Marketplace - The economy that could be

Episode Date: January 30, 2025

If you’re a regular “Marketplace” listener, you’ve probably heard of the Fed’s Beige Book. But have you heard of the Tealbook? In this episode, we pull back the curtain on the Fed’s fortune-telling report that helps monetary policy mandarins ideate on possible economic scenarios. Plus: AI tools juggle search dominance with profitability, the GDP report shows consumers still haven’t stopped spending and we wrap up our sojourn in Cumberland County, Tennessee.

This economy and how it's doing to start an update on the AI search wars and then we wrap things up in Cumberland County, Tennessee. From American Public Media, this is Marketplace. In Los Angeles, I'm Kyle Rizdal. It is Thursday, today the 30th of January. Good as always to have you along, everybody. There are days when the news of this economy is far from the most important thing happening. And attention today is rightly on the victims of the crash last night at Reagan National Airport in Washington. 67 people. The economy, though, does go on.

And our lead story today is actually the economy, specifically how much it's growing. That is measured in something called gross domestic product. All the goods and services produced, bought, and sold here. And as it happens, we learned this morning overall economic growth last year wasn't so bad, 2.8% in 2024. Thanks mostly to you, the humble American consumer. Your spending grew at the fastest pace in two years.

Marketplace's Kristin Schwab gets us going with why that is happening even after the journey we've all been on with inflation and interest rates. When economist John Lear at Morning Consult looks at the GDP report, his eyes go straight to the breakdown of goods versus services. It's more about sort of the pie getting bigger and less about, you know, reallocating from goods to services or services to goods. He says both spending categories fueled GDP growth in the fourth quarter. It sort of underscores the strength of the consumer.

Consumers are still doing all the things, shopping, vacationing, going out to eat, despite high interest rates. One take is maybe rates should have peaked higher to really slow down spending. Here's Dartmouth economist Andrew Levin. The monetary policy hasn't been as tight as people thought it was. It's not like high interest rates haven't tempered spending at all, but many Americans are benefiting from gains in wages, stocks, and home values. Jim Wilcox is an economist at UC Berkeley.

Enough other things have happened that in fact the positives for growth have outweighed that important negative. High borrowing costs haven't soured consumers, and Wilcox says a certain segment of Americans are sitting really comfortable. And not only that, another powerful effect on consumer spending is how wealthy people feel. In other words, if your two and a half percent mortgage rate means you're paying hundreds of dollars a month less than your new next door neighbor, why not take the family out

for ice cream tonight? I'm Kristin Schwab for Marketplace. We talk a lot about the Federal Reserve's beige book on this program, Anecdotal Reports on the State of the Economy, that in its printed version, sports a beige cover. Don't know if you caught this yesterday at Chair Powell's press conference, but he was asked about whether the central bank is going to start modeling what could happen in the event of mass deportations or other big changes to immigration. And in his answer, Powell brought up another publication, the Teal Book that the Federal Open Market Committee gets before every one of its meetings.

Marketplace's Justin Ho flips through the Economic Lending Library for us. The Fed used to have even more books with colorful covers. The Green Book, which looked at the current state of the economy and what could happen down the road, and the Blue Book, which looked at how various decisions on interest rates could play out. But a couple of decades ago, the Fed decided to merge those books.

And when you combine blue and green, you get teal. And so at first it was a little bit cheeky, and then it just stuck. Seth Carpenter is global chief economist at Morgan Stanley. He also spent 15 years at the Fed, and he helped write many teal books. He says one of the book's roles is to consider some alternate economic scenarios. What would happen to the forecast if universal tariffs of 20% were put on next month, for example? Back in 2019, when the labor market was really tight, the Teal Book looked at what could happen if demand for labor weakened. GDP would slow down. Unemployment would tick up. Former Fed economist Claudia Somme also used to help write the Teal Book.

She's now chief economist at New Century Advisors. And she says all of these scenarios are reasonable possibilities. They often are pretty obvious. It's like the things we're worried about are we're debating. And talking through these scenarios helps the Fed be more prepared, says Columbia professor and former Fed Governor Frederick Mishkin. Having discussed the scenario, if things actually turn out to be different than you expected, will help you actually change your decision process, maybe at the next meeting.

That's why Mishkin says the Teal Book can help the Fed adapt quickly if one of its alternate scenarios becomes reality. I'm Justin Ho from Marketplace. Wall Street approaching the end of what feels like a long week. Green. We'll have the details item marked on your calendar. Friday next, February the 7th, is the two-year anniversary of the new Bing. The new what, I hear you saying?

The new Bing is what Microsoft called the relaunch of its search engine with new AI capabilities powered by the technology behind ChatGPT. The new Bing and ChatGPT and large language models broadly were supposed to be a big threat to Google, which as you know owns 90% of the search market. My bet though is that two years on, you're probably still Googling, maybe even to find out what happened to the new Bing. Marketplace and Matt Levin has a status report now for us on the AI search wars. After the Kansas City Chiefs beat Buffalo last weekend in the AFC Championship, sorry

Bills fans, Inc. magazine tech columnist Jason Aitin had a question. And no, it wasn't about Taylor Swift or a Kelsey brother or why God apparently hates the city of Buffalo. Has there ever been a football game that ended in a 32 to 29 score? 32 to 29 is the weirdest football score I've ever seen. That's not a, it's not divisible by seven, then it's not divisible by three. So Aitin did the thing that may have set off those code red alarm bells for Google, Google declined an interview request.

He asked ChatGPT for the answer and it accurately listed several games that ended 32 to 29 with links to prove it wasn't making stuff up. I can just tell it. Find me this information as opposed to Google. I found that you're always spending time trying to figure out, like, what is the right set of keywords to plug into this magic little bar. Aiden says he now uses ChatGPT for the vast majority of his searches. He's installed a search bar OpenAI released last month as the default for his browser.

Thing is, though, most people who aren't techies, they're not doing that. Before ChatGPT came out, Google had about a 90% global market share in search. Two plus years later, it still has about 90% market share. Microsoft's AI-powered Bing has less than 4%. So what people do often is that they stick with the habit that they're currently doing, unless something obviously better comes along. Amit Khan is a tech analyst at Morningstar.

And I don't think Bing's AI infused search is a dramatic improvement. He says that if the new Bing or other competitors are actually gonna break through, they need to meet a high threshold in users' minds. And they're just not there yet, especially since Google introduced its own AI features to Search. Even if some people are turning to chatbots for research questions, say the frequency

of certain NFL scores or that undergrad looking up the French Revolution two hours before the term paper is due, Those searches aren't Google's money makers anyway. If I want to buy like Adidas sneakers, I'll type in Adidas sneakers, the images will show up. I'm like, oh, I want this one and I'll probably click into that link. Commercial searches are what advertisers pay top dollar to display their sponsored links against and Google's search ad revenue is still growing. AI-powered competitors are trying to figure out how to grab some of that revenue

without losing what many users like about AI search. Answers, not ads. So instead of sponsored links, AI search startup Perplexity is experimenting with something they hope is slightly less annoying. So Perplexity began experimenting Q4 of last year with sponsored questions. And this is important in that we're never going to do sponsored answers. Dmitry Shevlinko is chief business officer for Perplexity.

One of its early advertisers is Indeed, the job board website. So when people are kind of asking Perplexity about tips on resume prep, then there's like a question from Indeed about how can using Indeed help your job search. The majority of perplexity's revenue right now doesn't come from ads. It's from paid subscriptions for its pro search tier, which can be a tough sell for users accustomed to free competitors like Google, or now, like DeepSeek. Tech columnist Jason Ayton downloaded the Chinese AI Chatbot app last weekend and said it's also pretty good for search, for now. The main reason I downloaded it is I can't imagine that it's not going to be banned in

the next six months and I wanted it on my phone before that happened. Ayton said while we may have some qualms about how much Google knows about our search history, a Chinese owned AI chatbot is another can of worms. The Trump administration said this week the National Security Council is already looking into the app. I'm Matt Levin for Marketplace. Coming up. I've kind of taken us more toward things that are a little bit louder, a little more lively.

I'm all right with that. First, though, let's do the numbers. Dow Industrial is up 168 today, four tenths percent, 44,882. The NASDAQ gained 49 points, that's about a quarter percent. Lended at 19,681. The S&P 500 gained 31 points, a half percent, 6,071. UPS dropped more than 14 percent today after issuing weak guidance for the year ahead. The shipping firm also announced it had reached an agreement with Amazon to cut deliveries for the online retailer by half. Amazon, of course, the biggest customer of UPS, slipped 1% today.

Caterpillar gave back 4.6%. Construction equipment firm posted better than expected fourth quarter earnings, but revenue fell short of analysts' expectations, thus capitalism. Bonds up yielded down 4.52%. You're listening to Marketplace. Hey, it's Kai. My minivan and I, as I've said on the radio, have logged a lot of miles with Marketplace. Luckily, it's still running pretty well.

But if your car doesn't drive as well as it used to, listen up. It can still help drive Marketplace. When you donate your old car or truck, we'll use the proceeds to support the great programs you hear every day. Start your vehicle donation at marketplace.org slash vehicle. This is Marketplace. I'm Kyle Rizdal. We're going to wrap up our reporting from Tennessee. Today, our new series, The Age of Work, about how the demographic change is happening in the United States and abroad are reshaping the global economy. We've been in Cumberland County, home to one of the oldest workforces in the country.

That's according to the data from ADP. And today we're going to go to a business that pretty much everybody in the county goes to. Let's go right on in because that's what I do. Oh, look at this place. It's cute. I love the smell of popcorn in a theater. Oh, man. ADP Chief Economist Neal Richardson and I are at the Palace Theatre in Crossville, Tennessee.

It's a brick building with a big old red marquee right at the corner of Main Street and First. Their latest screening? Home Alone. The Palace is owned by the city of Crossville. There is one theater inside. Seats about 300 people with a movie screen and stage lights and a grand piano. Nice to meet you. I'm Alina. Alina. Nice to meet you. I'm Kai. Nice to see you. How are you?

Nice to meet you, Kai. How are you? Thank you for taking the time to talk to us. Well, thank you for coming. We appreciate y'all. How's it been so far? So far so good. We're seeing a lot of people. Good, good, good. Are we friendly? Yes. Very friendly.

Melina Fisher is the administrator of the Palace Theater. Been at this job for about three years. It's the only theater like it within about 30 minutes. So it attracts people from Crossville and Fairfield Glade alike. Melina grew up here. How have you seen Crossville change over time?

We are, well, we've got a lot of new people here. And they're coming by the droves. One of the biggest changes for me is not knowing everybody that I run into now. When I went to college, I was a little down. I couldn't understand why. It was because I could walk to class and not know a soul. And that's kind of how it is here now. A big part of Melina's job is keeping the theater affordable.

We have school trips all the time. We had field trips. Oh, kids coming to see the place. They come to see movies here all the time. We're cheap, so they like that. Wait, how much is the ticket going to cost me to see you? $5. Really? $5. Yes, and so for a field trip, the $5 gets them their drink, candy, popcorn, and the movie. If you're an adult and it's a normal thing, then you have to pay us $10 for all of that. So, you know. Still a deal. So, yeah, we try to keep

things low. It's more of a community service, but we've got that. We had the Rolling Stones tribute this weekend that was quite lively. And the weekend before we had a good rock show and then we had a concert pianist. Can we see the place? Absolutely. Come on in. The palace opened in 1938 as part of the film industry's push into rural communities. It closed in 1978 and then sat empty for decades. The city had planned

to tear it down until a group of locals raised money to save it and when you walk in now there's really only one thing you notice. So describe this color for me Richard because it's a lot of... It's a lot. Yeah. It's a lot. So we are actually, we're getting ready to... This is kind of, it's blue. Really? It's a little turquoise-y. Yeah, it's a little turquoise-y.

But it's everywhere. It's the walls, it's the ceiling, it's the dominance. Turquoise, walls, and ceilings with Pepto Bismol pink accents, I should add. It's so bright, Melina said it almost glows in the dark, a problem, I think, for movie screenings. Since we visited, repainting has begun, we should tell you. We're gonna go probably more some some grays. Movie tickets, as Melina said, are priced pretty low. For other kinds of shows, she tries to keep tickets at 30 bucks max. Who's your clientele? Who comes in the door?

So because we are a retirement community, our base is mostly retirees. I'm starting to be at that age where we're on one of those. And really what we're doing, we're changing our programming, so we're starting to get some young people in. What was the crowd like for the Rolling Stones retrospective this weekend? It was very nostalgic. What was the crowd like for the Rolling Stones retrospective this weekend? It was very nostalgic. You're so good.

But we have some young people that are coming in and really just embracing that, I guess we're retro and vintage and all that stuff for them. Everything old is new again, right? Yes, but our base is really, it is an older crowd. We have over the three years that I've been here, we've kind of transitioned from the walker and oxygen tank crowd to the hip and cooler older crowd. I don't know how diplomatic that is. It's a good visual.

We are, you know, we're getting the... We did a lot of the oldies before. We did a lot of oldies. We did a lot of bluegrass. I've kind of taken us more toward things that are a little bit louder, a little more lively. What do teenagers do? Do they have a similar venue, or they can congregate

and have fun together? No, they don't. And we're starting to see, especially with the movies, it's a cheap date. $20 gets you both of your popcorn. You get to come and watch a movie. So we're starting to see that a lot more with our movies. And that was what we intended.

So when you look around at what's happening at these businesses on Main Street we see that a lot more with our movies. And that was what we intended. So when you look around at what's happening at these businesses on Main Street and how people are spending their money and what people tell you is they come in the door. What's the vibe? So we are, I kind of feel like we're the first ripple. So I almost feel like we see things before they hit the headlines, if that makes sense.

We can have the same show, the same time of year, same price point, and the following year not have the same crowd at all. And that may have to do, we've noticed that if the gas prices are up, we've noticed if groceries are up, the crowd is down. Sometimes it's almost like, okay, so what's going on that we don't know about? People are holding onto that money a little bit more. That was us two and a half-ish months ago in Crossville, Cumberland County, Tennessee, me and Neela Richardson, we have through the magic of radio gotten Neela on the phone. We're gonna talk about what we saw, what we thought, what we heard.

Hi Neela. Hi. So you heard all those, you've been listening the past couple of days and we've heard those stories. We just heard Melina in the palace just now. Big picture, what were your impressions from three days in Cmelin County, Tennessee?

Big picture. I saw two very different views of retirement. I saw one that felt like summer camp. There was pickleball, there was line dancing, there was friends. It felt almost magical in a beautiful setting. On the other side of that, I saw a retirement that looks like what we were all scared about.

There's just not enough. People who were happy to work, but had to work. I saw how the opioids addiction has affected not only younger people, but the grandparents that are left behind to raise a younger generation. I saw the trade-offs in healthcare. And more importantly, I'm left with the question, where do young people fit in

in this battle of the retirement lives? Right, I don't know if you remember that night we were out to dinner one of those nights and we were in the restaurant, and there were about four or five sets of grandparents taking care of grandchildren. Remember that? I remember that and you know I've heard that the best part of being a grandparent is being able to take your child home after you babysat them. So they're missing out on the best part. They're raising these children and they and some of them are doing bad on a fixed income.

Yeah, let's talk about the ripple effects for a second that Melina was talking about there. What's happening in Cumberland County with the changing demographics and the aging workforce, those ripple effects are coming through the rest of this economy, yes? I mean, that's how we started back by the pickleball courts. It's so great that Alina used the term ripple effect

because really that's just a way to say what economists say in a very dignified way is the multiplier in macroeconomics. I mean, it is how your decisions on Main Street at the micro level affect the rest of the economy and vice versa. Now we visited a community that from the hospital to the foundations that were present, the nonprofits, even the retirement community themselves had been reoriented to helping the local economy. But you can imagine a community that makes a very different choice. And that will have a ripple effect.

And so what they teach us in macro in grad school is that there's only one way an economy grows. When there are more people, more workers, and those workers become more productive. In this community, you're facing a place where there's not more workers. Now, we can talk about the productivity factor, but that first step of more workers is being challenged, and not just in the US,

but in almost every wealthy country on the planet. Yeah. Let me just get this though. I mean, we've talked on this program in previous conversations, but also in this series about the data that ADP has, tens of millions of records of how people are getting paid and where they are and all this jazz.

Do you suppose that markets like Sheboygan and Otamwa and Austin, Texas and Atlanta and big cities like New York, are they ready for this change that is coming in the American workforce? We are all getting older. Oh, they're not ready. What I really like about this visit with you, Kai, is that we specialize in ADP research on data, but we always knew that there was a human behind that data point,

and we got to meet some really cool humans. But nobody's talking about this aging workforce in the way that was captured during this series. And I don't think big cities or small cities are investing in the things that'll keep young people growing. I loved when we went to the grocery store and the grocery was like, you know, people are not paying attention to their greatest strength in the community. I also loved what he said about there being jobs there. So it's really about like, how do you serve an aging retirement community with young people and direct those young people to the places of opportunity?

I would love to hear more cities talking about that. Let's just by way of wrap up, talk about what's happening next in this series. This is a global phenomenon as we talked about that day standing next to the pickleball court. There are countries in this global economy where a young workforce is a distinct advantage for them and will be over the next 50 years. Yes, that's right. When you look at the demographic projections, and remember there's only one way

this global economy is going to grow when there are more workers and those workers get more productive. Those more workers in terms of prime age, younger workers, they're hitting places like Africa in terms of growth rate or Southeast Asia. The question in my mind is are the jobs there and the skill sets there to support the needs of not just African countries and Southeast Asian countries, but the global economy. I think of people now as the new

globalization and economics. We talk about trade in terms of goods and services. We never talk about it about how interconnected we are as people. And increasingly so, if the technology and the wealth is in one place and the growing worker base is another, how do we connect those dots on a global scale? And we will do that in the next installment of this series, Airdate to TBD.

We gotta figure out where we're going and when. Neela Richardson is the chief economist at ADP. Neela, we'll talk to you soon. Yes, and will you line dance the next time? I will absolutely not line dance, no. Okay. No. All right, thanks. See you soon.

See you soon. This final note on the way out today, I've got some bad news, gang. Forget cuts. The Federal Reserve is going to have to start raising interest rates. I mentioned a little bit ago on this program, maybe a month or so, that Fox, which owns the rights to this year's Super Bowl, was asking $7 million for 30 seconds of ad time. CNN is reporting that the network has sold some spots for better than $8 million. I mean, inflation, am I right?

Too much money chasing too few goods? Tell me I'm wrong. John Buckley, John Gordon, Noya Carr, Diantha Parker, Amanda Petrie, and Stephanie Sieck are the Marketplace editing staff. Amir Bibawe is the managing editor and I'm Kai Rizdal. We will see you tomorrow, everybody. This is APM.

Hi, this is Mayumi from Long Beach, California. I love Marketplace and Kai. He really does a great job delivering important content that I benefit from. So I donated because it just seems like the natural thing to do. Join me by making a gift to Marketplace today at marketplace.org slash donate.