Marketplace - The high cost of business loans for women and people of color

Episode Date: December 21, 2024

New research from the University of Washington found businesses owned by women and people of color are charged higher rates for loans, costing about $8 billion a year more in interest payments than their white counterparts. Also in this episode, some energy sector updates: Growing global coal demand is powered by data centers and industrialization, and a new Gulf Coast hydrogen hub aims to reduce the carbon footprint of the region’s oil refineries.

It is a Friday of a Fed week. We will make it all make sense. From American public media, this is Marketplace. In Los Angeles, I'm Kyle Rizdal. It is Friday today. This one is the 20th of December. Good as always to have you along, everybody. The board of governors of the Federal Reserve System spends as a unit a whole lot of time trying to make sure nobody is surprised by what it does or what it says it is going to do with interest rates.

And yet, this week, somehow, people seemed surprised. So there we will begin. Gina Smilich is at the New York Times. Courtney Brown is at Axios. Hey, you two. Hey, Kai. Hey, Kai. Courtney, let me start with you.

The Federal Reserve cut interest rates at 25 basis points this week as expected, but with inflation sticky, as we all know, they said, hey, you know what? Next year, it's probably just going to be two cuts, not four, as we said a couple of months ago. The markets lost their mind. People were surprised. Why? I think that, you know, I should start. One of the things that I thought was interesting that Fed Chair Powell told reporters on Wednesday was that the decision was a close call. He said ultimately it was the right call, but it was decision was a close call. He said ultimately it was the right call, but it was in fact a close call. You had Beth Hammack, who's at the Cleveland Fed and

relatively new to the Fed. She dissented. She preferred to keep rates on hold. But I do think there was this idea that 2025 was going to be the year of rate cuts, more rate cuts. And as you say, they wrote down four rate cuts in September, and we got the new summary of economic projections and that was chopped in half. And I think there's fear that, you know, based on the inflation data being more sticky, does the Fed raise rates at all? I think that is something that sparks some concern in financial markets this week. Does the Fed cut rates at all you mean to say? Exactly. Right. Yes. Does the- yes. Right. If it raises rates, that's all a different ballgame and we'll have a special

and bring you both back. Gina, let me ask you this. You and your colleague, Anna Swanson, had a piece in The Times this week saying this economy is strong. You quote Chair Powell saying, I think it's remarkable. But as you point out, it doesn't necessarily have to stay that way given what is happening abroad in this country and in this economy with the politics thereof. Yeah, absolutely. I think it's really interesting just how strong the American economy has been and how much of an outlier that is. And it's really all sort of based on the sort of resilience

of the American consumer and the fact that American companies are investing when other companies really around the world, we're just not seeing that happening in the same way. And so I think those twin pillars of strength could really come under assault next year. If you see a situation where the fiscal policy situation changes a lot, where you see big tariffs or you see something else that disrupts the disrupts the consumer. And I think B, if you see a real slowdown around the world that sort of spooks the business sector, I think that that could also be something that that sort of calls this into question. And so I think we're sort of at this moment where everyone is watching with bated breath and saying, you know, what is the incoming Trump administration going to do? And is that going to change up this trajectory?

Gina, do you think and look, I don't not to cast aspersions on what the Fed does, because, you know, running this economy is really difficult. But do you think, Gina, to some degree, they got lucky with the way things turned out? I think it's probably some combination of luck and judgment as monetary policy and economic policy kind of always is. It's certainly the case that inflation came down quite a bit because of good luck,

just the way that it went up because of bad luck. You know, a lot of this was about the pandemic, and when the pandemic reversed and sort of supply chains healed, we saw a lot of inflation coming down. Clearly some of it is also that they you know, tackled the problem pretty head on. They were a little slow to start,

but you know, they eventually got their arms around it and that they kept with it and that helped to bring inflation down. But I think we're now at the tricky part. Like this is the hard part. This is the part where they could really mess up and this is the part where it gets hard to decide what to do next.

And so I think it's gonna be really interesting heading into 2025. Courtney, I think that's so interesting that Gina points out that this, for a lot of people, is the hard part because it was like a year ago, maybe 18 months ago, the Rafael Bostic said on this program and elsewhere, this is the really hard part and it was like 18 months ago.

Right, right. And I feel like last year was when talk of, or earlier this year was when talk of like the last mile is going to be the hardest that rhetoric started. And there were a lot of people who were like, well, why would the last mile be the hardest? And here we are. And it kind of looks like the last mile might be, might be the hardest. And here we are. And it kind of looks like the last smile might be might be the

hardest. And so it's like, on the one hand, you have this inflation stickier than I think all Fed officials wanted at this point. And on the other hand, you have this great uncertainty about what the incoming administration is going to do. And it's not like you just have to worry about tariffs You have to think about how tariffs interact with him what he might possibly do on immigration with mass deportations as he's promised and tax policy and how all of these things blend together and What comes out as far as how the economy will will perform? So just a lot of unknowns it's uncomfortable. Well, you know so Gina on that whole unknowns thing Powell said on Wednesday We're in a new phase right everything from here is a new phase and John Williams I think today or yesterday the head of the New York Fed said there's lots of uncertainty out there

We are still as as Powell said which was a great turn of phrase, right? It's like walking into a dark room or driving in the fog Yeah, and so you move carefully. I think this is part of the reason why markets were so freaked out this week, honestly, is this new phase language. I think we knew that the Fed was planning on sort of shifting the way it was thinking about the world.

They have been in this situation where they were recalibrating. They knew they wanted to get rates down a bit. They had been pretty clear that they were going to do it relatively quickly. That was the world we were in. We're now in this new place where they're going to kind of rely on the data and decide meeting by meeting in a way that they haven't really been up to this point. But I think markets really looked at that and said, oh, you're only going to cut rates if inflation comes down, aka you may not cut rates at all,

or you may cut rates a lot less than we were thinking. And so I think this new phase is a much more uncertain one if you're an investor. Right. Courtney, just real quick on inflation, personal consumption expenditures came out today. As regular listeners know, the Fed's preferred gauge of inflation, 2.8% annually,

which is in line with prior. And month to month, it was pretty good. So bumpy, I guess, but bumpy in a good way? Yeah, well, I mean bumpy This was I think better report if you look at some of the underlying details of the top line less So the top line do you sell less? So but I think it's it's Is this bumpy is it in fact bumpy or is there a real kind of stall out in progress?

I mean, we'll have to see what the data ultimately says. But I think, you know, that's kind of the reason why we don't really know what's gonna happen next year. We don't know if recent months data or it bumps or if in fact there is going to be kind of, you know, lack of progress going on. Lack of progress, not what you want to hear. Courtney Brown at Axiom host, Gina Smilich

at the New York Times, thanks you two. Thanks guys. Thanks guys. Have a nice weekend. Wall Street to end the 51st work week of the year. By the dip, I believe is the phrase you are looking for here. We will have the details when we do the numbers We are in what you might call, if you had a mind to, the doldrums of corporate earnings season. All the biggies have reported already, the banks and the retailers and such, and markets

have reacted as markets will. But there are still companies of note letting us know how they have been doing. Today, it was Winnebago, maker of motorhomes, travel trailers, pleasure boats too. And let's just say the open road has been a bit bumpy in the start of their fiscal year. The company reported this morning quarterly revenue down 18% over a year ago, quote, driven primarily by lower unit volume and a reduction in average selling price per unit. That is, investors speak for selling fewer RVs at lower prices because, another quote

here, of the challenging macroeconomic environment. Marketplace's Stephanie Hughes is on the RV as economic indicator beat for us today. In 2021, the RV business, like the economy as a whole, got hot. Consumers had cash to burn in the open road before them, so they bought RVs. Because people wanted to get away from everybody. David Whiston follows the RV industry for Morningstar. At the end of 2021, Winnebago's quarterly revenue hit record highs, but that didn't last. And across the industry, sales fell and fell drastically

in the last couple of years. That boom has ended and we're waiting for the next cycle. Whiston says many consumers are still holding tight to the steering wheels of the perfectly fine RVs they already have, which he says can cost from tens of thousands to more than a million dollars. He says persistently high interest rates aren't encouraging many would-be buyers to let go of their present vehicles. We need more relief on that, I think, to encourage people to buy what could be a second or third home for them. Whiston says people are still feeling jittery about the economy, which makes them pause

before buying a new Winnebago or any RV. It's, I don't want to say boom, bust, but it's definitely boom and then some of the air coming out of the balloon in a big way. The slowdown in RV sales shows that consumers are still reluctant to make major purchases because they don't know what's going to happen with the economy and how much disposable income they'll have in the future. Michael Hicks is director of the Center for Business and Economic Research at Ball State University.

Michael Hicks, Director, Center for Business and Economic Research, Ball State University The way economists think about this is these are luxury goods. You know, RV is something that you buy when you're feeling economically confident, you have a little bit of extra money in your pocket. If you can't afford it now, you might hold off for a year or two. Hicks points out that when interest rates started to rise, this had the effect of depressing consumption and thereby reducing demand, which slowed inflation. Increased interest rates over the past two years

are designed to do precisely this, and we see them in action. The Fed is now cutting rates, slowly. But RVs are still a big purchase, and Hicks says instead of buying one now, people might wait until interest rates drop again next year, making one more affordable. I'm Stephanie Hughes, Marketplace.

This has been, on this program, a big week for interest rates. The Fed decision on Wednesday, of course. We did a couple of pieces on the bond market, too. All of that matters because what the Fed does and how the bond market reacts is often what lenders use to help decide how much they are going to charge individuals and businesses to borrow. But those lenders have plenty of leeway in setting their rates. And despite laws banning discrimination in lending, disparities do exist, especially when it comes to race and gender.

Some new research out from the University of Washington found that businesses owned by women and people of color are charged markedly higher rates for their loans, which then winds up costing them about $8 billion a year in excess interest payments. Marketplace's Kimberly Adams has that one. It took three years for Niako Pearl Perry to get funding to start the restaurant she co-owns,

Comfort Kitchen in Dorchester, Massachusetts. She had to do some crowdfunding first before regular lenders would even give her a shot. Even so. I know that our lending terms are probably not the best. For one thing, she had to put up her house as collateral. And Perry, who also works with the Center for Women and Business at Bentley University, believes a lot of the struggle was because of her race and gender. It was as if I had to justify our decades

of experience, our background, where I know that there are other restaurants that that's not the case, frankly, because of their background. The University of Washington study backs up her experience. Bill Bradford is Emeritus Dean of the Foster School of Business and led the study. For Black, Hispanic, Asian, and women-owned businesses, they paid higher interest rates after you

adjust for attributes that a lender would say affected the risk of the particular firm. Black-owned businesses paid upwards of 3% more in interest than white business owners. Hispanic-owned, 2.9%. Andre Perry, a senior fellow at the Brookings Institution, also noted how the study found lenders were more likely to require co-signers for loans to minority-owned businesses. Which suggests that Black, brown, and Asian-owned entrepreneurs aren't really trusted with money. White-owned firms committed the least amount of collateral relative to the loan amount.

So they're more likely to be trusted with money. These disparities can also shape what kind of business someone decides to start. The study authors say more expensive loans push people into less capital-intensive industries — industries that could be creating more jobs and more economic growth for everyone. In Washington, I'm Kimberly Adams from Marketplace. Coming up... There are different cycles of pressurizing and depressurization. Let's call it the hydrogen business cycle, shall we?

First though, let's do the numbers. The Dow Industrial is up 498 today, 1.2%, 42,840. The Nasdaq increased 199 points, that is 1%, 19,572. The S&P 500 jumped 63 points, 1 and 1 tenth of 1%, 5930 there. For the week, the Dow subtracted 2.25%. The Nasdaq slipped 1.8%. The S&P 500 dipped 2%. Winnebago drove down 3.75%.

Today Camping World Holdings elevated 5%. Thor Industries, which is one of the world's largest RV manufacturers, picked up 1%. Carnival Corporation cruised up 6.4%. The day like that. 6.4% the day after posting strong quarterly results. Annual revenue for the cruise provider hit an all-time high of $25 billion. That is up 15% from last year. Bond prices went up, that means the yield goes down. The yield on the 5.3% you General Manager of Marketplace, and I'm following up on an email I sent you today to remind you that as an independent nonprofit newsroom, our ability at Marketplace to deliver trustworthy journalism is powered by people like you giving what they can.

Thank you. And there's just a few days left to get your tax-deductible contribution in and help Marketplace start the new year on strong footing. So I'm reaching out to you directly because your support makes such a huge difference to everyone here at Marketplace and to your fellow investors across the globe. If you can help, head to marketplace.org slash donate and support the news you use today. That's marketplace.org slash donate and have a great

holiday. We appreciate you. I'm Sasha Polico-Sieranski, Deputy Editor at Foreign Policy. And in my new show, I bring together diplomats, journalists, academics, and activists from across the globe. I think it's an act of war. Lots of countries go to war. And give them the chance to debate serious issues that really get to the heart of the world's biggest dilemmas.

That's not true. That's not true. Look, diplomacy has been going on. That's CounterPoint, a new podcast from Foreign Policy in partnership with the Doha Forum. Available now, wherever you get your podcasts. This is Marketplace. I'm Kai Rizdal. Time now for another in our semi-regular series, Market Forces are going to do what market forces are gonna do. Global demand for coal grew about 1% this year to a new all-time high.

That's according to some new analysis from the International Energy Agency. The IAEA also figures global demand for that most dirty of fossil fuels will plateau by 2027, which is good, except that plateau has been predicted before, only to have demand continue to grow, even as solar and wind and other renewables become larger parts of our energy supply. But demand for electricity is growing too, so coal is sticking around, as Marketplace's Henry Epp reports.

To understand why coal continues to be a major energy source, we have to look across the Pacific Ocean. The biggest story is China, because China consumes more coal than the rest of the world combined. Daniel Cohen is a professor at Rice University. To power their industrializing economies, China, along with India, Indonesia, and a few other nations keep growing their coal use,

while the rest of the world has been moving in the opposite direction. Coal use in the US peaked in 2007. It's fallen by more than half. Since then, the UK has closed its last coal plant. Germany and other countries are planning to close their remaining coal plants. But in China especially, coal is sticking around largely because demand for electricity is growing so fast, says Greg Nemet, a professor at the University of Wisconsin-Madison.

And it's been driven by very rapid uptake of electric vehicles in China, an addition rapid uptake of using electricity for industrial heat in China and also for data centers. China is also adding solar, wind and nuclear power to its energy mix at a rapid rate. But as its economy electrifies them, it says, coal is kind of coming along for the ride on the drive to electrification, even though renewables are the ones that are really driving it. Some of these trends are happening in the US too. Electricity demand is also growing here, in part due to the energy needs of new data centers

that power artificial intelligence and other cloud computing. That has some coal plant operators reconsidering their plans for shutting down, says Christine Shear, a research analyst at Global Energy Monitor. So existing plants saying, well, maybe we won't retire next year. Maybe we can sell some of our power to this data center and generate some revenues that way. What's tricky about that, Scheer says, is a lot of American coal plants are 40 to 50

years old. There's a lot of maintenance costs in trying to keep them online. So depending on how quickly power demand grows, she says, utilities could opt for other cheaper sources, including renewables and natural gas. I'm Henriette from Marketplace. Continuing with energy here, a word now about element number one on the periodic table, hydrogen, which is present naturally in the atmosphere to the tune of not quite six-tenths of a part per million. In other words, not a whole bunch. And that presents something of an industrial problem,

because hydrogen is essential for a number of things, including petroleum refining. That's in part why the federal government is investing $7 billion in regional clean hydrogen hubs around the country to get more of it. The biggest such hub is set to be on the Gulf Coast, Texas and Louisiana, home, obviously, to a whole lot of oil and gas processing. It launched a month ago, aimed at cutting the carbon footprint of some of this economy's most carbon-intensive industries. Marketplace's Elizabeth Troval got a look inside the existing hydrogen ecosystem. I'm at a hydrogen production facility in La Porte, Texas. It kind of looks like a giant

outdoor industrial jungle gym because of all the metal tubes and cylinders. What you're hearing is new hydrogen molecules made from steamed natural gas that are being purified by pressure. There are different cycles of pressurizing and depressurization. That's Errico De Francesco with Air Le Quay, a hydrogen hub partner. This is one of their plans. These are the valves for the beds that are opening and closing, opening and closing. Once it's ready, the hydrogen will make its way to the customers concentrated along the Gulf Coast

through the company's pipeline. It's part of a hydrogen ecosystem that's been developing for decades. I mean, there is natural gas. It is abundant. It is price competitive and so on. Here you have a large number of industrial plants in chemical and refining, in material sector and so on. In fact, it's petroleum refiners who are the big consumers of hydrogen, says Brian Murphy

with S&P Global Commodity Insights. About 70% goes into refining and chemicals, and it's used to take impurities out of crude oil, so sulfur or nitrogen out of that crude oil, so it doesn't end up in the gasoline you burn in your car. And then we use about 30% of it to make ammonia, which is the main component of chemical fertilizers. That's right. Hydrogen is essential to feed and fuel Americans.

It's a sort of this hidden feedstock. It's behind some of the food you eat. It's behind some of the gas that you put in your car. The problem is while hydrogen has helped clean the sulfur from our fuel, the way we typically make hydrogen today using super hot steam to transform natural gas, emits planet warming greenhouse gases. It's usually about 10 kilograms of CO2 produced for every kilogram of hydrogen. That's a lot, which is why the idea behind the new hydrogen hubs expanding the use of new clean hydrogen technologies is so important.

Brett Perlman is with the Economic Development Organization Center for Houston's future. So if we basically substitute these cleaner forms of hydrogen for the existing hydrogen that emits a lot of CO2, we can both continue to have an oil and gas industry, but have it reduce the carbon intensity. Just from the Department of Energy investment, the Gulf Coast Hydrogen Hub will build four clean hydrogen production facilities. Ted Barnes is the hub's program manager. There's one production project that will use natural gas with carbon capture and sequestration

to produce clean hydrogen, and there'll be three that use electrolysis, using water with renewable electricity to create hydrogen. With these projects and new tax incentives, the idea is to bring down the cost of clean hydrogen and boost supply and demand for this more expensive environmentally friendly product. Back at the Ehrlichede hydrogen production plant in La Porte, the promise of clean hydrogen is right there. You can see it because in the middle of the cylinders and tubes and machinery, there's this giant open area.

And one day, says Erigo de Francesco, There's not going to be an empty space there, because there will be a cryo-cap. Cryo-cap. Carbon capture technology that could remove roughly 95% of the CO2 emitted from this hydrogen plant that's currently being released into the air. Timing is still TBD, but from the inception of the vision that we brought with this plant, it was to have a plant that was captured already. Clean hydrogen at this plant has been years in the making. Still, the transition across the industry is just beginning. In Houston, I'm Elizabeth Troval for Marketplace. So This final note on the way out today, shut down or no shut down, we know not at the time

this program goes to air. But I direct your attention now to 31 United States Code, Section 1341, Paragraph C2, which says in relevant part, Each employee of the United States government furloughed as a result of a covered lapse in appropriations shall be paid for the period of the lapse in appropriations at the earliest possible date after the lapse in appropriations end. So people are going to get paid. Eventually. You know who does get paid on time? Yeah, that's right. Congress, just the members, not their staffs.

It's in the constitution. Our theme music was composed by B.J. Liederman, Marketplace's executive producers, Nancy Fargoli. Donna Tam is the executive editor. Neal Scarborough is the vice president and general manager. And I'm Kyle Rizzo. Have yourselves a great weekend, everybody. We will see you right back here on Monday, all right? This is APN.

Hi, I'm Neil Scarborough, General Manager of Marketplace, and I'm following up on an email them. to get your tax deductible contribution in and help Marketplace start the new year on strong footing. So I'm reaching out to you directly because your support makes such a huge difference to everyone here at Marketplace and to your fellow investors across the globe. If you can help, head to marketplace.org slash donate and support the news you use today. That's marketplace.org slash donate and have a great holiday. We appreciate you.