Marketplace - What’s in your wallet?

Episode Date: February 21, 2024

If a $35 billion deal goes through, Capital One will purchase Discover and become the nation’s largest credit card issuer. But the bank isn’t in it for credit debt — it’s in it for Discover’s payments system. Also in this episode: why Walmart had strong sales last quarter and how states are preparing for a potentially contentious Election Day. Also, is the post-lockdown travel boom still on?

Hey, Marketplace listeners, you know around here we like to think you're never too young to learn about the economy and financial basics. That's why we're bringing the Million Bazillion Live Tour to schools to teach important lessons about budgeting, investing, saving, and more. It's all the fun of the podcast, but now live, immersive, and interactive. Special thanks to our tour partner, Greenlight, the debit card and money app for kids and teens. Learn more about Greenlight at greenlight.com slash million. That is greenlight.com slash million. On the program today, corporate profits. But, you know, the interesting kind.

From American Public Media, this is Marketplace. In Los Angeles, I'm Kai Risdell. It is Tuesday. Today, this one is the 20th of February. It's good as always to have you along, everybody. We are, in fact, going to talk about some corporate earnings reports on the program today. Not the bottom lines or the EBITDAs or the earnings per share, but the things you can learn about this economy from corporate America. Walmart reported stronger than expected sales in its fourth quarter this morning,

noting that it continues to gain market share as consumers continue to go looking for deals on groceries and, well, everything else. But the good news for the company from Bentonville did come with a note of caution for the economy, because for the first time in two years, shoppers both in-store and online were spending less on each order. Total dollar sales were up, yes, because there were more shoppers returning more frequently. But if consumers stay thrifty, that could have all sorts of implications for all sorts of retailers. Marketplace's Megan McCarty Carino starts us off. There's a big reason consumers might be spending less on average each time they shop,

says retail analyst Arun Sundaram at CFRA Research. We're seeing deflation in some categories. Especially staples like eggs, lettuce and tomatoes. They cost less than they did a year ago, while many others are growing in price, though at a much slower pace. So lower prices, lower spending. Another possible factor, Sundaram says. Consumers are just spending less on expensive things. Like electronics and home furnishings. These buying trends aren't really hurting Walmart so much at the moment, but they could signal a broader shift in consumer behavior

that might pose challenges for some companies, even as inflation continues to ease. Take the switch to generic products, says Ravi Dhar, a marketing professor at Yale. When you trade down from your regular potato chips to store-brand potato chips, and they say, oh, the store-brands are pretty good. I'm going to stick with them. Even when economic conditions start to change. It's not necessarily permanent in that sense, but it can last for certainly, you know, 12 to 18 months. Enough to do some damage.

And if consumers have become persistently pickier and stingier, brands will need more of them to sustain sales, says Matthew Hammery, a retail consultant with Alex Partners. He expects to see retailers fighting even harder for market share in coming months. In many cases, you know, that will come through more as an increase in promotional activity. Think over-the-top deals like Buy Two Get Three Free Discounts on Soda. Hemery says Walmart, known as both the largest grocer with some of the lowest prices, probably doesn't have much to gain by cutting them further. That might be why it's pushing into advertising with its acquisition of smart TV maker Vizio. There's a much higher margin on ads than store brand string cheese. I'm Megan McCarty

Carino for Marketplace. On Wall Street today, traders seemed a little cranky, to be honest. We'll have the details when we do the numbers. One of the big pandemic changes in this economy and something we've covered, you know, a lot, especially when it first started happening, is that Americans are leaving expensive coastal cities and moving to places that are cheaper. Housing, general cost of living, just cheaper. And there was some wailing and gnashing of teeth. That might not be great for the economy. Or quite the opposite, wrote Heather Long in the Washington Post the other day. She is here to discuss, and I will note, not on a Friday.

Hi, Heather. Hi, Heather. Hi, Kai. Okay, so the supposition has been that this internal migration, if you will, has not been great for the economy. And I want to understand why we all thought that. centered together and particularly where the money was, where the people were, where the hip places to eat were, that there was just this belief that when you got all that together in what we call the superstar cities like the New York and LA and San Francisco, that great things would happen. And certainly for the past several decades, we saw really strong GDP growth, really strong income growth, obviously a lot of job growth in those superstar cities. But suddenly during the pandemic, some of that was turned on its head. And part of it was the Zoom effect. You know, you didn't have to be sitting in the middle of a cafe

in Soho in Manhattan in order to benefit from being surrounded by and connected to a lot of really interesting people. What this is all about, what your column is all about and this phenomenon is all about, is the ability that we, you know, mostly white-collar workers, frankly, and we'll get to that in a minute, the ability that we now have to be productive to keep productivity high, and that way the corporate bosses are okay with that. Talk about, first of all, why productivity matters here. and that way the corporate bosses are okay with that.

Talk about, first of all, why productivity matters here. Well, it matters to the overall economy because that's one of the two key elements that propels growth and hopefully leads to a higher standard of living for all of us. You either need more workers or you need workers producing more per hour. Right, and now it's okay with the corporate bosses

because we can be in, you know, Jacksonville or in Charlotte or any one of these other number of cities and still get on a Zoom with our employers in Los Angeles or New York. Right. And they're good with that. Yeah, but it goes beyond that, Kai. And I think what really interested me in this is, OK, we all get the basics of the Zoom phenomenon. Yeah, I could be talking to you from across the country or from up, you know, on the beach somewhere. But what's interesting about this is a lot of the people who moved were highly educated millennials, in many cases with kids. And they wanted more room and they moved from the superstar cities to what I would call the rising star cities. You know, the Phoenix, Arizona,

or San Antonio, or Jacksonville, or Charlotte. These are still pretty big cities. They're not, you know, multi-millions, they're kind of around 1 million people. And those cities were primed to take off. They were sort of primed to start having the same superstar effect. And suddenly, they got an influx of talent and an influx of money that was moving into those places. And it's really helped fuel an entrepreneurship boom in a lot of those cities. And we just saw the job number come out today for last year. And you can almost overlay the map of where people were moving to where a lot of the job creation and new business creation has happened. Is this making those cities, the Phoenixes et al, is it making them richer? Well, that's the hope. And the early signs are very promising, certainly with the job growth and

with the entrepreneurship growth that we're seeing there. And a lot of people who move there, look, they probably miss a few things from their prior location. I've certainly seen some articles of regret for some people who move. But by and large, people feel richer because housing for them is so much cheaper. That doesn't mean it's cheap in some of these places, but it's so much cheaper relative to a New York or San Francisco. Right. But if I'm living in Phoenix and I got all these people coming in from, you know, L.A., housing for me is going to get more expensive and those chic restaurants are going to get more expensive, too. So it's not it can't be all upside for the Phoenix's and everybody. It's so true. And I did get flooded with emails from people who live in

a number of these places who are making just that argument that, hey, it's not been that great for me. But you hope over the long term that we can basically see a bunch of mini Silicon Valleys across the country, you know, that places will be the hub for AI integrating with manufacturing or semiconductors or logistics like that would be a huge boom in a lot of places. We want a lot more of these rising stars. Right. Super quick on the way out here, though. What does it mean for the the previous superstar cities, the L.A.'s and the New York's? You point out, I think that L.A. lost more people than any other city in the pandemic,

right? Or do I have that wrong? They did. The good news is the hemorrhaging has stopped. So, you know, it was sort of two years of outflow. And now we're starting to see the stabilization in a lot of those places. And over time, they're going to attract more talent back, for sure. But I think there's a lot of hope that many of the people who moved and locked in those really cheap housing deals are probably going to stay in the Charlotte and Phoenix and places like that.

Right. Heather Long, economics columnist at The Washington Post. Thank you, Heather. Thanks, Guy. Talk to you soon. Bigger might be better. That is one school of thought for sure. But there is also the bigger is all well and good, thanks, but we've got something else in mind theory. You've surely heard by now that Capital One is going to buy Discover in a $35 billion all-stock deal. It'll make Capital One the biggest credit card lender in this economy, topping JPMorgan Chase. But as Marketplace's Stephanie Hughes explains, it's not looking to become too big to fail. It's buying a payment network. When I go into my local coffee shop and tap my credit card on the reader, it connects to one of four payments networks.

Visa, MasterCard, American Express, or Discover. David Schiff of the consulting firm West Monroe describes what happens next. What it does is it sends out a signal over the network to say, does Stephanie have money in her account that allows this transaction to occur? Yes or no? Hopefully the answer is yes. There's a satisfying little boop, and I can take my coffee. And whoever owns the payments network takes a little slice of what I paid. Add that up over millions and millions of transactions, and it's a steady revenue stream. Schiff, who's worked on projects for Capital One and Discover in the past,

says if this acquisition goes forward, Capital One will be able to charge other credit card issuers. They're collecting that money from other issuers that want to ride on the Discover rails, the Discover network. And buying a payments network is a lot easier than starting one, says Andrew Davidson with the market intelligence firm Compare Media. It's an extremely difficult thing to build up as you have to go sort of merchant by merchant to build these networks up. And owning one would put Capital One in much closer contact with those merchants. So they could say, hey, coffee shop, would you like any of these other services that we offer? A loan? A line of credit? For example, Capital One has been moving

and has been for a while offering business credit cards and business banking and other types of services. Davidson says with this acquisition, Capital One would have an even bigger marketing budget. That means we're likely to see plenty more of those star-studded ads. I'm Stephanie Hughes for Marketplace. Coming up. Digital ads, radio ads, TV ads to remind people not just to vote, but what the voting process is. Process matters, people. And sometimes it makes all the difference. First, though, let's do the numbers. The industrials off 64 points today, almost two tenths percent closed at 38,563, 563 rather. The Nasdaq down 144, nine tenths percent, finished at 15,563. The Nasdaq down 144.9%, finished at 15,630. S&P 500 dropped 30 points, about 6 tenths percent, 49 and 75.

We heard from Megan McCarty Carino that deal-hungry consumers drove strong quarterly results at Walmart. The company also said it's reached the deal to buy the TV maker Vizio for $2.3 billion. Shares gained 3.2% today. Sticking with retail, Home Depot said its quarterly sales declined 3.5% from the year before. Home Depot stocked, though, rather. A little changed. Bonds up, yield on the 10-year T-note down 4.27%. You're This is Marketplace. I'm Kai Risdahl. IHG is the ticker symbol of this Tuesday. Intercontinental Hotels Group, owner of, among others, Holiday Inn and Crown Plaza, which also had quite a nice 2023. Thank you very much. We learned that this morning in its corporate profit reports.

The company made more money per room last year than it did the year before, and operating profit topped a billion dollars for the first time. 2023, it turns out, was a big recovery year for a whole lot of hotels. Marketplace's Samantha Fields looks at what 2024 might hold. The first couple of years of the pandemic were brutal for hotels, but Stephen Carvell at Cornell School of Hotel Administration says 2023? Outstanding. And I don't think people anticipated it back in 2022.

Everyone thought that we'd have a recession by now. That recession never materialized. And Carvell says the strong economy boosted hotels across the board. The board includes primary markets like New York City, Boston, Miami, destination resorts, smaller cities, upscale and luxury hotels. Hotels charged more and made more per room in 2023, though occupancy was still below pre-pandemic levels. One big reason is business travel is still lagging. I think overall, hotels follow the path of business travel in general. Suzanne Neufung at the Global Business Travel Association

says more and more companies are sending employees on work trips. Of those who buy travel for their companies, 66% expect that their company's business travel spend will be higher this year. So far, leisure travel has been the key to the hotel industry's comeback. But Kaushik Vardarajan at Boston University's School of Hospitality Administration says in 2023, you saw that taper off a little bit. I think 2024, you'll continue to see leisure travel moderate. Meaning we probably won't see the same kinds of big increases we've seen in the last couple of years,

at least when it comes to travel within the U.S. But he says tourists from abroad are a different story. I do expect leisure demand from international destinations to increase significantly. Especially now that China has lifted its restrictions on foreign travel. I'm Samantha Fields for Marketplace. According to the Consumer Price Index that we got last week, services inflation is running at 5.4% year-on-year. Services like hotels and accommodations that Sam Fields was just talking about. Restaurants, part of the food away from home category, another big slice of the service economy.

And inflation there is an issue too, as you will hear in today's installment of our series, My Economy. Hi, I'm Jelan Hall-Johnson, the owner of the Sassy Biscuit Company located in Billings, Montana. The Sassy Biscuit Company is a biscuit-centric restaurant that focuses on elevated but approachable food. on elevated but approachable food. So I decided to open a breakfast restaurant, number one, because it's my most favorite meal of the day. And I think a lot of times in the restaurant industry, it's the forgotten meal of the day. So that was one reason. Another reason was because my husband then was a drill instructor and I had three kids. They ate breakfast and so I would cook it often.

And so I just began, it was just a great opportunity to begin working on new and exciting recipes. So as a military spouse, you're constantly moving, you're constantly adapting. And so I knew within three years, the likelihood of us still being in Billings would be slim. So when I opened the business, I developed it from the perspective of scaling up. Within eight months of opening, we had had a few different offers to expand in different states and locations. It wasn't until the offer for New Hampshire came through that we decided to act on it. So what happened in New Hampshire,

unfortunately, we ended up shutting our doors in December of 2023 with rising costs in utilities and, you know, labor. You know, We just couldn't keep our doors open. And so unfortunately, had to make that hard decision to sell. Having a closure on our books is not good for any business. There's so many obstacles as a business owner. Then we add the fact that I'm a woman and then we add the fact that I'm a Black woman. I didn't want the closure to add to that list. While we have run into a lot of obstacles, I think one thing that is important and that angers me down is the success that Billings has had, the impact we've had on our community.

For me, that's enough to keep going. That's enough to keep going and keep expanding to different opportunities. So we're excited. We're excited for the next step, for the next journey, and we'll see where it takes us. next step for the next journey and we'll see where it takes us. Jalen Hall Johnson making biscuits and running a business in Billings, Montana. We cannot do this series without you wherever you are, whatever you do. Please let us know what's going on in your economy. Would you marketplace.org slash my economy? There are tens of millions of people in this country who don't believe Joe Biden actually won the 2020 election.

To be clear, he did. That is just one, but no doubt the biggest consequence of the mis- and disinformation still surrounding that election. And it's virtually certain that whatever the outcome of this coming election, challenges and lawsuits and misinformation and lies will figure prominently. And that's got elections officials all over the country laying the groundwork now to build confidence in the results and to protect their poll workers. Marketplace's Kimberly Adams has that one. There are two federal agencies that primarily work on elections in the U.S. The Federal Elections Commission handles campaign finance, and there's the Election Assistance Commission. The EAC handles election administration mostly by identifying best practices.

And that's what brought dozens of election officials from all over the country to the University of Maryland a couple of weeks ago for the 2024 election summit. Over the last four years, there's a lot we've all been doing to prepare. In addition to providing training and resources, the agency also serves as the conduit for federal funds that support state election offices. Christy McCormick is the chairwoman of the EAC and says the agency has funneled close to a billion dollars to the state since 2018. Much of it filtered down to local election authorities, who spent it on...

Hardening offices and putting cameras on the machines. We're talking about security for the poll workers. We're talking about cybersecurity, getting the right kinds of software and tracking devices. But that kind of influx of federal cash is a thing of the past. Brianna Lennon is the county clerk in Boone County, Missouri. But that kind of influx of federal cash is a thing of the past. Brianna Lennon is the county clerk in Boone County, Missouri. The majority of the funding that came through 2020 was COVID money. It was to offset having to increase costs for PPE and social distancing.

And that money is not coming back. The EAC can't send money to the states without a formal appropriation from Congress. And since the federal government has been operating without a formal spending package for months now, Lennon says when it comes to the November election... I don't have any confidence that we're going to get an increase of anything. So whatever we have from our local budgets, which is what funds 90% of our elections, is what we're working with. A big focus of what funds are available is security. Christina Worrell-Adkins is director of elections for the state of Texas. The threats that we're becoming more aware of and that we need to prepare for

have evolved from those of the cybersecurity nature to something that's more surrounding our physical security. And I think that's just because we've seen the temperature rise. Adkins says election officials are training poll workers in customer service and de-escalation techniques to hopefully stop any threats of violence before they happen. Nevada recently invested $30 million for a variety of upgrades to its election system. Nevada's Secretary of State, Cisco Aguilar, says that's an unprecedented amount, but he says it's also important to have additional legal protections. We made it a felony to harass or intimidate election workers and poll workers.

Anti-doxing legislation was important. And so we're making election workers feel safe in the environment in which they're working. In addition to security, election officials at the summit said they're focusing the bulk of their preparation on what they see as the best strategy to avoid problems on Election Day. Voter education. Washington Secretary of State Steve Hobbs is asking his state legislature for $1.2 million for digital ads, radio ads, TV ads to remind people not just to vote,

but what the voting process is. So for example, you know, don't forget to vote. Oh, by the way, the tabulation machines are not connected to the internet. Hobbs and others say those kinds of messages can help prevent misinformation from taking hold by encouraging voters to turn to the folks who actually run elections as trusted sources of accurate information, rather than randos spouting conspiracy theories. I would certainly hope that people put more trust into their election officials than some person that sells pillows. Hobbs says the best way to combat misinformation is the truth. In Washington, I'm Kimberly Adams for Marketplace.

This final note on the way out today in which $35 or $40 here and $35 or $40 there really adds up. American Airlines announced today it's raising its checked bag fees. $35 from $30 if you do it online, $40 from $35 if you wait until you get to the airport to do it. The Associated Press did a little digging around in the Department of Transportation files and discovered that American had almost a billion and a half dollars in bag fee revenue in 2022. Our digital and on-demand team includes Carrie Barber, Jordan Mangy, Dylan Miettenen, Janet Nguyen, Olga Oxman, Ellen Rolfes, Virginia K. Smith, and Tony Wagner. Francesca Levy is the executive director of Digital and On Demand. I'm Kai Risdell. We will see you tomorrow, everybody. This is APM.

All over the country. We need to improve reading in Wisconsin. Schools are changing the way they teach reading. I'm calling for a renewed focus on literacy. We have gotten this wrong in New York and all across the nation. And it's happening because of a podcast. I think your podcast has changed my life. And I'm going to share this podcast with everyone I meet. Sold a Story investigates how teaching kids to read went wrong. New episodes of Sold a Story are available now.