Marketplace - This back-to-school season, “value” is at the top of America’s shopping list

Episode Date: August 8, 2024

The back-to-school shopping season is well underway. But with stubborn high prices in this economy, how will parents get their kids ready without feeling financially burdened? Also: decoding quarterly earnings, what goes into pricing mortgage rates, and why airport food is so expensive. Plus: A projectionist remembers his reel life.

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In New York, I'm Kristin Schwab in for Kyra's Doll. It's Thursday, August 8th. Thanks for joining us. The stock market is not the economy. There you go, I said it. But since Monday's drop, it kind of feels like the stock market suddenly has an outsized presence in the economy. Analysts, traders, and economists have been squinting at its moves trying to figure out what it might tell us about where things are heading. One way to gather some intel is to pay close attention to how individual companies are performing and how those companies think they'll perform in the future. Marketplace's Sabri Beneshor takes the temperature on earnings season. Airbnb said it expects its growth to slow down in the third quarter. In its earnings call on Tuesday, Chief Financial Officer Ellie Mertz said people aren't booking as far out in advance as they used to.

Well, we're not seeing the same level of strength is in those longer lead times. So two months from now, you know, what you're booking for Thanksgiving, what you're booking for Christmas. That could mean that consumers travel dreams and wallets are fading. But there could be different reasons for it. Nived Khan is a managing director at B. Riley Securities. With inflation getting under control, maybe people don't feel the need to lock in rates so far in advance.

Khan says online travel company Booking Holdings reports consumers aren't slipping. Booking has not talked about people moving from like a four star to a three stars in hotels. If you look at all the second quarter earnings reports from all corners of the economy, the overall picture is positive, says RSM's chief economist economist Joe Brusuelas.

Eighty percent of firms are beating expectations and the average is they're beating it by eight to ten percent. When companies report earnings, they also offer predictions of how things will go. The next couple quarters, it's called guidance. Guidance was surprisingly strong, actually. Ossung Kwan is U.S. equity strategist at Bank of America. He says 30 percent more companies made predictions that were rosier than analysts expected. Bank of America analyzed the tone of earnings calls to get a sense of corporate sentiment. I mean, it ticked down a little bit, but it's still very elevated, indicating that companies are still sounding positive on their earnings calls.

At the same time, macroeconomic data do show the economy is cooling, says Scott Wren, senior global market strategist at the Wells Fargo Investment Institute. We'll have lower GDP, so I think that probably the earnings growth we're going to see is going to moderate some. Moderate, not deflate. The view from the corporate boardroom is the U.S. economy is going to be okay. In New York, I'm Sabri Beneshur for Marketplace. Sabre A Wall Street, at least for today, seems to think the economy is going to be okay, too. The new school year is already kicking off in some parts of the country, which means the back-to-school shopping season is well underway. For retailers, this is one of the

most important shopping stretches of the year. For families, back-to-school can put a lot of pressure on wallets, especially now that everything's more expensive. Marketplace's Savannah Marr has more on how consumers are feeling. Christina Boney's glue stick and crayon days are over, but she still has one high schooler to shop for. We'll be doing an office supply run. And negotiating on some more discretionary asks, like fancy sneakers and a new backpack. That is a question of how much I'm willing to open my wallet.

Boney, who's a retail analyst at Moody's, says we could see lots of parents sticking more closely to the classroom supply list this year. With parents being more pinched on their wallets, that may be more of the approach. Back-to-school shopping can be emotional, says Lupin Skelly, retail research leader at Deloitte.

No one wants to feel like they're skimping out on their kids' education. There's also this sort of like nostalgia component where parents want to have like a good experience with their kids and send them off on a good foot. That doesn't mean they don't feel financially burdened, says Chip Lupo with Wallet Hub, which surveyed parents on this topic. More than three and four parents that we surveyed think that the schools ask them to buy too much during back to school season. And Lupo says a third of parents plan to apply for a new credit card to help manage back to school costs. Lower and middle income families,

especially, will be hunting for deals. It's just going to be enormously competitive for retailers who are actually earning those dollars. Claire Tassin with Morning Consult says retailers can't really count on brand loyalty this year. Consumers might say, okay, I'm going to shop at a discount store when I previously might have shopped at a traditional big box store. Or turn to the buy now, pay later services some retailers are pushing. And some consumers are spreading out their spending. Like Lupin Skelly with Deloitte,

who's sending her kid to preschool this fall. I did buy some shoes in July for him because there was a good promotion there. And she says she's not in a rush to buy new clothes like jeans before the first day of school. she'll wait around for the best deal. I'm Savannah Marr for Marketplace. The state of movie theaters since the pandemic has been a little touch and go, but one summer flick has been a slam dunk. Globally, Deadpool and Wolverine is expected to cross the $1 billion mark this weekend, cementing its place as one of the biggest summer openings of all time. So let's point our lens on movie history for the next installment of our series, My Analog Life. My name is Austin André Grundeck. I live in Council Buffs, Iowa,

and I used to be a projectionist. Being a projectionist pretty much entailed a lot of film. Your average movie is probably going to be about a mile or so, longer once three hours is two miles. And they all came separately in little cases and you had to sit down and build all of them up one by one, probably took an hour or two per movie. And then when you were done with the movie, you had to break it all back down and send it back in as good of condition as possible. One of my least fond memories of being there was a movie came in

called The Assassination of Jesse James by the coward Robert Ford. You're giving me signs that make me wonder. Maybe your mind's been changed about me. And that movie was a good three hours long, and it was, I think, 12 cases or something along those lines, and I had to break them down. it just took me five hours throughout the entire experience. You won't be like me or you won't be me. I'd have to walk between you know all eight movies that were playing at time and make sure everything was

going right and sometimes I'd get a little distracted and definitely there was once or twice that's when a movie goes the platter, it was called a throw. And if you don't catch a throw when these movies are miles long, you will get a pile of film that's five feet high and the stress and the confusion is just absolutely immediate. The theater that I was at was, they owned a couple other theaters. And one of them was kind of an indie theater that was on the other side of town. And they did midnight movies. And these midnight movies, you could do a lot of an indie theater that was on the other side of town and they did midnight movies. And these midnight movies, you could do a lot of fun things in there like at the beginning

of each movie they did the trailer for Changing Lanes. Take this file. Take it over to the courthouse. They got excess copies of it. So before each of these midnight movies, you'd have Changing Lanes trailer play normally. An ambitious attorney. File the papers and get out. And then you'd have the lanes trailer play normally and then bitches attorney file the papers and get out and then you'd have changing the changing lanes trailer play backwards then you have it play upside down and

backwards a different audio and it just kept rinsing repeating and that's something that I don't think is you know something you see anymore in any theaters. Movies in every single way are a form of art and even projecting it and being on that consumer end, there's something that you get out of that experience that was unique to that era and it's harder to reproduce with the fully digital production boost that you have now. Of course, there's still theaters around the country that do that kind of stuff, but here in Iowa,

there's few and far between. A lot of the bordering states, it's gonna be the same way. And I hope that more independent theaters are able to afford a 35 millimeter or keep that kind of traditional life. That was Austin Audre Gondek in Council Bluffs, Iowa. Tell us about how your job has changed at marketplace.org slash myanaloglife. Coming up… If you want to save money when traveling, you should probably just try to avoid buying airport food.

Yeah, but a girl needs her snacks. But first, let's do the numbers. The Dow Jones Industrial Average gained 683 points, 1.75% to close at 39,446. The Nasdaq picked up 464 points, 2.9% to end at 16,660. And the S&P 500 rose 119 points, 2 and 3 tenths percent, to finish at 53.19. Under Armour strengthened more than 19 percent. The sportswear maker posted earnings and revenue in the fiscal first quarter that beat analyst predictions despite falling sales. Nike jumped 2 and 2 tenths percent. Lululemon expanded 3 and a half percent. Savannah Marr was just telling us about how some parents are tightening their spending on back to

school items. Some related retailers, Target added 4 tenths percent, Walmart progressed 1 and 1 tenth percent, Amazon grew 1 and 9 tenths percent. Dutch Brothers tumbled almost 20 percent despite posting better than predicted second quarter revenue. The coffee chain said it expects to open between 150 and 165 new stores this year. That's not as many as some were hoping. Bond prices fell, the yield on the 10-year T-note rose to 3.99%. You're listening to Marketplace. This is Marketplace. I'm Kristin Schwab. We've talked about some of the problems commercial real estate has been facing lately. Empty office buildings, vacant cubicles, tumbleweeds

of paper floating from desk to desk. Well, there's another piece of commercial real estate that's starting to sour. Apartments. According to investment research company MSCI, about $80 billion in apartment building mortgages are at risk of distress. That's actually higher than the value of office loans heading for trouble. Marketplace's Matt Levin explains what's going on with apartment loans. Back in 2021 or 2022, taking out a loan to buy or renovate an apartment building in Austin or Atlanta or Phoenix seemed

like a great idea. Interest rates were super cheap and with all those New Yorkers and San Franciscans desperate to work remotely somewhere far away from their dubstep DJ roommate, rents were skyrocketing across the Sun Belt. It made sense on paper. A lot of these investors were not experienced apartment owners, and they're not realizing some of these rent increases that they thought they could get. Dave Borzos is with the National Multifamily Housing Council.

He says in some markets where too many newly constructed apartments came online, rents have declined. Austin rents are down 7.5% year over year. And those low interest loans? Well, when you buy or renovate an apartment building, you typically don't lock in a 30-year fixed rate mortgage. Their loan that they got was floating rate, and the interest rate on that has gone up. Less income from rent and higher monthly mortgage payments mean more loans potentially heading

to default, which isn't just squeezing landlords. Julie Solars with Fitch Ratings. We do think there's going to be a moderate amount of bank failures. She says just like with local office buildings, many smaller banks are big sources of financing for local apartment buildings. But even if they fail, those problem banks are too small to pose a systemic risk. The largest banks are the ones that are at least exposed to commercial real estate. While some landlords are in a pinch now, Stephen Bushbaum at the real estate analytics firm

Trepp says relief is on the horizon. Interest rates are already dipping in anticipation of a Fed rate cut. And there's supposed to be way less apartment construction hitting the market next year. And so what does that mean for rent growth? Rent should go up in the future. Good news if you're a landlord, maybe not so good if you're that renter that got used to living without that DJ roommate. I'm Matt Levin for Marketplace. Let's move from the rental side of housing to the buying side. With everything that happened

in the markets this week, mortgage rates have hit a new one-year low. According to Freddie Mack, the average 30-year fixed is 6.4% right now, but it's also been as high as nearly 7.8% in the last year. That's a lot of bouncing around, even though the interest rate set by the Federal Reserve hasn't changed at all. So then why do mortgage rates keep moving? What else is baked into that price? Marketplace's Henry Epp explains. About a year and a half ago, Nicole Wildart bought a house in Maryland with a mortgage

rate well above 6%. She knew that was going to be tough to afford in the long term. She figured she would refinance as soon as it made sense. So ever since, she's been watching mortgage rates. I usually search for like, when are they going to lower? Please tell me when the rates are going to lower. The results from those searches have not been great. Rates are still higher than the 6% she's looking for, and she's getting frustrated.

I know the Fed sets the rates and then the interest rates for home mortgages are based on some relationship to that. She's kind of right, but there's more to mortgages than the Fed's interest rate. Think of a mortgage like a layer cake. The federal funds rate is the first layer. That's what the Fed is expected to cut in September. It's essentially what it costs banks to lend money to each other. The Fed funds rate is their cost of doing business. Nancy Wallace is a professor at UC Berkeley's Haas School of Business. A bank will want

to make up for that cost when it offers you a mortgage, so your rate will likely be higher than the federal funds rate. Then there's a layer to account for inflation, Wallace says. For people who to be willing to hold a 30-year mortgage, where they expect tomorrow's dollar to be worth less than today's dollar, they're going to price that into the interest rate that they're gonna be willing to offer that mortgage for. So you've got the lender's cost of doing business,

then inflation expectations, and then another layer of that cake. And this is where things get more complicated. Because after a lender gives you a mortgage, they usually don't hold on to it, says Selma Hepp, chief economist at CoreLogic. They end up selling it to investors who then package these mortgages and they just become another financial instrument. Known as mortgage-backed securities, other investors then buy up these securities.

The more investors that you have, they're competing for that product and so the price of the product goes down. It's in this layer, the market for mortgage-backed securities, where mortgage rates are really determined. It's based on investor demand and competition with other investments says Andy Walden Vice-president of research and analysis at Intercontinental Exchange It's folks that are investing in those mortgage-backed securities and what interest rate they're Requiring to invest in those securities how much risk do they see and how much risk free return could they get elsewhere?

risk do they see and how much risk-free return could they get elsewhere? Specifically, the return they could get from one of the safest investments around, U.S. government bonds, 10-year treasury bonds in particular, Walden says. I know the government's going to pay me back. That's a risk-free loan that I'm giving them. Mortgage-backed securities, by comparison, are famously not as safe. It's a little bit riskier to lend to an end consumer where they may not be able to perform on that debt and they may default and need to take a loss. Or a borrower could refinance, meaning the investor won't get all the interest. Those risks push mortgage-backed securities, and therefore mortgage rates, above 10-year Treasury yields.

But the two track pretty closely together. Lately, treasury yields have been heading lower because investors are buying more of them as they move money away from riskier investments. And that could push mortgage rates down further, unleashing a lot of pent-up activity, says Guy Ciccola at Inside Mortgage Finance. And there's no question that if mortgage rates drop, you're going to see a surge in home buying and home selling as well as probably mortgage refinancing. In Maryland, Nicole Wildart hopes to be part of that refinancing surge.

If I could even just get it to 6.0, that would be a huge win for our monthly finances. For now, she'll keep watching rates, hoping they come down. I'm Henry App for Marketplace. The last few weeks have been tough for airlines, and travelers too. There was the crowd strike outage that impacted Delta Airlines several weeks ago, and Hurricane Debbie, which is now a tropical storm. These events have left flyers stranded at airports, camping out on the carpet of terminals, perhaps munching on very expensive sandwiches. You know the ones, a turkey and swiss hanging out in some grab-and-go fridge, all slimy, wrapped in plastic for a cool $15. Well, it turns out there are reasons why airport

food prices are notoriously high. Laura Kelly is an associate editor at The Atlantic. She tackled this question in a recent newsletter. Thanks for joining us. Yeah, thanks for having me. I've always assumed airport food is expensive because the airport's kind of like a baseball stadium. How much truth is there to that? Yeah, it's a great question because that certainly is one part of this. People at the airport are bored. They're often sort of in this transitional moment of leaving whatever their real life is and going on a work trip or on a vacation or to see family.

So the airport definitely is a space where people are a captive audience. And so that's part of why things cost so much. But that's, I found out my reporting reporting of this story, actually not really the only or the main reason that airport food is so expensive. Yeah. So what are those other reasons? So it turns out that the cost of running a business in the airport is actually really high.

So the cost of retail space is high. Vendors may need to pay for things like special badges for their employees or transportation to the airport and parking. Getting food through its version of airport security can be pricey and vendors have to bring food in pretty frequently, in part because there's pretty limited storage space in airports. Oh. You write about how this was sort of exasperated by 9-11. Tell me more about that. Yeah, so this was a really interesting insight that an airport historian shared with me. So she explained that the necessity of security measures meant that it became more expensive to hire employees. And also the way that people approach their time in the airport also really changed.

Sometimes before 9-11, people who weren't even flying could just sort of go to the airport to hang out, go to restaurants, wait for people, even just watch the planes. And that's something that obviously shifted in the way people spend time at the airport in the years since. Yeah. And in your story, you talk about even going back before 9-11, the airport has always kind of been an expensive place. Yeah, that was such an interesting insight from this airport historian that I spoke to. She was telling me that basically into the 1970s a lot of the people who were

flying were really affluent and so they weren't actually all that sensitive to prices. And I should say there are still some parts about the flying experience that certainly try to appeal to more affluent flyers. There are fancier restaurants which do come with heftier price tags. But one thing that a lot of flyers, including myself, have also probably encountered is that sometimes restaurants that are actually not all that upscale are charging upscale prices. So in general, airport restaurants are supposed to charge what's called street or street plus pricing.

So that typically caps prices at about 10% more than outside establishments, but restaurants sometimes take a little bit of leeway when they consider what street pricing is. So for consumers, is there any way around all these high prices? Yeah, so the unfortunate and maybe sort of obvious and disappointing answer that I found in my research is not really.

Some experts that I spoke with advised that if you want to save money when traveling, you should probably just try to avoid buying airport food to begin with. I know that for me, it can feel tempting to, you know, buy a drink at the gate and treat myself when I'm starting a trip, but that is a little bit of a potential money suck for a lot of people. Yeah. What kind of airport traveler are you? Are you a sandwich packer? You know, on my best days, I am a sandwich packer. I try to bring snacks along with me, but I do think there is something about being in the airport that leads to sort of a warped logic. I do find myself making choices and making perhaps

slightly unwise financial choices that are different from those that I would on an average day. Yeah, I tend to use the airport as an excuse to eat fast food. So that's where I fall. Fair enough. I feel that. use the airport as an excuse to eat fast food. So that's where I fall. Laura Kelly is an associate editor at The Atlantic writing about why airport food is so expensive. Laura, thanks for talking. Thank you so much for having me on. This final note on the way out today, Thursday is the day we always get first-time claims for unemployment. The number this time around is 233,000. That's lower than expected, and 17,000 claims lower than the week before.

And it's a counter to the worse than expected jobs report that came out last Friday. John Buckley, John Gordon, Noya Carr, Diantha Parker, Amanda Peacher, and Stephanie Seek are the marketplace editing staff, Amir Bibawe is the managing editor, and I'm Kristin Schwab. We'll be back tomorrow. This is APM. Hello, I'm Simon Jack. And I'm Xing Xing.

And together we host Good Bad Billionaire, the podcast exploring the minds, the motives and the money of some of the world's richest individuals. Every episode we pick a billionaire and we find out how they made their money. And then we judge them. Are they good, bad or just another billionaire? Good Bad Billionaire from the BBC World Service. Listen now wherever you get your BBC podcasts.