Marketplace - Who’s in the consumer-spending driver’s seat?

Episode Date: February 25, 2025

The top 10% of earners account for half of all consumer spending in the U.S., a new study shows. In other words, if the goods and services Americans buy in a year were a pie, those with the highest incomes have been shelling out for a massive slice. Where does that leave everyone else? Also in this episode: Investors and the AI industry await Nvidia’s earnings report this week and tariffs threaten a complex auto manufacturing supply chain.

Yes, consumers drive this economy. Which consumers though? From American public media, this is Marketplace. In Los Angeles, I'm Kyle Rizdall. It is Monday today, the 24th of February. Good as always to have you along, everybody. If you are even a semi-regular listener to this program, you know that the American consumer is the beating heart of this economy.

Repeat after me because you've heard me say it often enough, spending by or on behalf of consumers accounts for almost 70% of U.S. gross domestic product. Turns out though that in the past couple of years, that spending has increasingly been driven by a relatively small group of people. Moody's did some analysis for the Wall Street Journal that shows in the top 10% of incomes, those consumers making $250,000 or more a year, they account for nearly half of all consumer spending, the highest share since they've been collecting that kind of data. Marketplace's Matt Levin explains how those consumption

patterns are shaping our economy now and might in the future. You know how there are certain words or turns of phrase that you only really associate with the top end of the income scale? Like using a season as a verb, as in we typically summer in the south of France, or last Christmas we wintered in St. Barts.

Apparently there's been more summering and wintering lately. When you look at the dynamics, I think there is certainly evidence to support that. Michael Brown is principal U.S. economist at Visa. Obviously there's always been a spending gap between rich and not as rich, but Brown says the chasm really started widening in 2023 and has been the widest during summer and winter. If you're summering and you're in this affluent category, you're probably traveling abroad.

If you're say lower income or maybe even lower middle income, maybe you're driving to some of those destinations, particularly given the costs of things going up. While inflation and a softening labor market have crimped lower income budgets, it hasn't really restrained high earners from splurging. That's partly because richer households tend to own stocks and maybe the only thing rising

faster than the price of eggs the past couple of years has been Nvidia shares. Economist Mark Zandi at Moody says that makes the economy overall more vulnerable. I mean, if their spending is being driven by record stock prices, you know, I wouldn't count on that for sustaining long-term economic growth. Some economists argue that richer households tend to spend more on labor-intensive goods and services, which is good for the job market. But Josh Bivens at the Economic Policy Institute says a more equal distribution of incomes and consumption could reorient what jobs get created in the first place.

Maybe we'd have fewer people working in really high-end hotels and resorts and a lot more people working in sort of-end hotels and resorts and a lot more people working in sort of elder care and childcare. It's because all of a sudden people have the ability to pay for those things. He says with a more even distribution of incomes, more people could actually afford care for their parents and children. I'm Matt Levin for Marketplace. On Wall Street today, a little bumpy and then a slide into the close.

Also just because honestly, it's kind of amazing. Warren Buffett's holding company Berkshire Hathaway up 4% today on a solid quarterly profit report over the weekend. Should you be contemplating buying? Berkshire closed today at $747,485.50 for one share. We'll have the details when we do the numbers. Apple said today it's going to spend $500 billion over the next four years to speed up work on a manufacturing facility in Houston that supports its artificial intelligence

products. It's going to expand existing data centers in five other states as well. Setting aside for a second the political setting of Apple's announcement, the fact is that the boom in AI brings with it an explosion in demand for electrical power for those data centers. The Department of Energy predicts that in the next couple of years, data center growth is going to require double or triple the amount of energy those data centers do now. Marketplace of Megan McCarty Carino has more on that one.

Lauren Henry Northern Virginia is known as Data Center Alley. It's home to more than 250 facilities, the biggest concentration in the world. It's like walking through the inside of a computer. Julie Bolthouse is the director of land use with the nonprofit Piedmont Environmental Council. She says the hulking concrete campuses have taken over the landscape in Loudoun County. The impact really goes well beyond just the footprint of the data centers themselves. A December report commissioned by the Virginia State Legislature projected data center growth could nearly triple the state's electricity demand in the next 15 years.

Lauren Bridges is a professor of media studies at the University of Virginia who researches the social and environmental costs of technology. Essentially more demand means the need to build more energy infrastructure. And all rate payers could be stuck with the bill. This might represent a form of cost shifting where residents are seen to subsidize the cost of the data center industry. Those costs aren't just financial. Many tech companies are investing in nuclear and renewable energy, but demand is spurring

growth in natural gas generation and delaying the closure of coal plants, says Logan Burke at the Alliance for Affordable Energy. What is it costing us to continue to invest so much money in fossil gas? It's costing us an awful lot. Data centers are an economic boon in many regions, but policymakers are starting to pay closer attention to the energy issue, says Ike Brannon, senior fellow at the Jack Kemp Foundation. Politicians on both sides do not want to face the wrath of consumers

if they're told that their energy prices are going to go up by 30 percent or they start having occasional drownouts. From Virginia and California to Ohio and Texas, states are considering measures to increase data centers' transparency and accountability. I'm Megan McCarty Carino for Marketplace. The foreign policy of the United States isn't just military and political strategy. Economic sanctions are an essential part of how this country tries to get things to happen internationally.

In point of fact, an analysis by the Washington Post shows the United States imposes three times as many economic sanctions as does any other country in the world. And as America's role in the world changes here in the second Trump administration, it's worth spending some time, I think, on our economic diplomacy. Edward Fishman's at Columbia University now. He's also a former official in the state and treasury departments doing sanctions work. And he's got a new book out. It's called Choke Points, American Power in the Age of Economic Warfare. Welcome back to the program.

Good to have you on. Thanks, Kai. Great to be here. Define for us, first of all, I suppose, the modern idea of choke points. So Kai, a choke point is an area of the global economy where one country has a dominant position and there's very little redundancy. So, for instance, if you're cut off from the US dollar, there's not a readily available substitute from the US dollar.

The same is true of the most advanced microchips and semiconductors. So that is what defines choke points today. Historically, they were geographic features like the Bosporus. Today, they are really these parts of the global economy that are almost invisible, but the US can weaponize. All right. So we're going to get back to the dollar in a minute,

because that obviously has repercussions and manifestations, in fact, on what's playing out now in sort of global economic warfare, but but the point that you make in this book is Economic warfare has been a thing and now it's even more critical that the way we use it is considered and Exercised with some restraint. Yes That's exactly right, you know up until very honestly, even at the turn of the 21st century, using sanctions and other tools of economic warfare in an impactful way, there was a pretty high threshold to it because you needed to either have broad international unity, for instance,

backing from the entire United Nations Security Council, or the use of naval force. So even thinking back to the 1990s UN embargo on Iraq, that's very famous. That was implemented by a multinational naval force that was patrolling the Persian Gulf 24-7 for 13 years. What the choke points that I discussed earlier created is it gave officials in the US government the power to impose economic pain on foreign countries even more dramatic than those blockades of old just by signing documents in the Oval Office or in the Office of Foreign Assets Control in the Treasury Department.

So it's made it much easier for the United States to deploy economic warfare. There's a great line in this book about sort of the overuse of sanctions and economic warfare. And you say, quoting you here, sanctions are like antibiotics. They work well when used correctly, but cause a host of problems when used excessively or inappropriately. Talk about that a little bit. Sure. When you use sanctions too much, you inspire a backlash.

Not only does it hurt the US economy, but more importantly, it encourages other countries to hedge. They start building alternatives to the dollar. So for instance, in China, the Chinese government has launched a digital version of the RMB, a central bank digital currency that's explicitly designed to evade US financial infrastructure. The other thing though, Kai, there's a flip side of that, is that as with antibiotics, if you have a really bad bacterial infection, you need to go big. You need to hit it with the right drug for the right amount of time, and you can't

stop taking that course of antibiotics too soon. I think that's what really happened with Russia. It's the real tragedy of the Russia sanctions, which is that if you go back to 2014, and look, I was involved in negotiating the original Russia sanctions after the annexation of Crimea with the European Union in 2014. Russia's economy that winter was really suffering and we really had the Russians close to a deal that potentially would have gotten them out of Ukraine. And at that time, the Europeans were so scared

of the impact of the sanctions we're having on their own economies that they basically threw in the towel and said, we can't escalate sanctions. And the Nord Stream 2 deal was signed a few months later. And so what happened after that? The final year and a half of Obama's administration, he didn't do anything to increase sanctions. And then for all four years of the first Trump administration, Trump did not increase sanctions on Russia. And so by the time we get to 2022, Russia's had six years basically in which sanctions have stagnated, they've fully adapted.

And so by then, you know, you basically had this antibiotic resistance that had developed. So as I say in the book, sometimes with sanctions, you have to go big or go home. So what do you make then of this current moment where the Trump administration is at a minimum resetting what the global economic engagement of the United States is when the Europeans, as we saw in the German elections this weekend, are working toward independence from the United States. Do you suppose this moment generates momentum to move away from the dollar and the Americans' unique control over the global economy? I do.

And as I argue in Choke Points, we are headed for a new international economic order. The days of globalization are over. We are now living in an age of economic warfare. I think that the age of economic warfare could really evolve in two different ways. One scenario is one in which the US leads a block of democratic countries that continue to integrate their economies, continue to use the dollar, whereas you have another block led by China, Russia, and other autocracies that moves away from the dollar and US economic dominance. I think where Trump is taking us, Kai, is a much different and darker scenario. Trump, of course, is not only threatening sanctions and tariffs against the likes of

Russia and China, but also against our allies, Canada, Mexico, Europe. And of course, this could damage American prosperity at home, and I think that's why these tariffs have gotten so much domestic opposition. But the thing I'm even more concerned about is what that augurs is a much more chaotic breakdown of the global economy, in which every nation is for itself. Every sort of diplomatic deal is just a business transaction and no economic relations are permanent. And the thing that makes that so challenging and so scary is that as history shows, if states can't feel confident that they can secure markets through

open trade, the temptation for imperialism and conquest rises significantly and the risk of great power war rises. So that's what I really worry about. Peter Van Doren Edward Fishman, he's at Columbia now. He was at State and Treasury working on Russia sanctions. Eddie, thanks a lot for your time. I appreciate it. Edward Fishman Thanks, Guy. I really appreciate you having me on. Coming up. We've survived all of this, and that includes three tsunamis, a pandemic.

So we're okay. That's a lot though. But first, let's do the numbers. Dow Industrial has inched up 33 points, just under a tenth percent. 43,461 on the blue chips. The NASDAQ down 237, 1.2 percent. 19,286. The S&P 500 dropped 29 points, about a half percent. 59.83.

Megan McCarty-Corino was talking about electricity costs in data centers. So some electric stocks, shall we? Pacific Gas and Electric. PG&E rose a tenth percent. Megan McCarty-Corino was talking about electricity costs in data centers. So some electric stocks, shall we? Pacific Gas and Electric, PG&E rose a tenth percent. Virginia-based Dominion Energy descended one percent. Apple added six tenths percent. Amazon down 1.8 percent today. Bond prices went up when that happens.

The yield goes down. The 10-year T-note sits at 4.40 percent today. And you are listening to Marketplace. This economy can be complicated. That's why the Marketplace newsletter makes understanding it all simple. Get smart takes on the week's biggest stories delivered to your inbox every Friday. No jargon, no hype, just economics you can use. Sign up today at Marketplace.org slash subscribe.

This is Marketplace. I'm Kyle Rizdal. We get earnings reports from publicly traded companies all the time, quarterly in point of fact, and most of them come and most of them go without much fanfare. This week though, it's the company that everybody is watching. NVIDIA reports on Wednesday. Marketplaces' Kelly Wells explains why the AI chip design giant is getting so much attention. There are two main reasons to watch NVIDIA, says Eric Gordon.

He's a professor at University of Michigan's business school. The first is its sheer size and its influence on the stock market. Gordon says last year, NVIDIA's stock made up 22% of the S&P's total gain. The other reason? NVIDIA is sort of the poster stock for AI. It's the way most of us can invest in AI. NVIDIA dominates because its graphics processing units make up around 90% of the market. During the dot-com era, there were something like 2,888 startups that went public. So far, there have been zero startups that have gone public for generative AI. That's not normal, says Peter Cohen.

He teaches management practices at Babson College and authored a book on generative AI. NVIDIA became such a gorilla in part because it got its start long before AI took off. Cohen says its GPUs were originally used for gaming. Then used for crypto mining and then now it has proliferated to be used by data centers that are training and operating large language models like chat GPT.

This quarterly report is getting more attention because it might not be an unfettered success story. One problem, says Matt Bryson with Wedbush Securities, DeepSeek, the Chinese AI company, launched its AI model and chatbot in January. China's development suggested that you can do more with fewer hardware resources,

so in this case fewer Nvidia GPUs. Nvidia's stock plunged 17% after DeepSeek's announcement. The second is Nvidia's new Superchip for the next generation of AI. There have been some fits and starts in terms of production there. But Bryson isn't concerned. He says the new chip is ramping up after a slow start. And if DeepSeek makes AI more affordable to more companies,

it could actually increase demand for AI hardware. I'm Kayley Wells for Marketplace. We're being reminded here in the second Trump administration that in this globalized economy, supply chains are everything and disruptions to them can be, well, let's just leave it at disruptive. There are few supply chains as closely linked as the ones between Mexico, Canada, and the United States. Businesses in all three countries have made billions of dollars worth of business decisions

with the understanding that trade across those borders is going to remain free. Exhibit A, cars and trucks from Texas, which has been a big winner in the free trade game. Marketplace's Elizabeth Troval reports. I'm standing on the sidewalk outside a car dealership next to a Houston highway. Rice University's Tony Payan is here with me. Well we're here outside of Toyota dealers in Houston right on a 610 loop. The lot is full of shiny new vehicles like Tundras made here in Texas or Tacomas made in Baja California. Though Payan points out these are not American vehicles, they're not Mexican vehicles. Or Japanese vehicles for that

matter. When you see a plant where a vehicle is being built, what you see is parts coming from many different places. Take a manufacturing plant in Mexico, where labor is cheap. You see a lot of different component parts that are coming in from the United States. They get to the plant and then they get assembled in Mexico. Like labor intensive harness assembly. Then the software gets installed in the United States and so it's a very circuitous route. Having component parts cross the US Mexico border one, two, three or more times is

economical because of the North American Free Trade Agreement, which was signed in 1992. In nearby San Antonio, President George H.W. Bush and leaders of Mexico and Canada gathered for an initialing ceremony captured by C-SPAN. We are creating the largest, richest and most productive market in the entire world. Fast forward 30 plus years after NAFTA and then USMCA renegotiated under President Trump, San Antonio has become an anchor to an automakers corridor that runs from Dallas all the way to San Luis Potosi in central Mexico, almost a thousand miles. NAFTA was a big part of what's allowed our manufacturing ecosystem to grow.

Jenna Salceda-Harrera with the Greater SATX Regional Economic Partnership says now Greater San Antonio is a hub for advanced manufacturing. And the companies produce a diverse range of vehicles including SUVs, pickup trucks, heavy-duty trucks, buses. There's even a special name for the bi-national manufacturing ecosystem San Antonio is a part of. The Texas-Mexico Automotive Supercluster. It includes companies like Toyota, GM, Tesla, Kia, BMW, which depend on networks of suppliers in both countries that provide thousands of component parts, networks

that just might be too complex to unscramble. We can't undo 30 plus years of free trade overnight. Businesses have built their operations around the principles of free trade. And it's not just automakers, but an entire region's economy could be at stake. Just two and a half hours south, uncertainty looms large in Laredo, where component parts cross back and forth across the border constantly. IBC Bank's Jerry Schwebel says the auto sector is one of the drivers of Laredo's ascent to number one port in the US. That trade supports many local businesses.

Transportation company, the trucking company that moves those parts, the warehouse where you store those parts temporarily, you know, and pick them up. The customer broker who has to process that business. The USMCA trade agreement is up for review next year. In the meantime, if auto parts coming in from Mexico do end up facing tariffs, Mike Wall with S&P Global Mobility says, sure, some companies may take a closer look at their U.S. operations and ask, Is there some low-hanging fruit that can be brought back to the U.S. quote unquote cheaply

and quickly? But overall? It's incredibly difficult because the moment you start putting up new brick and mortar, that is a much longer term kind of either decision and or prospect to get it up and running. He says automakers are making business plans years into the future. One four year presidential term can only sway them so much. In Houston, I'm Elizabeth Troval, Per Marketplace. Hawaii was hit especially hard in the early days of the pandemic as everybody stayed home

and tourism came to a screeching halt. We started talking to Manu Powers right around then about what it meant for her business. She and her husband run SeaQuest Hawaii, which offers boat and snorkeling tours from Kona. And we called her the other day for an update and suffice it to say, it has been a long haul. I'm doing fine and Sequest is doing pretty good. And as well as can be expected, I suppose. So numbers at Sequest are down and those numbers reflect what's happening in the state. Numbers of visitors to the islands across the board are down. Over the winter the surf was huge and it just doesn't seem to stop which is

fantastic if you're a surfer and Kona is known for having you know, virtually no surf. The number of cancellations we've had to make are crazy and so I think that's why you can hear that laughter in my voice right now because we've never seen anything like this. It doesn't help that we're understaffed as we continue to be and have been since the pandemic. And so therefore even when we are capturing you know the visitors that are coming to the island we're still not able to run at full capacity. I'm tired of talking about this problem five years

later to be honest it's a legitimate argument to say you know why can't you find qualified workers? But I think that it's universal. There's hiring signs in every window of every business in the state really. Hawaii's always had, you know, a smaller job pool to work with. That hasn't changed but some of the things that have changed are cost of living, which has just gone through the roof. It's so expensive to rent a home here. If you don't have two jobs, you have two roommates. We know that we'll be okay because we do have this data set of 30 years under our belt where

we can kind of look back and say, okay, we've survived all of this, and that includes three tsunamis, a pandemic. So we're okay. Could it be easier? Absolutely. But we'll get back there again at some point. And then of course, another set of challenges will present themselves, but we'll tackle those when they come too. Manu Powers, co-owner of SeaQuest Hawaii, based in Kona.

This final note on the way out today, eggs, again, Denny's this time, an as yet unspecified surcharge depending on where you live. Our daily production team includes Andy Corbin, Nicholas Guion, Maria Hollenhorst, Iru Ekbanobi, Sarah Leeson, Sean McHenry and Sophia Terenzio. I'm Kyle Rizdal, we will see you tomorrow everybody. This is 8pm.