Marketplace - The business cycle is getting less cyclical

Episode Date: April 23, 2024

Expand, slow down, contract and recover. Businesses tend to make decisions based on what stage of the business cycle the economy’s in. The problem is, that doesn’t work so well anymore. We’ll get into it. Also: The hot U.S. dollar causes trouble overseas, college grad unemployment is up, and what other food programs can learn from WIC.

Let's zoom way out today and look at where the dollar is in the global economy and where the U.S. economy is in the business cycle. From American Public Media, this is Marketplace. In Washington, D.C., I'm Kimberly Adams in for Kai Rizdal. It's Tuesday, April 23rd. Good to have you with us. We'll start the show talking about the power of the almighty dollar, which has been on something of a tear recently. Compared to our trade partners, on average, the value of the U.S. dollar has gone up 4% already this year. Compared to the Japanese yen, the greenback has strengthened by almost 16% this year. And Japan, and Korea, they are not happy about it.

Marketplace's Sabri Benishor reports. The dollar is strong because more people want dollars. And just like everything from Taylor Swift tickets to toilet paper, more demand means more expensive. Yes, we see continued demand for dollar assets. Wintin is global head of market strategy at Brown Brothers Harriman. I caught up with him on the phone on the actual trading floor where he executes trades for mutual funds and pension funds and endowments from around the world.

They want dollars, partly because dollars let them buy U.S. stocks. The U.S. has strong growth, strong earnings potential. And so we are drawing in global equity investment. And then there's the U.S.'s interest rates. They're high. They make investors money. The Fed has one of the highest policy rates in the developed world. And other central banks are starting to move toward cutting rates. Eric Nelson is a macro strategist at Wells Fargo. U.S. interest rates aren't high by accident.

The Fed needs to keep them high because month after month after month, inflation data has been coming in too hot. Investors saw that and realized interest rates would stay higher for longer. Alan Robinson is a senior vice president at the Royal Bank of Canada. The key moment for us was when we got the third consecutive month of hotter than expected inflation readings. And that really changed the way we looked at the dollar. The dollar has risen so sharply, it's become a problem for South Korea and Japan.

Brian Rose is senior U.S. economist at UBS. Things have gotten so extreme that Japan is importing inflation now because the currency is weak. Importing inflation because things paid for in dollars like oil are suddenly more expensive. Eventually, a country might have to raise its own interest rates to compete for global flows of money, even if that is not good for its economy. Sometimes you have to raise rates even though you don't really want to. But money goes where money grows. And right now, that's the U.S. In New York, I'm Sabrie Benishur for Marketplace. Wall Street today, a batch of solid corporate earnings reports had traders feeling optimistic. We'll have the details when we do the numbers. For more than 200 years, economists have been pointing to the tendency of economies to expand,

then slow down, contract, and eventually recover. Lather, rinse, repeat. The shorthand term for this? The business cycle. But as we have been saying pretty regularly on this program since 2021 or so, a lot of things we took for granted about this economy in the before times don't seem to be quite so certain in this post-pandemic world. So Marketplace's Justin Ho looked into where we might be in the business cycle and what

that might imply about what's coming down the road. There's a reason it's called the business cycle. Studying the health of businesses is very close to studying the health of the economy overall. That's Valerie Ramey, senior fellow at the Hoover Institution at Stanford University. She's also a member of the Business Cycle Dating Committee at the National Bureau of Economic Research, which is as close to what we have as an official arbiter of when business cycles start and end. Let's start with what happens near theiter of when business cycles start and end. Let's start with what happens near the bottom of a cycle, in a recession. Often there are layoffs, so the

unemployment rate starts going up, investment will typically go down. Eventually the recession ends, and then the recovery phase starts. Ramey says businesses might start asking existing staff to work longer hours. Then if they become more certain that this is going to be a sustained recovery, then they'll start adding more workers and hiring new employees. The unemployment rate starts falling. Businesses start investing in new equipment and new factories. At some point, the economy catches up to where it was before the recession. But eventually, Ramey says, that expansion phase of the business cycle hits a peak. Investment tends to slow down. The unemployment rate, typically first you'll see

that it stopped declining and then maybe leveled off. This phase is also known as the late part of the business cycle, says Kathy Boschansik, chief economist at Nationwide. She says when the unemployment rate is low and the economy is pretty much maxed out, there tends to be a side effect. You start to see at that point demand sometimes outstripping the supply availability in the economy and you tend to get inflation. Sounds familiar. Bas Jancic says this is probably where we are in the business cycle right now. And if you look at what's next in the

rotation, things don't look great. That is typically then when you start to see contractions set in and then we're back to recession. At least that's the theory. The recession that has not occurred has been the most forecasted recession in my memory and we are not in a recession. That's Ann Villamil, an economics professor at the University of Iowa. She says the economy is nowhere near that point in the cycle right now.

Economic growth is still strong. So is the labor market. Consumer spending is solid. People's real incomes are solid. You're actually better off. You can buy more goods and services every year. A big reason Villamil says is that the economy is still feeling the effects of the government's response early in the pandemic.

All of the relief aid and other fiscal and monetary support. And Seth Carpenter, global chief economist at Morgan Stanley, says government aid just kept coming. The Inflation Reduction Act, CHIPS Act, those are both catalyzing government spending and private sector spending in ways that I think are still contributing to overall economic spending. Put another way, Carpenter says this expansion is probably going to keep going for a while, which is not even that unusual in recent history.

Look at what happened after the financial crisis in 2008. The economy bottomed out and then started expanding and expanded from the end of the financial crisis to 2008. The economy bottomed out and then started expanding and expanded from the end of the financial crisis to COVID. That's a 10-year long period. Carpenter says at some point in the future a recession probably will happen and the business cycle will finally start over but not because the cycle just keeps on turning. People want the cycle to be something that is almost an inexorable force that goes up and then comes down and then you can't stop it, when in fact the duration, the length

of the expansion, I think is very much indeterminate at any point in time. Carpenter says that's because the reset will most likely happen because of a big outside shock, like when the dot com bubble burst, the housing market imploded, or COVID spread around the world. Whatever little predictive power the business cycle had before, Carpenter says this one proves it has even less. I'm Justin Ho for Marketplace. Today, the Senate advanced the package of foreign aid bills that includes the much discussed TikTok ban.

The Protecting Americans from Foreign Adversary Controlled Applications Act, yes, that's the name, contains a provision that would force the app's Chinese parent company, ByteDance, to sell TikTok's US operations within a year or be banned from the country. President Biden says he'll sign it should it cross his desk. But really, this is just the latest example of rising tensions between the US and China over technology and the Internet. Megan Bobrowski wrote about this for the Wall Street Journal. Thanks for joining us. Thanks for having me. So set the scene here. It looks more and more likely that the Senate is probably going to pass the House passed legislation against TikTok. How has China responded so far? So China has said that they would not allow ByteDance to sell TikTok to a US

company. They say that it is artificial intelligence, and they are not allowing the export of that technology. So that's one part here. And then they've also taken some retaliatory action by getting the app store in China to take some apps off the app store, which happened just this week. Artificial intelligence, why that argument in particular? So this is, you know, in the tech world, which I cover, this is like the next big thing. It's almost like the reinvention of the internet, if you will. It's this new transformative technology, and everyone sort of wants a piece of it and is

doing what they can to sort of get into this. And so China, you know, arguably does not want to export the technology behind TikTok, which has been wildly successful in the United States. Should this get signed into law, who are the winners, especially here in the United States. Should this get signed into law, who are the winners, especially here in the United States? So the winners would, there's a couple of different ones, but other social media companies. So Meta, for instance, which owns Facebook and Instagram, and Snap, which owns Snapchat. Last week, Snapchat's stock actually went up on this news of the TikTok ban. So presumably,

they are going to be the ones who are benefiting here. Is there good evidence that consumers of TikTok, the users are ready to hop on to other platforms? So this is where it gets interesting because, you know, obviously, consumers are on multiple platforms. And so there's sort of a question of where would they spend their time if not on TikTok. And presumably it might be Instagram, it might be Snapchat, but it still really remains to be seen. And many of these people who are on TikTok do not want it to be banned in the first place.

You also write that the reaction from tech executives has been mixed. Elon Musk, for one, said that he doesn't support a TikTok ban. What's the broader sort of vibe in the corporate world to all of this? Yeah, it's interesting. There's sort of mixed reactions on both sides. There's people who do want it banned. There's people who don't for competitive reasons. Elon Musk being one of them.

Mark Zuckerberg actually, years ago, was raising concerns about TikTok and has since sort of receded into the background and has been pretty quiet recently on whether he supports a ban or not. It feels like increasingly we live in this world where there are multiple different Internets and particularly when it comes to China and the US. There's the Internet as it exists in China and then what we have here. With what's going on with TikTok, what is that diversion look like further down the road? Yes, so you sort of have this, these almost like two parallel Internet's that are existing in both of the different countries. So already in China, Facebook's banned, Instagram's banned, a lot of Snapchat's banned,

a lot of these social media apps are banned that are pretty popular here. And in China, they even have their own version of TikTok. So it's a completely different app over there. And so there's already sort of different internets and social media that exists, but if the US were to ban TikTok, that would make this divide start to become even more stark and the Internet start to look drastically

more different. Lauren Henry Megan Bobrowski is a technology reporter for the Wall Street Journal. Thanks so much. Megan Bobrowski Thanks for having me. Music Like Megan was just saying, countries and companies all over the world are trying to gain or maintain an edge in the great AI race. Take for example Microsoft which today introduced its smallest AI model to date called the Phi 3 mini. While large language models grab a lot of the headlines a number of companies are

working on creating smaller language models. They are generally trained with less data, which means they may know less, but also require less processing power, which means they can be cheaper and work on smaller devices. Marketplace's Stephanie Hughes has more. You can think of generative AI systems as having differently sized brains. UVA economics professor Anton Koronek

says the large language models are experts. They know a lot about a lot of different things. And then there are also much smaller models. Their brain is more like the size of a dog brain or something like that. But sometimes you don't need or want your AI system to be all-knowing. Ohio State engineering Dean Aona Howard says take an automaker who wants to work with a developer to create an AI chat bot for dealerships so they can ask questions about different car models. You want it to be fast, you want it to be quick. And you want it to know a lot about the benefits of cloth versus leather seats.

But you don't need to take up its computer brain space by training it on things like healthcare. And so we're starting to see a lot of companies adopt these much more specialized models. Howard says smaller AI systems can also let companies store their data locally. It doesn't become part of the ecosystem so that your competitors have access to your data. Smaller models also require less computing power, and DA Davidson's Gil Luria says that's a giant money saver.

The cost for using these models will be considerably smaller, which will make it possible for us to have a lot more applications. For example, Luria says we could see more phone apps that'll do things like summarize all your emails or easily make a restaurant reservation based on where your calendar says you'll be later. Essentially, a smaller AI model where the data set is you. I'm Stephanie Hughes from Marketplace. Coming up... 72 ounces of cereal.

So it's not by boxes, it's by ounces. Isn't the proper measurement of cereal in bowls of said cereal? But first, let's do the numbers. The Dow Jones Industrial Average gained 263 points, 7 tenths percent, to finish at 38,503. The NASDAQ picked up 245 points, 1 and 6 tenths percent, to close at 15,696. And the S&P 500 gained 59 points, 1 and 2 tenths percent, to end at 5070. Tesla, reporting first quarter earnings today, revved up 1 and 8 tenths percent to end at 50.70. Tesla reporting first quarter earnings today revved up 1 and 8 tenths percent. GM advanced 4 and 4 tenths percent on

better than expected first quarter earnings and revenue. The automaker also raised its full year guidance and said it sees quote positive variable profit in its electric vehicle operations in the latter half of the year. Rival Ford improved almost a half a percent. Bonds rose. The yield on the 10-year T-note fell to 4.60 percent. And you're listening to Marketplace. This is Marketplace. I'm Kimberly Adams.

A possible TikTok ban, a shortage of affordable housing, rising global temperatures, artificial intelligence. There's a lot to keep Gen Z up at night. Hopefully not doom scrolling on TikTok. But according to an annual report out today from the Bureau of Labor Statistics, we may need to add unemployment to that list. Data show that college educated Gen Zers are having a harder time finding a job than they were a year ago. Marketplace's Elizabeth Trovel has the story. The jump in unemployment among recent college grads comes at an odd time in this economy,

says Patricia Anderson with Dartmouth. As we've been raising interest rates and all these things, I keep saying, wow, but the job market's still so strong. But this is sort of the first sign I've seen of it not being as strong as I thought it was. The Bureau of Labor Statistics found unemployment increased 8.6% to 12.3% among 20-somethings with bachelor's degrees from October 2022 to 23. Which is pretty high when you think about the overall unemployment rate right now is 3.8. It was college-educated women that drove that increase in unemployment. Georgetown University's Jeff Strahl says he's heard anecdotally from students that it has been tough to find work.

A lot of evidence that I've been hearing is that the tight labor market is more the lesson in bachelor's markets. Today's report showed that unemployment decreased for recent high school graduates not enrolled in college. That says college enrollment remained flat. Celeste Carruthers is with the University of Tennessee. Enrollment has been stabilizing, but it still hasn't recovered to its pre-pandemic level where 66% of young adults, recent high school graduates were enrolled in college. The current job market recent high school graduates, were enrolled in college. The current job market for high school graduates

could be keeping enrollment down, but down the road, skipping college could be a mistake for Gen Z. Historically, there's been a very strong return, just in strict financial sense, of going to college. And even though college grad unemployment is up, it's still lower than for those with no degree at all. I'm Elissabeth Troval for Marketplace. A program targeted at low-income people with young children is getting a refresh.

The Supplemental Nutrition Program for Women, Infants, and Children, better known as WIC, serves low-income pregnant and postpartum parents and their kids up to age five. The USDA's updated food package for WIC users includes a boost to the fruit and vegetable benefit and takes into consideration dietary and allergy restrictions on things like whole grains and dairy options. This comes as some lawmakers are pushing for more purchasing restrictions in other food aid programs like school meals and SNAP benefits. Marketplace's Savannah Marr has more.

Every month, the Stone family in Spring Arbor, Michigan is faced with a challenge, making use of seven gallons of low-fat milk. Which is a lot. Even with a baby, a toddler, and a seven-year-old in the mix. Because mom Annie Stone says her growing kids need healthy fats, and besides... Who really wants skim milk? I don't know anybody who drinks skim milk. But that's what Wick prescribes, because skim milk has less saturated fat. So Stone pays out of pocket for her family's preferred dairy and gets creative with the wick-alotted stuff. So I have been making yogurt with that, but you have to add heavy cream to it. For seven years, Stone says wick has taken the edge off her monthly grocery bill. She's grateful

for the help. She recommends the program to friends, but warns them that their new shopping list will come with a learning curve. So, for example, 72 ounces of cereal. So it's not by boxes, it's by ounces. And you know who doesn't have time to do math at the grocery store? Parents of little kids. Stone has mostly memorized the specific brands and amounts of food she can buy with her WIC card, but still.

Every time I go to checkout, I cross my fingers and hope, like, oh, I hope that's still applicable. WIC is highly restrictive by design. It's meant to target specific common nutritional deficiencies in new moms and kids. Park Wilde, a professor of food and nutrition policy at Tufts, says there's evidence that approach works to promote, for example, healthy pregnancies and infant birth weights. I mean, that's one of the most poignant health outcomes you could mention. But for any food aid program, Wilde says restrictions to promote nutrition come with costs.

It could make the program less appealing to the clients, causing them not to participate in the first place. About half of eligible families participate in WIC. That number drops to as low as a quarter when kids are too old to qualify for infant formula and parents have to navigate that hyper-specific grocery list. In 2020, more than 80% of eligible households took advantage of much more flexible SNAP benefits. The program keeps getting bigger and bigger.

Angela Rashidi with the American Enterprise Institute says inflation has driven up SNAP enrollment and costs. And she says some lawmakers want to leverage the growing program to promote better nutrition, much like WIC. If you're going to increase benefits, then you should also place expectations on what people are going to purchase with those funds. Rashidi hopes to see funding in the farm bill for pilot programs to test out everything from a soda purchasing ban to a WIC-inspired specific food package for SNAP. Not everyone is convinced.

I think it's overly simplistic to think that restrictions will really move the needle. Diane Whitmore Schatzenbach, an economist at Northwestern, says a lot goes into buying food besides cost. Like cultural preferences, allergies, how much time you have to cook meals. How hard it is to feed your family. All right, like I've got three kids and the number of dinners that all three of them like is a narrow set. Whitmore Schatzinbach favors financial incentives for buying healthier with food aid, though that tends to add to program costs. Annie Stone, the mom of three in Michigan, says the most useful part of her WIC allowance

will increase when the USDA's changes go into effect. The $70 a month she gets to spend on fruits and vegetables, with no other restrictions. I love that part of the program. The ease of navigating that money is awesome. Because she can choose the foods she knows her family will actually eat. I'm Savannah Maher for Marketplace. This final note on the way out. Quite a bit of labor news coming out of the Biden administration today. The Department of Labor finalized rules that raise the salary threshold for overtime. Right now, you just have to make a bit over $35,500 a year before you can lose overtime eligibility.

That will bump up to close to $44,000 in July and more than $58 thousand dollars next year. And over at the Federal Trade Commission, they voted three to two to ban non-compete agreements. Not only will employers no longer be able to force workers to say they won't take jobs with competitors or start similar businesses, they'll have to toss old agreements as well, assuming it survives the inevitable legal challenges. Our digital and on-demand team includes Carrie Barber, Jordan Mangy, Dylan Mietinen, Janet Nguyen, Olga Oxman, Ellen Rolfus, Virginia K. Smith, and Tony Wagner. Francesca Levy is the executive director of digital

and on-demand, and I'm Kimberly Adams. We'll be back tomorrow, everybody. This is APM. All over the country, we need to improve reading in Wisconsin, schools are changing the way they teach reading. I'm calling for a renewed focus on literacy. We have gotten this wrong in New York and all across the nation. And it's happening because of a podcast. 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. New episodes of Soul to Story are available now.