Marketplace - Spending more, saving less

Episode Date: August 30, 2024

New data shows that while consumer spending is strong, Americans aren’t saving like they used to. But the pandemic made year-to-year comparisons a bit misleading. So are consumer habits normalizing after an unusual economic period, or should we be concerned that savings have taken a dip? Also in this episode: Some businesses prefer to operate on a “fiscal” calendar, public swimming pools try to stay afloat and corporate tax changes may be important in this year’s election.

Politics, economy. Politics, economy. Economy. From American public media, this is Marketplace. In Los Angeles, I'm Conn Rizdall. It is Friday today, the 30th of August. It is always good to have you along, everybody. So look, I'll tell you what. Let's just stipulate that from now until election day, I'm going to start every Friday show by saying, yes, fine, politics, but do not sleep on the economic news. Deal?

Good. All right. Here we go. Gina Smilich is at the New York Times. Neila Richardson is at ADP. Hey, you two. Hi, Kai. So let me start Gina Smilich with you and the numbers that came out this morning. PCE, Personal Consumption Expenditure Price Index, 2.5% in June on the Fed's favorite measure of inflation, as we all know. Down just a tad. Generally good. And you roll that in with GDP this week, three percent in the second quarter on an annualized basis. What's not to like? There's a lot to like. It definitely looks like inflation's coming down. That said, we have the most important jobs report of all time coming out this coming Friday.

So, you know, I think the thing that might not be the like is what's happening in the job market at the moment. So we're really going to closely watch that in light of, you know, what else is happening in the economy. It looks like they're pulling off a soft landing, but that's sort of going to be the moment of truth. Oh, there's a lot in there. We're going to come back to some of it. But I'm going to turn to the labor economist in this conversation, Neila Richardson, and ask you about the jobs report coming in next Friday. Is it indeed the most important jobs report in the history of jobs reports, relatively speaking? I'm going to beg to differ just a little bit as it being the most important jobs report

of time. I think there are other competitors, at least, to that. I think it's important. I don't think that it is a deal maker or a game changer though. I think if you see a little bit up on the unemployment rate, we saw a jump in the past month, that'll get some attention,

but it's the attention in the direction that the Fed wants to go anyway, it seems like, which is to do a 25 basis point or more cut in September. So I don't think that this jobs report is a game changer. The best it's going to do is confirm what the Fed already thinks it knows. All right. Well, let me stay there for a minute. And I argue with a guest and the expert on my own program at my own risk. But what if the jobs for it comes in like crazy strong, like 300,000 new jobs and the jobless rate ticks down to 3.9%, then what? Then it's going to be a lot harder to communicate why the Fed is cutting interest rates in September.

It may, to your point, give them a reason to pause, but I don't think it really changes the long-term trajectory of where they wanna go, which is to eventually cut rates. We know that the labor market is cooling. There are several months of evidence in that direction. One report will not make or break the overall trend, which is a slightly softer labor market than we saw last year that's still solid,

but not going to trigger a rebound in inflation. Gina, what do you think? Yeah, I think that's basically right. I also think that if we get a crazy hot number in the jobs report, they're going to look at that and they're going to say, something funky is happening with these numbers. We're having a lot of immigration that's sort of slowly trickling into the numbers and making things look a little weird. And there have been some storm effects. We might be getting bounce back from storm effects. Like I think if you get something like that, they're going to think that those numbers

have something funky going on under the surface and are probably going to discount them a little. So I don't actually think that in any way that would necessarily change the basic narrative, which is that inflation is coming down, job openings are really down quite a bit. There are lots of signs of cooling around the edges. And so I don't think it hugely changes the narrative and in fact maybe makes them feel a little bit more confident that we're not like tipping over the edge of the waterfall on the labor market.

Okay. All right. Just on the general labor market, God, I hate to say this, vibe. Neila, I do want to ask you about the annual revision that came out last week, I guess it was, and revisions just in general, because there was a lot of freak out about that, 818,000 fewer jobs. When you look at something like that happening, does it make you question your faith in the numbers or are you reassured that they're actually just trying to get it as right as they possibly can?

Yeah, that's a great question. And I first like to acknowledge that the data revisions are a feature, not a bug. The purpose of these government releases that we follow so closely every month is to provide the most timely data that they can with preliminary data. And so the idea that you can revise to something that is data. And so the idea that you can revise to something that is actual truth as more data comes in, which is what we're seeing in the Bureau of Labor Statistics, it's revised to basically the population, that's all the companies and all the employees in the country. The US is one of the few countries in the world, maybe the only that gets this data with a six month delay. So we think of government data asrosanct, it's just an estimate. It's an estimate waiting for the real truth to come out, which in this case is the this population count report. That being said, this was a large revision. And it points to just how hard it is to get this estimate right when things are changing rapidly. So the estimate relies on historical trends. And something unusual, say a pandemic, can knock those trends right out of the water

and make it very hard to capture turns in the economy. I think that's what you're seeing today. Gina, an interest rate related question, a piece you had, I think it was today in the paper about housing affordability, one of the most interest rate sensitive areas in this economy. You point out that even if the Fed does cut interest rates and mortgage rates have already priced in a cut, that's not going to change the fundamental housing affordability challenge. Yeah. No. So I think it's a really interesting issue that we're starting to hear crop up a lot.

And a lot of readers will ask us questions about this. Do they think there was this idea that housing affordability got a lot worse starting around 2020, really after the pandemic. And I think because that coincided with the pop and inflation and then the rise in Fed interest rates to fight the pop and inflation,

a lot of people looked at that and thought, wow, this is really sort of a Fed issue. And I think what we hear when we talk to economists is that this is a much more long running issue. This was something that the seeds had been planted well before the pandemic. Housing affordability had been getting worse for years. The pandemic really exacerbated that,

but it kind of partially did because of a lot of demographic and sort of structural trends and not necessarily just because of these interest rate changes. And so interest rate coming down, sadly, is not going to be this panacea that fixes this. But on the bright side, what we are seeing is that national politicians are really starting to take a lot of attention and point it towards this. And I think that's potentially good news, because if there are solutions here, it's probably going to come from the fiscal policy, sort of the government lawmaker side of the equation.

Right, right, the taxing and spending thing. Last question to both of you, and Neela, you get to go first. You were both in Jackson Hole last week. And I just, 30 seconds, Neela, on the mood there, as Powell gives this speech, which says we're on our way, the data's pointing in the right direction. What was the chatter? I think the mood was much more comfortable than it had been the previous two years in 2022. That was the infamous there is pain coming speech

that Chair Powell gave. It was very uncomfortable, high inflation, and the role of the central bank very uncomfortable, high inflation and the role of the central bank in regarding that inflation had really been amplified. And then in this in 2023 is about the structural changes of the pandemic, had the economy shifted in ways that were unpredictable and uncertain. So uncertainty was last year's Jackson Hole. This year, it was not quite mission accomplished, but it was definitely fed patients rewarded. The week before had been strong with economic news, and I think there was just more comfort. That word comfort has come up a lot in Chair Powell's press conferences. They seemed a lot more comfortable this time around. Gina, your sense? Yeah, the vibes were very good, I would say, like very good.

Better than I had expected, actually. I feel like there was this real feeling that you don't want to call it because you don't want to jinx it, but we're headed towards this soft landing. Everything is kind of coming in the way we want it to. All of the conversations I was having were very positive, I would say. I was surprised by how positive the vibes were. Gina Smilich at the New York Times on a Friday, Nela Richardson at ADP as well. Thanks you two. Thanks guys. Have a nice weekend. Wall Street this last working day of August,

upending to the end of summer. Details, numbers, y'all know the drill. We're going to do a little corporate tax policy history here for a second in setting up this next piece, apologies in advance. We're doing it though because what and how the government taxes affects how people and in this case companies behave. Before the 2017 Trump tax cuts, the statutory corporate tax rate in this economy was 35%. Trump cut them to 21 and that's where they are today. Vice President Harris wants to bump that corporate tax rate to 28%. Former President Trump wants to cut it more down to 15%.

But you remember that point I made about what and how the government taxes affecting behavior? So what happens when you fiddle with the corporate tax rate? Marketplace's Sabri Benishaw has that. Corporations are taxed on the revenue they bring in after they take out expenses. But one thing they're not allowed to deduct quite as much from their tax bill is investment in factories, machines, new lines of business. So if those things don't help much with their taxes, they're kind of not as interested in doing them.

So raising the corporate tax rate can reduce investment or reducing the corporate tax rate can increase investment. Kyle the corporate tax rate can increase investment. Kyle Pomerleau is a senior fellow at the American Enterprise Institute. A drag on investment can be a drag on productivity and income growth. But here is one of the many ways tax policy immediately gets complicated. Congress can decide how deductible new investment is for corporations. If they make it more deductible, raising the corporate tax would have a smaller effect on domestic output. And the size of the drag on the economy caused by reduced investment is debated. This is an active area of research. Eric Zwick is a professor of economics and finance at the University of Chicago's Booth School of

Business. I view the consensus is that it has an effect on investment that's detectable in the data, but that effect is small compared to sort of that direct effect on revenues. Revenues as in government revenues. One issue at stake here is whether we raise another 800 billion or a trillion dollars from the corporate tax or whether we actually lose a bunch of revenue in corporate tax cuts. Kimberly Clausing is a professor of revenue in corporate tax cuts. Kimberly Clausing is a professor of tax law and policy at UCLA and former lead economist in the office of tax policy under the Biden administration. She says there is a choice here, spend money on programs or spend money on corporate tax cuts.

Others frame it differently. Is the corporate tax the best way to pay for programs? Clausing says taxing corporations is progressive and equitable and better than taxing labor. The corporate tax base is incredibly concentrated. Much less than 1% of companies accounts for the vast majority of the tax base, like 90%. Palmerloh at AEI says there are alternatives to raising the corporate tax. You can design, you know, seven different tax increases that fall roughly on the same people and we'll say they're high income households that earn a lot of capital income

and you don't distort the economy as much. Which raises another complication in thinking about the corporate tax rate. You can't think about it alone. There's this giant weight hanging over everyone's head with all of these tax provisions that are going to expire. David Shapiro is a partner and chair of the tax group at law firm Saul Ewing who advises real businesses all kinds of tax rules are going to be up for grabs after the election. And he says how people in the economy actually respond to tax policy will depend on all of those rules at the same time.

In New York, I'm Sabri Beneshur for Marketplace. Picture for me a calendar, maybe when you hang on your wall or keep on your desk or more likely actually have on your phone. If I asked you what month that calendar starts on, January, right? Most of the world's been going January through December for centuries. That is not, however, the only way of doing things. About a third of companies in this economy and the federal government, too, measure their years on different timelines. Typically, it's going to be a fiscal year starting on the first of a month

and ending on the last of another month. Companies can choose different, you would say, financial years that aligns best with their operations as well as their flow of revenues. That's Catherine Brightbill at Utah State University, Narissa Brown at the University of Illinois. And what Professor Brown just said at the end there about revenue flows? Companies want to end their year at the best possible time for them. Many retail companies will end their fiscal year actually at the end of January because

it aligns with that bump in revenue and cash flows right around the holiday window in December. Target Walmart and Best Buy giant retailers that they are all in their fiscal years at the end of January. The federal government starts its fiscal year on October 1st. That means it ends on September 30th, about a month from now. But why October 1st? Professor Breitbeil, one more time. Is it okay if I give you a little bit of history?

Yeah, of course. You know me in history. It actually started off on January 1st, very early on in the government's history. In 1842, President Tyler actually shifted it to July 1st to June 30th. And then in the 1970s, when Nixon was withholding funds to try and get the budget under control, they shifted it to October 1st. The idea was to give the government more time to actually get their budget in order. And? Which didn't really work because since that time we've only actually set the budget on

time four times. Congress passed its final funding bill for the fiscal year we are currently in this past March. That's after blowing six months past the deadline and having to rely on four stopgap measures. Congress comes back to Washington on September 9th and they will try, emphasis on the try part, to get next year's fiscal budget set before the end of the month. Let history be your guide on how that's going to work out. Coming up. The 70s and 80s represented a major period of financial difficulty for cities. They were in the deep end, you might say, but first, let's do the numbers.

Dow Industrial is up 228 points today, 610% 41,563. The NASDAQ gained 197 points, one and a 10th percent finished at 17,713. The S&P 500 pocketed 56 points. It's about 1 percent there, 56 and 48. For the five days gone by, the Dow added 9 tenths percent. The Nasdaq slid 9 tenths percent. S&P 500 picked up about a quarter percent. Equities closed on Monday by the by. Lululemon Athletica ticked up two tenths percent the fitness brand posted earnings that fell short of expectations for the first time in more than two years. Ulta Beauty also posted less than glowing second quarter results. Ulta sloughed off the low-kai about four percent. Today bonds down yield on the 10-year T-note increased to 3.91 percent. You're listening to Marketplace. Hi, this is Rob from London, Ontario. Marketplace is an amazing resource and part of my daily routine.

I get highly credible information delivered in an intelligent, interesting, and at times humorous but always engaging manner. My day would be lessened without access to Marketplace. Join me in supporting Marketplace with a gift today. Go to marketplace.org slash donate. This is Marketplace. I'm Kai Rizdal. That July PCE data that Gina and I were talking about might indeed have met expectations inflation-wise, but there is a trend in there that is unsustainable. How much Americans are saving, or it turns out not. Consumer savings has fallen to its lowest rate in more than two years, 2.9%, while consumer

spending increased. Yes, the spending part is a sign of a good economy. Consumers account for, and you know this as well as I do, 70% of everything that happens in this economy. But the data shows we're keeping on buying stuff while not putting anything away. You can see the problem, yes? Marketplace's Kaylee Wells is on it.

We're actually showing a few signs of a strong economy. Wage growth, a lower inflation rate, as well as increased consumer spending. That last test, they're passing with flying colors, says chief U.S. economist Paul Ashworth with Capital Economics. We're seeing them spending very, very strongly. I mean, I might even use the description like drunken sailors. Although just like it sounds, spending like drunken sailors is not exactly an economically stable way to operate. Maybe it can't be sustained, but it was never going to be sustained anyway. Now that we've hit the lowest savings rate since June

of 2022, consumers have been relying on another way to bankroll their spending habits, says Paul Shea, an economics professor at Bates College. He says they're starting to take on more debt. That's the only way you can have spending holding up as well as it is with the economy starting to slow down, but it's still relatively early in that process. He says it's not that saving rates are frighteningly low, it's just that they're coming down

from when they were really high during the pandemic, when people had money to spend and nothing to spend it on. Now things are different. The average household is in a way normalizing. They're starting to move towards more normal levels of debt. That may sound like a slippery slope, but then there's that other thing that comes with a strong economy. Wages that outpace the rate of inflation, says economics professor Matias Vernego with Bucknell University. I think that they're spending more and saving less because their wages are going up. So the spending power of consumers has increased. All of this combined has Vernego ready to quell any concerns about an economic downturn.

The economy is still doing fine and we're not going to get a recession, thank God. And inflation is coming down, so it's a sweet spot to be in. Now, there are other numbers coming that might tell a different story. Next week, we'll get employment data and if the job slowdown continues, that might make today's optimistic economists sing a different tune. I'm Kaylee Wells for Marketplace. Summer at least officially anyway is in its waning days, but in plenty of places, it's still prime time to go for a swim.

Hi 80s, here in LA this weekend, beaches will be packed. But if you're not beach adjacent, where and even whether you can go swimming is limited pretty much by whether you have access to a pool. There are, says the Association of Pool and Spa Professionals, almost 11 million swimming pools in these United States. There are, says the Association of Pool and Spa Professionals, almost 11 million swimming pools in these United States. Only 309,000 of them, though, are open to the public, a number largely unchanged over the past couple of decades.

Eve Andrews wrote about the decline of the American public pool in the Atlantic the other day. Welcome to the program. Thank you so much. When did this decline in public pools in this country start? It started around the 1950s and 60s when desegregation was just getting started and cities and suburbs and towns had to make all their public spaces equally available to people of all races. And a lot of white residents who did not feel

enthusiastically about this development really protested and made a movement to close public pools rather than have to share them in a racially integrated way. And then the ones that were left through the 70s and 80s, what happened to them? The 70s and 80s represented a major period of financial difficulty for cities. And public pools aren't necessarily considered the most crucial infrastructure when you compare to roads and buses and everything else. And so they ended up on the chopping block of city budgets

and went out the window. And now we find ourselves having just come through a global pandemic when nobody really wanted to be really close to anybody else and public pools kind of suffered, right? Definitely. Public pools in that first year, in that summer of 2020, a lot of cities' public pools closed because of concern about disease spread. And interestingly enough,

in that year, construction of private pools, like at people's homes in their residences, increased by, I think, about 30% from the year before. After that first summer, it was kind of hard for cities to get people to come back to the pools, you know, to rebuild that habit that had been lost. We should point out here, though, that cities are sort of seeing the light again, as it were, right? You mentioned New York City and Eric Adams, the mayor there, spending a billion dollars on public pools in that city to improve

and build new ones. Yeah. So the angle that I was exploring in this piece focused on the possibility of funding public pools as climate infrastructure, you know, because they offer this really important and reprieve from extreme heat that, as anyone who's lived through the past summer can tell you, is getting to be a real problem in cities. It has been, I am sad to say, many years since I've been in a public pool. You? Oh my God. I, I go as much as I can.

Oh, so you have one. You have one in your eye? Yes. I have several nearby because Pittsburgh, where I live, actually has the second highest number of public pools per capita, which is something I learned when I was researching this piece. I know. And you live there too.

I know. And you live there too. I do. And there is a really, really strong culture of going to the public pool here. And it's a really, I'm sorry to use a cliche term, but vibrant scene, I would say. Well, look, it's really interesting because I'm speaking here in Southern California where the public pool vibe is not very strong, but everybody's got a private pool in their back, not everybody, but there are a lot of private pools in backyards. Yes.

I actually, I had a friend comment to me after this piece came out. He's from Pittsburgh and he lives in the Bay Area. And he said, this piece really made me wonder why there isn't such a public pool culture in California. Yeah. Eve Andrews, writing in the Atlantic about the decline of public pools in this country. Eve, thanks a lot. Appreciate your time.

Thank you, Kai. This final note on the way out today, a quick oil update useful from time to time because you kind of can't turn around in this economy without crude oil. The US benchmark West Texas intermediate off 3% today to about $73.50 a barrel. You might be seeing that at the pump. Generally weak demand, especially in China. Ample supply, should you be curious as to the cause. Our theme music was composed by BJ Liederman.

Marketplace's executive producer is Nancy Fargoli. Donna Tam is the executive editor. Neil Scarborough is the vice president and general manager, and I'm Kyle Rizal. Have yourselves a great weekend, everybody. We are back on Monday, all right? ["The Daily Show Theme Song"] This is APM. Understanding personal finance can feel like an impossible task, but it doesn't have to

be that way. I'm Janelia Espinal, and on Financially Inclined, I'll guide you through simple money lessons that will change your financial future. Learn about credit scores, how to avoid scams, and why you need a savings account. Plus, we explore the brain science behind FOMO and what you can do to make smarter money decisions. Listen to Financially Inclined wherever you get your podcasts.