Marketplace - The economy doesn’t love the heat, either

Episode Date: June 17, 2024

A stretch of the U.S. is under a heat advisory this week — but summer starts Thursday. When we talk about a “hot” economy, it’s usually a good thing, but in real life, extreme heat sends economic productivity downhill. We’ll get into why. Also in this episode: Retailers launch copycat sales to compete with Amazon Prime Day, Baltimore longshoremen are finally back to work and the bond market is booming.

Thank you to those who donated during our May fundraiser and to those who gave it year round. Support is still needed though to end our budget year on target, so please help power this important resource. Would you make a budget year-end gift at marketplace.org? Donate. Thank you to those who donated during our May fundraiser and to those who gave it year round. Support is still needed though to end our budget year on target, so please help power this important resource. Would you make a budget year-end gift at marketplace.org slash donate? Remember that game from when you were a kid? Telephone?

People pass a message from person to person and what you get at the end is always way different than what you started with? Well, that except for monetary policy. From American Public Media, this is Marketplace. In Los Angeles, I'm Kyle Rizdal. It is Monday today. This one is the 17th of June. Good as always to have you along everybody

Our particular game of telephone today features the US bond market Which for give or take the past two months has been having itself a little bit of a rally Prices have been going up which means yields the interest rates those bonds pay have been going down Back in April the yield on the benchmark 10-year treasury was at 4.88%. Last week, it hit 4.22%. In the land of bonds, that's a lot. And it's generally a good thing when interest rates fall. It's good for stocks because it's cheaper for companies to borrow and invest.

It's good for housing because lower mortgage rates mean more people can afford to buy. It's good for consumers because they can buy more and pay less on their credit cards. But to get back to our game of telephone, why are rates falling now? As Marketplace's Mitchell Hartman explains to get us going, it's all about the Fed and what investors think, emphasis here on think, the central bank is going to do next.

Remember last week when the interest rate on the 10-year U.S. Treasury bond was falling pretty precipitously? An interesting week for economic data. Joanna Gallegos at Bondblocks says both consumer and producer prices moderated. It appears that inflation has cooled a little bit more than anticipated. And then in addition to that, we also saw unemployment tick up. That's another contributor to inflation slowing down. Because there's less pressure to raise wages. All this says Guy Sacala at Inside Mortgage Finance points to a healthy economy that investors are convinced will prod the Federal Reserve to start cutting interest rates. The expectation clearly is that rate cuts are gonna happen. It's just a matter of when and probably by

September. The feds got interest rate setting meetings in July and September but here's the thing the Fed just met last week. And at that meeting, says Joanna Gallegos, they changed their forecast. They said for the end of the year, we anticipate only making one rate cut versus three. Basically, says Karen Petru at Federal Financial Analytics, the bond market is saying to the Fed, we can hear you, we're just not listening. Even though Jay Powell said we're going to keep rates about where they are for a while, we don't think we've beaten inflation yet, the market is essentially saying we think you have and you're going to be cutting rates as soon as September. And based on that belief, investors bid up bond prices, sending the interest rate on

the benchmark 10-year Treasury bond lower. Traders think the Fed is over cautious and the Fed will be able to cut rates. Indeed, it may have to cut rates because the economy will be softening. But Petru points out that so far the Fed has confounded market expectations, keeping rates higher for longer again and again. I'm Mitchell Hartman for Marketplace. Wall Street on this Monday in mid-June. Equities, stocks did quite fine, thanks. Bond yields actually moved up a hair. We make a buck or two story of the week. Here is the Imitation is the Sincerest Form of Flattery and Maybe a Good Way to Make a Buck Too story of the week. This week, in case you'd missed it, is the second annual Walmart Plus week, with member discounts at the mega retailer on gas and travel bookings, a free trial of express delivery

should you so desire, early access to new products as well. It is, of course, a not-so-thinly-veiled attempt to beat Amazon to the prime day punch. That mega retailer's discount bonanza will, as always, be held in July exact date TBD. But it has spawned a whole slew of imitators, alternatives, and wannabes that have turned summer into something of a months-long mini Black Friday. Market blazer Megan McCartyy Carino has that one. Traditionally, summer was a slow time in retail, says Catherine Black, a partner at Kearney Consulting Firm.

Summer sales used to be sort of around key holidays. So it was Memorial Day, Fourth of July. You'd see discounted barbecues or camping equipment. But when Amazon, which is a marketplace underwriter, created its own all-purpose summer shopping holiday back in 2015, the retail world took notice. We now see corresponding promotions from Walmart, Target, Best Buy, Macy's and more. If Amazon's doing it, we should also think about it. But also, you know, the summer is to back to school a little bit like fall shopping

is for Black Friday. That is a chance to get people hooked before a major spending season. And increasingly, customers are hooked with paid annual memberships, says analyst Arun Sundaram at CFRA Research. You know, they're not necessarily making a lot of money off of these because, you know, it tends to be really heavy discounts and promotions going on. But if you drive memberships, then you'd have more loyal customers. Not just loyal customers, but usually bigger spending ones, too. He says these programs tend to appeal to consumers who prize convenience. They're willing to pay more to get it.

The Walmart Plus membership tends to bring in more higher income households, which Walmart has historically had trouble bringing in and retaining. Memberships don't just provide retailers with a loyal customer base, but data, says Koon Powles, a marketing professor at Northeastern University. And that's basically exchange that you make as a consumer. You get some discounts and some other things, but the retailer now has just way better data on you. How you respond to sales promotions, your age, gender, and address.

And so lots of retailers have become very good at giving personalized discounts. He says that drives sales and advertising revenue, which is usually a lot more lucrative for retailers than just selling stuff. I'm Megan McCarty-Greeneau for Marketplace. The The Biden administration has pinned its sizable renewable energy ambitions on offshore wind. Back in 2021, the White House said that by the end of this decade, it wants 700 times more offshore wind capacity online than existed in 2020. With government incentives priming the pump, companies from around the world would have invested

billions of dollars in building an offshore wind industry here pretty much from scratch. But the economic one-two punch of inflation and high interest rates has hit the wind sector just as hard, if not harder than, it has hit the rest of the economy. Marketplace's Daniel Ackerman visited the port city of New Bedford, Massachusetts to see for himself

how the offshore wind industry is adjusting to these economic headwinds. Walking around the port, Claus Moller is like a kid in a toy store. In this case, the toys are bigger than a football field. Here you're seeing the blades, which is my favorite part of a turbine. They're huge.

They're 107 meters long. Mueller is CEO of Vineyard Wind. We're standing beneath a giant metal rack holding three blades. They'll be ferried out to sea and bolted onto turbines twice the height of the Statue of Liberty. Each turn of the blades gives power for a house for one day, right? It's incredible technology. And a mature technology, he says. Growing up in Denmark...

When I looked at the ocean as a kid, I saw wind farms. About 12,000 turbines are already spinning in the waters off Europe and Asia. Here in the US, it's only a couple dozen. Developers are having a hard time borrowing the billions needed for offshore wind projects thanks to higher interest rates. And inflation hit the cost of materials, like the hundreds of tons of steel in each turbine. Muller admits part of the reason his project is actually under construction now is luck. When you look at the macro and what has happened, to some degree we were a little bit ahead

of the wave, right? Vineyard Wind had its funding lined up before interest rates jumped. Other projects haven't been so lucky on timing. Certainly 2022, 2023 have been challenging years. Michael Brown is CEO of OceanWinds North America. Back in 2021, it struck a deal to sell power into the Massachusetts grid at $75 per megawatt hour for the next 20 years.

Then the Federal Reserve began cranking up interest rates. And? The underlying financing cost doubled. And there was that inflation on materials. So with potential revenues locked in but costs skyrocketing? That project would have made it not just loss making, but significantly loss making hundreds of millions of dollars of losses. The company scrapped its agreement with the state, and it wasn't alone. In the last two years, more proposed offshore wind farms have been tabled than have started construction.

The term the industry uses is economically unviable. It's extremely tough environment for these projects and they're extremely expensive. Brown says these days everyone in the offshore wind industry is changing course to cover those expenses and revive its prospects. For instance, states and power utilities have stopped setting electricity prices in stone for 20 years. Brown says that flexibility? It's huge because it allows us to take the uncertainty factor out of our bed.

The federal government is also streamlining permitting and offering tax credits. That'll get more projects built and make them cost competitive with other power sources by the end of the decade, says Chris Oleth, who heads the think tank's special initiative on offshore wind. Overall, we'll be on track. We have a pathway. Oleth is confident the industry is on special initiative on offshore wind. Overall, we'll be on track. We have a pathway.

Oleth is confident the industry is on the upswing for now. But she says that could change come November. The Trump administration, if they get a second term, will come in swinging on renewable energy and particularly offshore wind. Trump has said he'd put a halt to offshore wind via executive order on day one. That means companies are watching the election closely. One offshore wind executive said, if need be, his company will sit on the sidelines and wait out a second Trump administration.

In New Bedford, Massachusetts, I'm Daniel Ackerman for Marketplace. marketplace. Coming up. I feel like I've been working about 22 to 24 hours a day, it seems like. Seems like that's not sustainable, no? First though, let's do the numbers. The Dow industrials gained 188 points today, about a half percent on the blue chips, 38,778. The Nasdaq up 168 points, that is one percent on that index 17,857 the S&P 500 found 41 points in the couch cushions 8 tenths percent 54 and 73. We heard from Dan Ackerman about how the offshore wind industry

is faring in wind power stocks then NextEra Energy Partners down 2.1% Hanan Armstrong we can 1 and 8 tenths percent Megan McCarty-Corino was telling us about it is the season for membership program deals from some companies like Walmart up 6 tenths percent. Megan McCarty-Corino was telling us about it. This is the season for membership program deals from some companies like Walmart, up six tenths percent. Today, Best Buy increased four and six tenths percent. Amazon Prime Day, as I said, coming up in July. Amazon, by the way, grew two tenths of one percent. Bond prices fell.

The yield on the 10-year T-note nudged up 4.28%. You're listening to Marketplace. Here's the deal, gang. to 8% you're in a position to donate, we are counting on you. Please give what you can right now at marketplace.org slash donate or click on the link in the show notes. Here's the deal gang. Marketplace is for the public good, not for profit. We count on you, our listeners, to help us cover the costs of the reporting that you rely on. We are going to remain free and accessible to everybody. That's part of our mission. But if you're in a position to donate, we're counting on you. Please give what you can right now at marketplace.org slash donate or click on the link in the show notes.

Marketplace is funded by the public for the public. Your financial support empowers our news team to dive into the stories that matter most. Thank you to those who gave during our May fundraiser and to those who give year round. But support is still needed to end our budget year on target, so please help power this important resource by making your gift at marketplace.org. Marketplace is funded by the public for the public. Your financial support empowers our news team to dive into the stories that matter most. Thank you to those who gave during our May fundraiser and to those who give year round.

But support is still needed to end our budget year on target. So please help power this important resource by making your gift at marketplace.org. This is Marketplace. I'm Kai Rizdal. We are not officially even in summer yet, but already big parts of the country have had or are bracing for major heat waves. More than 70 million Americans are under extreme heat alerts and temperatures in parts of the country have had or are bracing for major heat waves. More than 70 million Americans are under extreme heat alerts, and temperatures in parts of the West have already been above 100 degrees.

The Midwest and the Northeast are up next. Most often we hear about weather in the wintertime, cold and ice and snow playing havoc with retail sales and what have you. But there is growing evidence that summer heat waves take a big economic toll as well, a toll that is going up as the planet gets hotter. Marketplace's Henriette reports. Some workers were recently fixing masonry on Amir Gina's building on the roof on a really hot day. And the head contractor said during the hotter parts of the day, I'm just not going to send

people to work. Gina, who's an assistant professor of public policy at the University of Chicago, says the contractor was worried about the health effects on the workers and the potential for costly errors in the heat, so they took a bit longer to finish the job. Probably would have taken two days, ended up taking three or four days just because they needed to stop. This happens in a lot of sectors of the economy when temperatures become unbearable and it gets unsafe to work outdoors. All aspects of the economy when temperatures become unbearable and it gets unsafe to work outdoors.

All aspects of the economy slow down. Solomon Shung is a professor at UC Berkeley. He says heat can lead to more accidents on the job. It can also increase health care costs, put strain on the electricity grid, reduce crop yields and overall depress economic output. The real challenge with this kind of slowdown is that we don't usually see that we ever catch up again. Sheng says after a heat wave, the economy can get back to its normal baseline of productivity,

but we often don't make up for what we lost while it was hot. And with more intense and frequent heat waves as the climate warms, that could start to have a lasting impact on the economy. Like a lot of little heat waves can add up to having this very large effect on overall economic performance in the long run. We're already seeing that. According to research out of Dartmouth, increased heat waves due to climate change erased at least $16 trillion from global GDP between 1992 and 2013.

Justin Menken, a Dartmouth professor who co-authored that paper, says governments and businesses are adapting by installing air conditioning in more warehouses and schools, putting out warnings ahead of heat waves, and reducing work hours when needed. And so you need to weigh that cost of lost economic productivity against the costs of adaptation investments.

In general, he says, those investments are usually cheaper lost economic productivity against the costs of adaptation investments. In general, he says, those investments are usually cheaper than economic losses from heat. I'm Henry Abb for Marketplace. Port of Baltimore is all the way open again after the last piece of the collapsed Francis Scott Key Bridge was removed last week. 50,000 tons of bridge wreckage in all, says the Army Corps of Engineers. Container and cargo ships are coming and going, which is good news for the businesses that depend on that port, the cargo companies, the customs brokers, and the nearly 3,000

longshoremen who work there, the people who tie ships to piers, load and unload containers and vehicles, and keep track of everything that is coming off and going on those ships. Marketplace's Stephanie Hughesend some time with them. Deep in the belly of the cargo ship Victoria Highway, longshoreman Jim Pumphrey picks up a length of heavy chain from a storage box. He says each chain can hold 10 tons. They lash down into here, and then they go up into a piece of equipment. That's construction equipment in cars. Goods known as row row, because they roll on and

off the ship. The chains hold the vehicles in place until they're ready to be driven off. Pumphrey points to a giant bulldozer going past. They call them high heavies too. That's what that was. Because you see how big it was. It was high heavy. Pumphrey is 66 and says this is pretty physical work.

There are lots of moving parts around here. So he and everyone else is wearing bright neon safety clothing. His and mine are yellow. He waves at another longshoreman in a hot pink safety vest, who's driving a massive truck used for mining down the ship's ramp onto the shore. Sharon, yeah, she's a driver. She can drive anything. Drives better than most men.

Sharon Ridgeway is one of hundreds of female longshoremen who work in the port, in a job traditionally done by men. Down in the parking lot, she says she doesn't call herself a longshorewoman. No, I stick with longshoremen. I've been here too long. Ridgeway, who's 63, has been here 14 years. When she started, she had teenagers at

home and wanted something flexible. She can choose to pick up shifts when she wants to and says her co-workers are her favorite part of the job. We can all tease each other and whatnot and carry on, but we get the job done. Ridgeway says her colleagues are like family and like a lot of the other longshoremen, she had actual family working here first, cousins and her husband. And 30-year-old Tyler Tippett followed his dad here. Pick it up! Tippett's a line handler. He's standing at the end of a pier pulling in lines.

Basically giant ropes that have been thrown out by the crew of the Hoag Berlin, another cargo ship that's docking. Clear. Tippett didn't always want to do this. He took a summer job here after a year of college and says the money made him decide to leave school. Most of my friends and stuff were working minimum wage jobs and put themselves in debt. And I felt like I was already a couple of years ahead of them

with the amount of money I was making. Like most Baltimore longshoremen, Tippett's in a union where pay starts at $20 an hour. The union says that goes up with time, reaching the top rate of $39 an hour after six years on the job. They get overtime on nights, early mornings, evenings, weekends, and...

We work all holidays, because the ships come in on the holidays for the next day to work. That's another line handler, Dave Coslin. We get called at three in the morning, so we're here tying them up. Coslin says he'll sleep in his car in between ships coming in, and he says the work can be dangerous. The pier can get icy and he has to be careful not to fall in the water. He's been doing this more than 10 years. We make real good money. There's also health benefits, a 401k and a

pension. And most of us aren't college educated, you know. We're just common sense guys. And we make just as much as an accountant, not a real big accountant, you know what I mean? We make as much as a shirt and tie guy, probably more. It's for us coming to work, you know it is. Coslin says he's going to retire next year. He's 69. Despite the risk and discomfort, he's enjoyed being on the water all the time, and it's a job where he can see the results of his work.

There's immediate and tangible satisfaction in helping a ship dock, and making sure what's on it gets where it's supposed to go. From the Port of Baltimore, Stephanie Hughes, for Work in Place. From the Port of Baltimore, which is, just like it sounds, the statistical go-to for ag in this economy, the United States Department of Agriculture said that as of 2022, just 36% of all farmers and ranchers in this economy were women. We managed to get ahold of one of them, a cattle rancher and her husband.

We've got a lot more on their plate these days than just beef. That's the setup for today's installment of our series, My Economy. I'm Jess Tresk. And I'm Terrell Tresk. And we own JT's Steakhouse in Ely, Nevada. We are truly a farm to table dining experience. All of the beef that we serve at JT's comes from our ranch, which is Parago Hand Cattle, my family's ranch. And then on my side, it's nice because I'm able to then in turn take her beef and cook

it in the restaurant. So yeah, it's truly a unique experience, especially here in Ely, Nevada. When I started selling beef from our ranch direct to consumer in 2020, you know, I was doing that for a few years. And every single year we saw like tremendous growth with that. Terrell has always had a passion for cooking. So he's like, hey, while I'm teaching, like maybe on the side I can do some catering and showcase your beef.

And I was like, yeah, I love it. And then that just kind of like snowballed into, hey, maybe we should just open a steakhouse because this seems to be going really well. So yeah, it's been great. We're charging probably a little bit more than the rest of the community is charging for restaurant. For example, like I think our most expensive item right now is the ribeye. We're charging about $45 for that. I always get texts from people when they visit to Vegas. They're like, look at these prices compared to where you're at.

You know, you could be charging so much more, but we're trying to find a price point that still allows us to pay off some debt, but, um, not out price ourselves for the community. So not out price ourselves for the community. So the interesting thing about raising beef is that you have to project about two years out on what you're going to do or the quantity you're going to need. So two years ago, I didn't know we were going to have a steakhouse. So I did not set enough cabs aside. On top of that, there are very few USDA butchers

in our area, so there's a little bit of a bottleneck in processing as well. So all these kind of things, you just have to hit a moving target constantly. Overcoming the startup cost has been really, really hard, you know, and so we had a decent chunk. We've been very fortunate that some of the lenders around here have seen our dream and

been able to give us some money. We're making progress. I'll be honest, it really has in the last month. Now that we've kind of survived the first three-month period, we're able to start pay off some of the debt, and then eventually, hopefully, I'll be able to start getting my own paycheck. But I don't know when that's going to be. Pretty soon.

Hopefully soon. We'll see though. My biggest challenge right now is finding a work and personal life balance because I've been doing, I feel like I've been working about 22 to 24 hours a day it seems like. Yeah. I feel like I've been working about 22 to 24 hours a day, it seems like. Yeah, and with ranching, you know, ranching is already 24-7, 365. There's no vacations from ranching. So people are always like, so you decided you're going to do ranching at a restaurant, which is like the two busiest things.

But I always tell people when you have a passion for it and you love it, like it's not, it is work, but it's really not. To be able to walk into a restaurant and see just your dreams come to fruition, or like the dreams you didn't even know you had come to fruition is, it's amazing and the coolest thing ever, and I think every ranch should have a steakhouse attached to it.

Jess and Terrell Trask running a ranch and a restaurant in Ely, Nevada. Wherever you are, whatever you do, we need your help with this series. So take a minute if you could. Let us know how things are going. Marketplace.org slash my economy. This final note on the way out today, saw this on CNN, a great example of whence trade wars come. Remember the other day the European Union announced big new tariffs on Chinese-made electric

vehicles? Well, now comes word from the Ministry of Commerce in Beijing that European pork prices being imported to China? I don't know, they're looking a little low. Anti-dumping tariffs is the anticipated response you're looking for here. Our daily production team includes Andy Corbin, Elise Hassan, Maria Hollenhorst, Sarah Leeson, Sean McHenry and Sophia Terenzo. I'm Kai Rizdal. We will see you tomorrow everybody. This is 8 p.m.