go up too. So that's part of what's going on. But another part of the global rise in bond yields is anxiety. It's also the uncertainty that the world's largest economy could change its trade policies rather radically in the spring.

David Krauss is professor emeritus of finance at Marquette University. If some of the threats of tariffs and major changes in trade policies come to fruition, some of the countries that are very reliant on trading with the US have increased risk. If foreign bonds now look more risky, those yields go up, kind of like how a bad credit score makes a mortgage more expensive. But as bond yields around the world have risen, Krauss says there is a bigger and bonds now look more risky, those yields go up, kind of like how a bad credit score makes a mortgage more expensive. But as bond yields around the world have risen, Krauss says there is a bigger picture here. The era of cheap money is coming to an end.

Bond yields filter out far into an economy. Higher yields make borrowing more expensive, not just for governments, but for companies, people buying homes. For many years, we got used to low interest rates and Krauss says those days are gone. In New York, I'm Sabri Beneshor for Marketplace. The weather forecast here in LA is most definitely not what we want to hear. More wind, lots of it it looks like, which the National Weather Service is calling a quote particularly dangerous situation with gusts approaching 100 miles an hour up in the mountains and the foothills. The count to date for the palisades and Eaton fires is more than 15,000 structures destroyed,

a sizable chunk of which were people's homes, which is in turn having a ripple effect on the Los Angeles housing market and beyond. Here's Marketplace's Matt Levin. Los Angeles realtor Lexi Newman used to help a lot of home buyers find their foot in the L.A. housing market in Altadena in East L.A. County. According to Zillow, the median home value there was over a million dollars, which by L.A. standards, it was, you know, on the more affordable side of things here and and also very lovely.

And there was a burgeoning kind of scene of, you know, fantastic restaurants and coffee shops and all kinds of things. Altadena was ravaged by the Eaton fire. Newman has five clients who lost their homes there. While it's still early, her gut says the sudden disappearance of semi-affordable supply won't help buyers

in nearby markets like Pasadena or Alhambra. We already had an inventory problem and an inventory shortage, so supply and demand is very possibly going to shift and have housing become more expensive than it already is. About 62 miles southeast of Altadena is Moreno Valley, an LA exurb far enough away from the fires to avoid any real damage, but local realtor, Kama Burton, expects to see some pretty immediate economic fallout. My biggest concern is the insurance because I believe that's where the ripple effect will come. Burton says homeowners insurance has become so expensive, it's already a focal point

of buyer-seller negotiations, just like closing costs. Sadly, we do have some precedent here for how we can expect the LA fires to impact other housing markets over time. After the 2017 wine country fires in the Bay Area, Sacramento realtor Erin Stumpf started getting calls from fire victims looking for more affordable options a good 100 miles away from where they used to live. Most of the people that I talked to

wanted to be in suburbia where there was low fire risk, definitely far away from any higher moderate fire hazard areas. Those low risk areas are increasingly tough to find now. I'm Matt Levin for Marketplace. Coming up. 2025 is probably going to be one of the craziest times for sneakers. So sneakers too, I guess. First though, let's do the numbers. U.S. markets, as I said, were closed today in observance of the Martin Luther King Jr.

Day holiday. President Trump, he said this morning, is going to declare a national energy emergency, giving him authority to increase U.S. energy production and potentially drill baby drill. As he said that, despite the fact that the United States produces more oil and gas now than any country on The planet Brent crude down 1% today 7994 barrel gold fell six tenths of 1% over in Europe Britain's footsies stepped up two tenths of 1% the cac Get home to CAC 40 in Paris up three tenths percent Germany's Dax advanced about four tenths of 1% the dollar fell today 3 10s percent Germany's DAX advanced about 4 10s of 1 percent the dollar fell today

Euro is $1.04 per the UK pound is worth about a dollar 23. You're listening to marketplace Hi, this is Julie from Centennial, Colorado I listen to marketplace on my drive home from on my three to midnight ER shifts Chi and the gang keep me awake and interested for my 30 minute drive. For someone not in the financial field, it's a fantastic synopsis of all things business and economics. I love the commitment to showcasing a steady stream of brilliant and articulate women

who are experts in their field. Join me in supporting Marketplace with a gift today. Go to marketplace.org slash donate. This is Marketplace. I'm Kai Rizdal. This is a light-ish week for economic data. Just a couple of B-list releases coming out the next couple of days.

First time claims for unemployment benefits, reports also on housing and consumers. But there is something else to be said about the data, a trend that we've noticed over the past couple of months, that a lot of big economic reports, A-listers, if you will, have been affected not by the fundamentals of what's going on in this economy, but by noise, whether it's big weather events like storms and hurricanes or labor strikes or optimism about the new administration's policies or concerns about said policies. Marketplace's Justin Ho looked into how all that's been affecting how we measure this economy and how economists have been wading through the

muck. The thing about noise, whether it's literal noise or the figurative kind, is that it can be distracting. Like if construction or home sales surge in the months after a natural disaster. You would never take that as a trend because you can't judge the economy just from that one rebound. That's Jennifer Lee, senior economist with BMO Capital Markets.

She says a really noisy factor lately has been the prospect of new tariffs because while some businesses have been loading up on inventory, for example. It could be reflecting businesses expectations of tariffs. It may not be a reflection of consumer demand. Another factor muddying the economic picture recently is survey data of consumers, manufacturers and small businesses.

Tim Dewey, chief U.S. economist at SGH Macro Advisors, says people's answers are heavily influenced by their political preferences. The Democratic respondents see a larger increase of inflation going forward and the Republican respondents see inflation just disappearing. Dewey says that's not useful information because people's opinions don't tend to reflect what they actually do. People might be saying that they think that confidence is down, but if it doesn't change their spending behavior,

then their feelings are really not that important. Economists can always ignore certain sets of data, or average it out over several months. George Perks, macrostrategist at Bespoke Investment Group, says after the recent hurricanes in the South, he looked at how unemployment claims and home construction in affected states deviated from similar states. So then we can sort of take into account how big this shock looks like it was and

whether that will have a major impact on national economic growth. And so far, Perk says none of the economic shocks over the last few months has even dented the economy. For now, what's much more important is a pretty solid labor market, pretty solid wage growth, strong household balance sheets, moderating inflation. As long as those factors hold steady, Perk says the economy should be fine. I'm Justin Ho from Marketplace. Here's some data that maybe isn't so murky. 2024 was a tough year for a lot of retailers.

Between January and November, about 50 of them filed for bankruptcy protection in the process, closing more than 7,000 stores. By way of context, that's a nearly 70% increase from the same period a year earlier, the data courtesy of Corsight Research there. You might have heard the phrase, in fact, retail apocalypse thrown about a little bit. Thing is, consumer spending has been pretty strong, as we've talked about, and we've just been through the biggest holiday sale season yet. So Marketplace of Kristin Schwab set about trying to square that circle.

The TJ Maxx in Lower Manhattan is buzzing during lunch hour. Callie Connolly is on her break combing through racks of clothes. I guess I'm a shopaholic, so I'm at TJ Maxx just looking around, not for anything in particular. Are you a Maxxinista though? I mean, yes, but I'm not here like every day, but I do really like it here. Maxxinista is what TJ Maxx calls its dedicated customers. Connelly comes in a couple times a month and says it's one of the few places she still shops in person.

On a wall nearby, a sign reads, "'New Styles Arrive Weekly.' Shouldn't you?" There's just always something special and new. I feel like they always have new stuff here. TJ Maxx is one of those wacky places where you can buy a designer bag, pasta sauce, and a set of silver and gold water bottles

in the shape of a croissant. The good deals and constant rotation of new stuff are reasons why discount retailers are doing well right now. TJ Maxx's sales have grown and its stock price has about doubled over the last half decade. But the mood of the industry at large is moody. Nicole DeHoratius is a professor of practice at Columbia Business School. Nicole DeHoratius I wouldn't say apocalypse, but I would say a readjustment. Readjustment is part of the natural churn of business. But the big challenge for retailers

right now is they kind of have to be everywhere, online, in person, and everything in between. They need to offer curbside pickup and easy returns. It's hard to do all of that well. I was trying to think of the last time I was delighted in a retail shopping experience. And I have to say it's been quite a while. You go to a store and the counter is cluttered with returned clothes. You go online to see if the pizza stone you've been eyeing is in stock at your nearest store, only to arrive and find an empty shelf. The integration of online and in-person shopping takes resources away from doing any one thing well.

I think it's totally possible to do all things, right? But the question is, is it going to just be the companies that have the funding? Cash. That's why just a few companies have become people's go-to for everything from food to footwear, says Aaron Cheris, who leads the e-commerce division at Bain & Company. Aaron Norris To the victor goes the spoils, right? Like if you sort of looked at retail over the last decade, right, more than half of the growth in U.S. retails come from Walmart, Amazon, and Costco. GIGI Increasingly in retail, it takes money to make

money. So to compete, retailers have to be the best. The problem is that if you are not what I would call the EST on something. The EST being the cheapest, fastest, or highest quality. Then it's really hard to win. If a smaller company wants to win, it has to focus. Which brings us back to TJ Maxx, one of the few retailers that gets away with not doing it all, online and in person, and instead leans into offering products that are affordable and special. Callie Connolly,

the lunch hour shopper, brags about the best deal she's ever snagged at the store. CALLIE CONNOLLY I found a light green, I would almost call a pistachio House of Harlow blazer, and originally I think it's like $180, I would almost call a pistachio, House of Harlow blazer. And originally I think it's like 180. I got it for $50. Favorite thing I've ever owned for sure. Love it. It's that thrill that keeps her coming back. In New York, I'm Kristin Schwab for Marketplace. Kristen was talking about some of the giants in the retail space, right? But you got Retail Macro and then you got retail micro. Kellen James is the owner of Silhouette Sneakers and Art

in the historic Greenwood District in Tulsa, Oklahoma. He bought it almost a year ago, so we gave him a call to hear how things are going. Right now you definitely feel like there's this, this calm, like slow time right now. I don't want to go crazy with getting inventory, but I also am excited. I mean, really, honestly, 2025 is probably going to be one of the craziest times for sneakers.

I mean, in as many releases that's gonna happen this year, I'm excited about that. And that's really what's happening right now, is me planning out the stuff that I really wanna make sure I get ahold of, and just trying to get new inventory that I know people are gonna want. It's gonna be a continuous thing throughout this whole time is just to be able to continue to get the word out

about silhouette. I told somebody about a week ago that like, I want it to be a word where like, even if you're not someone that's in the sneakers, that you at least know where silhouette is, what silhouette is all about. Locally, especially. I really am starting to understand that the obligation of being in a brick and mortar and having a business is more about being a part of the community.

Finding ways to be a part of the community. We're doing some events, we're doing different kind of events. We've already done one, we started this year, we did a bingo night. That's a great example of like that. Essentially doesn't have anything to do with sneakers or apparel or anything like that, but it's just a way to be a part of the community and bring people together to have a good time. We're doing more events like that,

pop-up shops to kind of highlight people, local people that are doing fun stuff. And so we want to keep doing stuff like that. And I'm hoping to get good reactions from the community. You have to find different ways to connect with people. That really is like my main thing that has stuck out to me the most is just like stuff in our store can be expensive. You know what I mean?

And so I've always had it in my mind that just like I want to try to find ways to connect with people. It is more than just about what's on the walls and on the racks. Kellen James, Silhouette Sneakers and Art, Tulsa, Oklahoma. This final note on the way out, we close on trade policy, of which we will surely be hearing plenty in the 1,461 days to come. From Edinburgh, Scotland today, this item saw this in The Guardian that McSween of Edinburgh, which is Scotland's biggest haggis maker, is going to make a U.S. compliant version of the delicacy.

Having been shut out of the U.S. market since 1971, it seems traditional haggis, I would not know by the way, is made with sheep's lung, the use of which is prohibited as a human food, so they're going to make it with sheep heart. Which is... better? Our daily production team includes Andy Corbin, Nicholas Guillaume, Maria Hollenhorst, Iruak Benobi, Sarah Leeson, Sean McHenry, and Sophia Terenzio. If you're Scottish, please don't add me. I'm Kyle Rizdahl. We will see you tomorrow, everybody.

We will see you tomorrow, everybody. This is APN. Hi, this is Nicole from Camp Hill, Pennsylvania. I'm always surprised how much content Marketplace can pack into 30 minutes. Listening is part of my daily routine. I love the way they make the content digestible and relatable for us folks who don't have a strong background in economics or business. Join me by making a gift to Marketplace today at marketplace.org slash donate.