Marketplace - Spacial awareness

Episode Date: March 8, 2024

When supply chains were backed up early in the pandemic, some businesses bulked up on warehouse space. Now that inventory is no longer a problem, what to do with the excess? And in the art world, some nonprofits are trying to buy real estate, which comes with benefits and financial hurdles. Also in this episode: COVID habits shape restaurant hiring and a bakery deals with rising costs.

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

Go! From American Public Media, this is Market Plans. In Los Angeles, I'm Kai Risdahl. It is Friday today. This one is the 8th of March. Good as it always is to have you along, everybody. Jobs, of course, will be discussed in the next six minutes. Some guy named Jay, and there was a certain speech, too.

We'll talk about that just a little bit anyway. Anna Swanson is at The New York Times. Heather Long is at The Washington Post. Hey, you two. Hey, Kai. Hi, Kai. Heather, let me start with you. The jobs report this morning, of course, 275,000 new jobs.

That is good news. I want to key in, though, on the other part of that report, the unemployment rate up from 3.7 percent to 3.9 percent. You said on the socials today, we got to keep an eye on that. Why are you worried? Well, I don't think it's a panic situation. You're always very good at reminding your listeners that one month does not make a trend, but certainly went in the wrong direction. And there were 334,000 more unemployed people in February. That was a pretty big jump for one month. And it implies a softening in the labor market. I don't think it totally changes the story. It still looks like we could achieve a soft landing type situation. But if that continues to pick up, then that could potentially be a red flag.

For now, I'd say it's a worry, but it's not keeping me up at night. Ana, this is what we want though, right? As Heather said, this is part of that, sorry for this, glide path to a soft landing, right? Yeah, I think it's still pretty soft landing-ish. We haven't landed yet. But I mean, that report was really kind of a pretty mixed report in terms of positives and negatives, kind of a choose your own adventure. But overall, you do have a strong job market, but definitely signs that it's cooling down. And I think, you know, for the Fed, that signals it's not time for a rate cut yet, but maybe it will be by the summer. I'm definitely looking to inflation numbers coming out next week. Yeah. And, you know, still kind of too early to rule out either that the economy could reaccelerate or that we could have, you know, some kind of more dramatic slowdown coming up, as Heather is suggesting. But so keep going with. Let me stipulate here. This economy is good, very strong labor market, still strong economy is growing. But Anna, what did you not like in this report then? definitely big downward revisions to job gains in the last couple months. I mean, job gains were strong in February, but those numbers got cut in recent months. There was a

little more slack in the labor market. Six-figure revision downward, right? I mean, it was big. Yeah, big revisions, right? There was also a little more slack in the labor market. But then, you know, on the other hand, you also had limited wage gains, which are good news for inflation prospects. So I think, you know, overall, it's really an illustration that, you know, the economy is kind of near a tipping point, but it's not quite there yet. We're really in the middle. Heather, it is kind of amazing. We're sitting here saying, yes, we're still not quite there yet. Let me ask you something else, Heather, about Jay Powell this week. He went up to the Capitol, did his standard two days of testimony that he does twice a year. And he was asked this question by Congressman Al Green, Democrat of Texas. Here you go. Will there be some announcement at some point that we've had a soft landing? So Powell, with a straight face then,

Heather, says this. I'm not, I don't think by us, no. I think we're just going to keep our heads down and do our jobs and try to deliver what the public is expecting from us. We wouldn't be, you know, declaring victory like that. Which is about the most Jay Powell thing that anybody's ever said, right, Heather? But here's my question. What signs are you looking for from the Federal Reserve communications wise? You know, they're not going to do a big victory march, but they are going to let us know somehow that they're there, right? victory dance. I would love to see that. But I will say just before that clip, I thought it was an excellent question by the Congressman, but the clip just before what you played, the Fed Chair Powell actually said, we are on a good path to be able to get there. And so that's about as close as the Fed comes to saying, we're pretty confident. And that's a real change from a year ago. I was thinking back to this time a year ago when he would be asked about the soft landing. He didn't even want to use the term.

He would sort of say, we're trying to get there. And now he's out there saying we're on a good path. And so that's the word you want to hear from the Fed chair with that bump up in confidence. And I think continuing to see that kind of messaging going forward will be a very good sign. We're obviously going to get the latest projections at the end of this month on the economy. Right. Okay.

Anna, the speech last night, of course, the president goes to the well of the house, does the state of the union has been covered extensively elsewhere. Here is a little snippet of it that I want to play for you and then discuss. Here you go. Folks, my inherited economy is on the brink.

Now our economy is literally the envy of the world. Which is factually true, right? Ana, we are growing faster, this economy is, than any other industrialized economy on the planet. And I want to know from you, how come we're doing so well and everybody else ain't? Yeah, I mean, I think there are a couple important factors that set America apart, and some have to do with luck and some have to do with policy. And on the policy front, you know, a lot of it is about the U.S. economic response to the pandemic, which

was really substantial. It was triple the size of the U.S. response to the financial crisis, and it put the U.S. on a really good footing, even though it did help stoke some pesky inflation. And then when it comes to luck, you know, part of it is about being farther away from the wars unfolding in Ukraine and the Middle East and much more insulated, for example, than Europe from higher energy prices. In fact, the US economy is, you know, exporting a lot of oil and growing that way. So yeah, I mean, things are pretty good. The ironic thing, of course, is that a lot of Americans don't seem to feel that. And, you know, President Biden also acknowledged that in the State of the Union last

night when he said it doesn't make news but the american people are writing the greatest comeback story never told um and it's also why the economy is a talking point for former president trump these days it is a talking point for everybody honest watson at the new york times heather long at the washington post thanks you too thanks kai wall street to end this week well you know could have been better we'll have the details when we do the numbers. It became pretty clear pretty early in the pandemic that warehouse space had become an especially scarce and thus valuable resource. Supply chains were backed up, but consumer demand was off the charts because consumers were stuck at home with nothing to do but shop. So retailers and wholesalers alike wanted to put as much stuff as possible in warehouses. So they bought and rented and otherwise got their hands on as much warehouse space as they could.

Now, though, as you know, supply chains are pretty much back to where they were in the before times. So storing extra inventory just isn't as important anymore, which means, as Marketplace's Justin Ho reports, a whole lot of businesses are trying to figure out what to do with all that extra space. I'm standing in a warehouse just south of San Francisco that belongs to a company called TMB Baking, which sells baking equipment. CEO Greg Warwick is showing me how to use a machine that manually rolls dough into thin sheets to make pastries. For those that are using a rolling pin to roll their dough out, this is a game changer for them. Most of the equipment in this warehouse is way more sophisticated.

Huge ovens and electric mixers, metal boxes the size of washing machines for storing sourdough starter. Warwick imports most of this equipment from Europe. And back in 2021, when supply chains around the world were messed up, the company realized it needed to store a lot more inventory on site, and his landlord happened to have another warehouse available next door. So we made the decision at that time that it was worth investing some more in the ability to bring that equipment over and inventory it here. TMB Baking wasn't alone. By the second half of last year, the number of warehouses in the U.S. was almost 20 percent higher than just before the pandemic, according to the Census Bureau.

But now that supply chains have eased up, TMB Baking doesn't need to store as much inventory. So Warwick repurposed the warehouse into a showroom. need to store as much inventory. So Warwick repurposed the warehouse into a showroom. We saw that there was really the great opportunity to walk people next door and say, hey, here's your mixer. You know, this is it. And you want to test it? We can bring it over and plug it in if they need to do that. Retailers aren't using their warehouses as much as they were a year ago, especially small ones, says Zach Rogers. He's a professor at Colorado State University who helps put together the Logistics Managers Index, which tracks warehouse utilization.

Larger firms sold a bunch of stuff during the holidays, and now they're replenishing inventories. Smaller firms, I think, are being a little more cautious. Rogers says those business owners know that they can't just sit on their warehouse space. And so you have to figure out, well, can we sublease part of this? Can we use it for something else? You don't want to just be paying for a big box full of air because right now that big box full of air is pretty expensive. Expensive in part because interest rates are higher,

but also because there's a lot of demand for their unused warehouse space from companies that don't even want to store stuff in it. Karen Yip is the owner of Yip Premier Real Estate in Columbia, South Carolina. She says her local economy has been booming. A lot of people and businesses have been moving to South Carolina and trying to find places to set up shop. And so? Anytime like a smaller warehouse space comes on the market, it tends to get snapped up pretty quickly. Buy event spaces, breweries, and gyms, for instance, because warehouse space tends to be a lot cheaper to rent out than retail storefronts. The price per square foot can't be beat at all. I looked at places that were a third the size that were twice the rent.

That's David Walker, the owner of CrossFit Lodestar, just outside Columbia, South Carolina. He moved his gym into a 6,000 square foot warehouse about a year and a half ago. He says the building works really well for him. There's plenty of floor space, the roll-up door helps with airflow, and transforming the warehouse into a gym was simple. There's not a lot of permitting I have to go through to get all that stuff done. I just, you know, unscrew this, drill another hole here, and there's a blank slate for me, which made it really easy for me to build out. Meanwhile, in the Boston area, developers have been snapping up unused warehouses to tear them down and build apartments. Seth Williams,

the owner of Reference Real Estate in Boston, says local governments have been rezoning a lot of commercial areas to encourage more housing. Everyone's kind of on the prowl for a plot or a warehouse or a box or something that they can take and really increase density. William says developers have pretty deep pockets, and that gives them an edge over businesses that actually need to store stuff. One of his clients, Jess Harrington, runs a business called Jess Finesse, which stages homes that are up for sale. And she's been on the hunt for a warehouse to store all the furniture and accessories she needs. I did put an offer in on a place in my neighborhood. Unfortunately, like the terms were not super desirable to the seller. And so my offer has not been accepted. Harrington says she's building up cash so that when another warehouse

comes on the market, she can make a stronger bid. I'm Justin Ho for Marketplace. According to a 2023 study from the research firm John Dunham and Associates, which was funded by the American Bakers Association, which is a thing, the American baking industry had an overall impact of more than $180 billion last year and employed almost 800,000 people, which is both a whole lot of dough and a whole lot of people. Here then are two of those people for our series, My Economy. My name is Andre Kempton. My name is Jessica Kempton, and we are the owner of Walevan Bakery. We focus on naturally fermented sourdough breads and handcrafted pastries. We are located in the state of New Mexico. We have a couple of locations,

one in Taos and one in Santa Fe, New Mexico. Basically, we live in between Santa Fe and Taos, which is nice. So I can go up to Taos and take care of business there, where Jessica can go down to Santa Fe, and she can kind of manage the shop there. The management of the business is, in a way, it should not take over our family life, and that's something I'm very clear about it with anyone, especially a customer, that I want my husband to be here healthy the next hundred years. And people are looking at me like, what? It's like, yeah, first it's my husband, then he's your baker. We certainly have to adjust our pricing.

For us, I remind people that we are making a living. So it's not a non-profit. We are a family-owned business. So we need to adjust more because we need to stay alive. The price on butter just skyrocketed. We used to pay like a little under six a pound, and now we're paying like $8.50 a pound. The croissants and pastry is where we use most of the butter.

And we had to bump those up, you know, from a $4 croissant to a $5 croissant. We just have a passion for making food. That's what it comes down to. And if we could, we would be running a whole full-scale restaurant, breakfast, lunch, and dinner. What we've been able to do, we've been able to branch out a little bit and we've been able to start offering soup stews and curries every day at our Santa Fe location our new Santa Fe sit-down location and also now in our Taos location where

we've put in 20 seats. Andre is very creative with food I mean I don't remember it's hard for me to think of something he will tell me I cannot make. So when we were courting, dating, he was like, I want to eat this. I can make it for you. So that department is covered. As an artisan baker, I would like to also add that Google Review may not always cover everything people tell us behind the scenes, good or bad, but still very good feedback from our community members at a personal level. And we know that we're doing something that our neighbors want us to keep doing. In general, we just want to keep making food for people.

Jessica and Andre Kempton bacon bread and a whole bunch of other goodies at a couple of different spots in New Mexico. Let us know what's happening, would you? With you, whatever you do, wherever you are. Marketplace.org slash my economy is how you do that. Coming up. This space being here for the company and for the community at large is so vital. Arts organizations as real estate investors.

But first, let's do the numbers. The Dow Industrial is off 68 points today, two-tenths percent, 38,722. The Nasdaq down 188 points, about one and two-tenths percent, 38,722. The NASDAQ down 188 points, about one and two-tenths percent, 16,085. The S&P 500 subtracted 33 points, about seven-tenths percent, 51 and 23. For the five days gone by, the Dow declined nine-tenths percent. The NASDAQ off 1.2 percent. The S&P 500 lost about a quarter of one percent. Today being International Women's Day, let's take a look at some publicly traded companies

led by women, shall we? GM headed by the first female CEO at a big three automaker, Mary Barra. You've heard her on this program. Rose 4 tenths percent. Automatic data processing, ADP led by Maria Black and better known, as I said, as ADP slipped to 8 tenths percent.

Clorox headed by Linda Rendell ascended 1 and 2 tenths percent today. Here's a good one. Elevator maker Otis led by by Judy Marks, expanded 7%. Bonds up as well. Yield on the 10-year T-note, down 4.08%. You're listening to Marketplace. This is Marketplace.

I'm Kyle Rizdahl. Ana and Heather and I were talking about the jobs report up at the top of the program in a macro kind of way, right? The BLS, of course, the Bureau of Labor Statistics, goes micro to tracking jobs by sector. And the number of people employed in what the Labor Department categorizes as food services and drinking places, that's literally it, that's the heading. The rest of us call it bars and restaurants. Up three-tenths percent in February, employment was there. Might not sound like much, three-tenths percent, but that is about 42,000 people getting work. And it comes after hiring in that particular slice of this economy has been flat. Marketplace's Stephanie Hughes

explains what's going on there. Restaurant owner Joshua Pollack says these days when he's hiring a cook or a dishwasher or a pastry chef, he's able to be picky. Which is really a relief in comparison to, oh, you have a pulse and you can start today. Cool. You're hired. Pollack runs Bridge and Tunnel Restaurant Group, which is a bunch of bagel spots, delis and pizza places in the Denver area. He says a slowdown in construction hiring in Colorado has meant those workers have come to him. You know, maybe they come seeking that decently high-paying hourly job that it's physical, but it's not as physical as, say, construction. The workers have learned to make matzo ball soup and whitefish salad in the back of the house.

But front-of-the-house workers, he says, are not so easy to hire. After the pandemic, people have a lower tolerance for dealing with people. It's mentally exhausting. It's emotionally exhausting. It can be a lot of things. The number of workers in the restaurant industry overall has just about caught up to where it was pre-pandemic. But a lot of those new jobs are in fast food and not full-service restaurants. Hudson Reilly with the National Restaurant Association says that's because we're more likely now to grab our food and go. What the industry calls the off-premises market. And currently, of all restaurant traffic across America, 74% remains off-premises.

Before the pandemic, he says it was about 61%. Still, people will turn to the restaurant industry for work when other parts of the economy slow down. Adam Halberg runs Barcelona Wine Bar, which has locations around the country. He says he's been hiring people who used to work in real estate now to sell rosé. The things that people do to work for a commission, whether it's residential real estate sales or other type of sales, is directly applicable back to working as a server or as a bartender. And Halberg actually needs more servers because of the warmer winter. He says as soon as the temperature hits 55 degrees, customers want him to open the patio so they can sit outside. I'm Stephanie Hughes for Marketplace.

This is a day on this program, it seems, of post-pandemic real estate utilization stories. Justin Ho was talking about empty warehouses earlier and the uses they're being put to that isn't just storing stuff on shelves? Well, here's the flip side of that story. Companies and organizations in search of space. Performing arts groups struggled during the pandemic. Even now, four years on, the arts industry is still recovering. Venues are seeing lower ticket sales compared to 2019. Donations are down. Some groups have shut down altogether.

Yet in spite of all those challenges, cultural organizations are buying entire buildings in some cities and in so doing are bringing some life back to those neighborhoods. Trina Menino has the story. Linda Shelton makes the rounds at a new art center in New York's East Village. She pops into the studio of choreographer and photographer Trey McIntyre. Hello. Hi, Trey. Can we photographer Trey McIntyre. Hello. Hi, Trey. Can we come in? Yes, come in. Welcome.

Shelton is the executive director of the Joyce Theater, which bought this space from a philanthropist who wanted it to go to a nonprofit. It was a deal at $16 million, but still. That's a heavy lift in itself. It's 58,000 square feet of rehearsal space, offices, and artist studios. It's usable now, but the building will also need an estimated $55 million of renovations. Shelton says her organization leased the building for a year before closing the sale. Just to see if there was going to be demand,

to see if the dance community liked working in this building. And it's been an overwhelming success. On this day, the Trisha Brown Dance Company is rehearsing in the building's basketball gym. Let's take that one more time. Carolyn Lucas is associate artistic director. She says rehearsal space in New York is limited and it's hard to find studios that align with the group's rehearsal schedule. This space being here for the company and for the community at large is so vital. For any arts nonprofit, actually buying a building is expensive and difficult. But more nonprofits are expanding their real estate footprint, even as the arts and cities are still recovering from the pandemic. Brett Egan is with the DeVos Institute of Arts Management at the University of Maryland. He says that these organizations have to prepare for the upfront costs of acquiring a space and the long-term operational cost of

programming, staffing, and maintaining the space. It makes sense for some, but Egan says some arts organizations are not ready to buy property. The industry is littered with examples of organizations that unfortunately were not, for one reason or another, able to anticipate the long-term impacts of taking on additional infrastructure. There's always a danger, I think, for nonprofits to build a beautiful house and then not have enough money to put food on the table in that beautiful house. Karma Zisman is the executive director of a dance organization called ODC in San Francisco. In 2022, the nonprofit paid $6.7 million for its third building, where it holds classes and eventually rehearsals and performances. Zisman says the space is essential because in the pandemic, some organizations lost their buildings and dancers

needed a place to go. And to be able to really improve the kinds of services we could provide for our own dancers and also people who really rely on us to make a home for them. And she says, to provide a sense of certainty and control for the future of the nonprofit. In New York, I'm Trina Menino for Marketplace. This final note on the way out today, a postscript of sorts to the day's labor market news.

Saw this on Axios. It is data from Moody's that shows globally the number of women in the workforce, labor force participation rate is the technical term, is well above where it was in the before times. That's women who were either working or looking for work in the United States, the European Union, Japan, Australia, and the big Asian and Latin American economies. It's of note because women, of course, took the brunt of the pandemic's hit on labor force participation. We all remember that. Two key caveats to mention. Number one, the kinds of work women are getting. And number two, women's participation rates in the labor force still trails men by, well, let's just say a lot.

Our theme music was composed by BJ Lederman. Marketplace's executive producer is Nancy Fargali. Donna Tam is the executive editor. Neil Scarborough is the vice president and general manager. I'm Kai Risdahl. Have a great weekend, everybody. We will see you again on Monday, all right? This is APM. All over the country. We need to improve reading in Wisconsin. This is APM. I think your podcast has changed my life. And I'm going to share this podcast with everyone I meet. Sold a Story investigates how teaching kids to read went wrong.

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