Morning Brew Daily - Economists Scrap Recession Forecasts & Amazon's Grocery Store Overhaul

Episode Date: August 3, 2023

Episode 117: Neal and Toby discuss Bank of America economists scrapping their recession forecast and what it could mean on a larger scale. The guys also get into why Amazon is overhauling their grocery stores and how drug makers are navigating the Adderall and Penicillin shortage. Neal shares his favorite numbers, including statistics that explain why married people are happier. Plus, the billion dollar sports memorabilia business and how NASA lost a space craft almost 13 billion lightyears away. Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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pwc.com slash U.S. slash brew AI. That's pwc.com slash us slash brew AI. Good morning Brew Daily Show. I'm Neil Fryman. And I'm Toby Howe. On today's pod, we are going to say the words soft landing so many times they will lose all meaning.

And I'm going to reveal the single biggest differentiator between happy and unhappy people. Then Amazon is trying to freshen up its grocery business by making its stores a little less soulless. Plus, if it feels like it's been tough to fill your prescriptions lately. You're not alone. There is a massive adderall shortage going on right now that

just won't go away. It's Thursday, August 3rd. Let's ride. All right, Neil, so on yesterday's show, we kind of offhandedly mentioned this idea of a Morning Brew Daily Book Club, and holy moly, the people loved it. We got tons of emails, tons of YouTube comments and some tweets, even, or whatever you want to call them these days. So are we doing this thing, Neil? Well, I don't want to over-promise and under deliver, but I think that this seems like a good idea. I mean, we like to read, you know, just like five pages before we go to bed every night. So it would be really fun to do a book club with everyone. I was thinking of a particular book we could start off with.

Michael Lewis is coming out with his big SBF book in the fall. Maybe we could get him to get him on the phone and talk to him, do a little interview, and I'll read that because he randomly embedded with SBF right when the whole FDX thing collapse. So this is going to be like the most anticipated book of the year, at least in the business circle. I love Michael Lewis books, too. What's your favorite?

I've read Big Short, Blindside Moneyball. I've done the greatest hits for sure. So Michael Lewis, if you're listening, yeah, jump off the line. Moneyball was literally, it changed an entire industry. Absolutely. I mean, I guess we'll put out a call, though, too. We don't want to just monopolize the book choice. So if you do have an idea for a book,

shoot us an email at Morningbrood. Oh, really? I was going to pull a day. dictatorship. Hey, I mean, we can do it. We can do it, Neil. We can do whatever we want. All right. To start things off today, I want to play a little how it started, how it's going. So here's how it started last year. J.P. Morgan's CEO, Jamie Diamond, warned of a hurricane about to hit the U.S. economy, and Bloomberg's economic models predicted a 100% chance of a recession within the next year. How's it going? Yesterday, Bank of America became the first major bank to backpedal on its prediction of a recession, saying that the The most likely outcome for the U.S. economy is a soft landing.

Just for a quick refresher, because we're going to be saying soft landing a lot. That is just economic speak for the Fed bringing inflation back to normal through interest rates without sending the economy into reverse. Bank of America's backpedaling comes one week after the Fed's economists also did a U-turn. They said they didn't see the U.S. economy entering recession as they predicted previously. So, with inflation on its way down and growth still flowing, a rising tide of economy, do not expect what has been called the most anticipated recession in American history to ever materialize. I know. And one of my favorite kind of litmus tests of where people are at in terms of

approaching the soft landing is how many times it's mentioned on earnings calls. And the phrase soft landing was mentioned 97% more this cycle than the last one. So this earning cycle than the previous one. So clearly companies are also looking at this. And I think it's like one of those things where you don't want to jinx it, so they didn't say it a ton last quarter, but then this time around, they're like, okay, we feel a little more confident about it. So yeah, they were saying 97% more soft landings made it out. And they're right. A few of those was the PNC CEO. It's a huge bank. He goes, I think the soft landing feels right. Welles Fargo CEO said the economy continues to perform better than many expected. Chipotle CEO, who's got, you know, his eye right on the ball with

how people are spending, said we're not seeing any weakness, especially in the lower income consumer who might pull back in the, you know, in the face of a recession, if anything, they've continued to improve. So you're saying, you're seeing CEOs all over the spectrum and a wide variety of industries saying people are still spending. And the big reason why, there was this big Wall Street Journal about like, what is, why are we having a soft landing? Like, what is the underlying factors? And it's because companies just aren't laying off that many people or that many, or anybody at all. And people are still getting their paychecks. the fact that there hasn't been mass layoffs, that's a real indicator of a recession.

And that just hasn't happened. I know we had a bunch of tech layoffs earlier this year, but in the grand scheme of things, companies have been holding onto their workers, everyone's getting a paycheck, and people continue to spend. Yeah, super strong labor market. Also, unfortunately, though, we have seen this song and dance before. So the New York Times kind of pointed out all the previous times where soft landing became a really popular term, and we might have jumped the gun a little bit.

And that was before recessions in 1990, 2000, and even 2008. So we've done this before where a lot of people are saying, we're threading the needle, baby. Like we're soft landing. And then like things go haywire because a lot of people are saying that rate hikes are kind of like this long release medicine where you don't see the immediate effects right away. It's kind of like drawn out over time. So even though like we've kind of navigated this rate hike cycle much better than we anticipated,

maybe a few months or a few weeks down the line, we're going to see a much different story. What that reminded me of is what happened with SVB. Because out of nowhere, this bank starts imploding and cause this cascade of problems across other banks. And that was because, I mean, obviously mismanagement, but the rate hikes kind of made a lot of their underlying assets underwater. So that's like one of the mechanisms by which rate hikes can kind of appear out of nowhere

and cause a lot of economic mayhem. And who knows if, you know, there are other areas of the economy where higher interest rates might cause something to snap real quick. It's kind of like falling in love, Neil, where it happens slowly and then all at once. But let's hope that actually predictions of a soft landing might come to pass. It would be maybe the second soft landing that the Fed has engineered. The most popularly cited one was in 1994 and 1995 under former Fed chair Alan Greenspan, who successfully kind of jacked up rates to around 6%. and the economy did not backslide into a recession, though it did cause the bankruptcy of Orange County, California, which I didn't know went bankrupt. Either did. Hi. Let's party like it's 1994, I guess, Neil. All right, for our next story, Amazon is giving its grocery business a little makeover, and hopefully it's from someone other than our hair and makeup team. It's a two-part makeover tackling both its online and brick-and-mortar presence.

Amazon is known as the Everything Store, which has been a blessing and a curse for people who want to order gross. from them online. To help streamline things, Amazon is combining the shopping carts from AmazonFresh, Amazon.com, and Whole Foods into one to eliminate some headaches. Plus, Amazon Fresh delivery will now be available for non-prime members who don't want to pay that $150 yearly free. And in terms of brick and mortar, they're moving away from the tech focus cashier-list checkouts to add some more self-checkout lanes. Plus, how about this? They're adding crispy cream donuts and coffee shops to the front of some Amazon fresh stores to make them feel a little more homie and approachable.

Got to get back to the basics. Exactly. So major changes are going down the grocery aisle of Amazon, Neil. Do we think this is going to help them snag a bigger foothold in the giant $1.5 trillion grocery industry? It's just crazy because I remember in 2017 when Amazon bought Whole Foods for $13 billion, every other grocery stock just absolutely plummeted. And you had everyone, every annis was like, all right, well, this is the.

the end of every other grocery store because Amazon is just at another level. It can bring all of this tech to bear. Whole Foods is a growing brand. And whenever Amazon goes into any industry, they just completely demolish everyone else. And it has not worked out for whatever reason. Maybe groceries are just, grocery store is just like immune to tech disruption. And I guess my question is like, do we need a higher tech grocery store experience? Or just did Amazon fail to execute on what it's vision one. I think, yeah, I think its vision got a little bit fractured along the way, because I just want to take you through what a potential grocery shopping experience would be like if you shop online at Amazon. So maybe you want some steak from dinner. You can order that

from whole foods. But then maybe you want to pair it with some less expensive, less organic, shredded lettuce. You could order that from Amazon fresh. And if you wanted some normal brand just Cheerios as a late night snack, well, that comes from Amazon.com. So by the end of the ordeal, you'd be checking out in three separate carts, receiving three separate deliveries. So again, that's why I was saying it was falling victim to its label as the everything store where, yes, technically you'd get everything from it,

but it was just a nightmare of a process. Which is why they're trying to condense it into one shopping cart, one checkout experience where you can do top and bottom all your groceries. So that's the online factor. But the brick and mortar factor is they have 44 Amazon fresh stores. And I've never been in one. I've been to one.

It's an interesting, because they're big. thing, their big innovation was supposed to be like there's cameras everywhere. You just put it in your shopping cart and you walk out and it charges your prime account. And yeah, it's like kind of cool. But the problem with these stores is that a lot of people have been complaining they're soulless. They are just like these concrete boxes. And I've been in one and yeah, it just doesn't have the right feel. So they're trying to add these crispy cream donut shops to have that like nice smell of fresh donuts, fresh coffee, which again, it feels like not an important thing. But like you want to have that feel when you're shopping for groceries. Yeah, you have a connection with your local

grocery store, and I want to take us through the big major grocery market right now. So who's the top dog is Walmart with 22% market share? Then you got Kroger at 10% Costco, Albertsons, and Amazon Whole Foods is down at number five with just 4.4% of the market. And then Publix. Let's go. Toby, what's going on with public? It's regional. It's not national. It's still kind of confined to the southeast a little bit, but. But I think it's, it speaks to. the loyalty that people have with their local supermarket. I mean, I'm going to shout out Big Y, Western Mass, Wilberham, the pride of Wilberham Mass. Big Y, but I don't know. Yeah, maybe you don't want a solace experience. Maybe you don't need a necessarily high-tech

experience at your grocery store. I don't think getting, like, checked out at your grocery store is not necessarily a huge pain point that Amazon trying to solve. It's much better to have that like homie neighborhood feel. Or like, yeah, like you were saying earlier before the show, like the number one thing I care about in a grocery store is knowing where things. are and being able to find them quickly. So it's that familiarity. Yeah, for sure. All right, Neil, let's move on. When preparing last night for this next story, I felt a little distracted, a little unfocused. That's because there is a nationwide adderall shortage that has been going on since at least last year. Labor shortages at Teva pharmaceuticals, the largest producer of Adderall,

has constrained supply, which has left millions of people with ADHD, relying on the old-fashioned method of getting stuff done, procrastination and a little bit of tears. Both the FDA and the DEA have called on drug makers this week to work on boosting manufacturing of prescription stimulants to help alleviate these shortages. And they better figure it out fast because Adderall demand is off the charts. 11.3 million prescriptions were filled in Q3 last year, which was the highest ever. Part of the issue is that Adderall is a controlled substance because people can get addicted and abuse it. So the DEA sets quotas that only allow companies to manufacture a certain amount each year. But companies have been complaining about those quotas. The DEA says, no,

they're plenty high enough. It's become this big finger-pointing mess with people with ADHD, kind of caught in the middle, Neil. Yeah, I mean, I've heard stories of people here in New York City that have had to travel to Pennsylvania to fill their prescriptions. It's like been a severe shortage. And it reminds me of a plain delay because it first is, you know, it's 30, minutes to start and then it's an hour and then it's an hour and a half and then it's two hours and you're like well I'm just going to be here all night right so because this thing they first warned of a of an atterall shortage back in october 22 yeah and what i don't what is it august like nine months nine ten months later it's still going on and i was just frankly very surprised to see these headlines

still happening and there's a huge cascading effect across a bunch of the other adderall uh competitors like Vivance, Ritalin, Cisterta, because everyone was shifting from Adderall because they couldn't get Adderall. They had to go get these competitor drugs.

And then all of those drugs started getting in short supply as well. So this is a very big issue for people who need these to kind of stay focused. And also, it's treated for narcolepsy. Yeah, I didn't know that, by the way. Yeah.

I might need that too because after the show in the morning, I always end up going to sleep. But yeah, drug shortages in general are at a nine-year high with 309 medicines in short supply right now. and a lot of it does come from a domino effect, as you mentioned. So there's a shortage of penicillin right now, and that started because doctors started

prescribing bicillin, which is a brand name for penicillin, for other things like strep throat. And that was due to another shortage from amoxicillin, which is another antibiotic. So it's like this domino effect where like one drug gets short, and then they started overprescribing another drug and then that drug get short and they start over prescribing another drug. So it really is like this delicate balance that if it gets, it's kind of like the planes. Yeah, if it gets thrown out of whack, then it all, it all goes downhill. It's a very delicate supply chain that relies a lot on imported materials from abroad. And it's just, yeah, it's very, very complex to make these medicines. And a lot, you know, there's only a few manufacturing plants that actually

make a particular treatment. So if, you know, bad weather hits a particular plan or something goes awry with the manufacturing process or there's a labor shortage, which was in the case of Teva, then there are huge effects across the spectrum because there's just not that many places that know how to make these things. You know what it also reminds me of is the Saracha shortage that we talked about a few months ago, where there's one place that produces the chilies that are used to make saratia. So it is, and if that's hit with drought or something, then you're totally right. It throws the whole supply chain out of whack. All right, before we jump into our next story, Neil. We're going to take a quick break.

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ensuring millions of unique small businesses when it comes to your small business insurance. Thank you. One size, absolutely, does not fit all. Get a quote or find an agent today at thehartford.com slash small business. All right, welcome back to Neal's numbers, the segment where I share three stats

from the week's news that will make your brain melt into liquefied wisdom. Let's return to one of our subjects from yesterday's pod, Uber, because its CEO had a real Lucille Bluth. It's one banana, Michael. What could it cost? $10 moment.

It happened when a wired editor took a 2.95-mile Uber ride in New York City to meet CEO Dara Khosur Shahi. He asked the Uber boss to estimate how much his ride cost. And Uber's CEO said, $20. The real answer was $51.69, including a driver tip. The response from the CEO, oh my God, wow. Casra Shahi said it must be due to surge pricing, but the editor was like, it's 10 a.m. on a Sunday, Wednesday. It's not like the president's in town. So what does this episode show that Uber CEO isn't exactly super in touch with how much rides cost here in New York City, but also just how much ride-hailing prices have risen in recent years. The cost of rides for services like Uber and Lyft have essentially doubled from 2018 to 2021. And for Uber and Lyft in New York, they jumped 50%. I guess that's why Uber is. is profitable now. I know. It truly is. That's what I was thinking the whole time. It's like, it's not a coincidence that prices have doubled over the last couple of years. And then Uber

finally had its first profitable quarter. I mean, anyone who lives here is like rolling its eyes at Uber CEO because like, yeah, I mean, we take an Uber into work every morning and it's 4 a.m. And it still is costing like 15 or 20 bucks. More than that for me. I know. So it is just ridiculous these days. But I guess if you want to be profitable, like get someone hooked on your on your product and then raise prices. Well, I remember the good old days when Uber and Lyft were fighting for market share and I was getting those emails. You have five free rides all the time. That was the millennial lifestyle subsidy of the boom years of 2017 and 2018. All right. For our second number, let's head to the NFL, which officially gets underway today. Well, preseason anyway, in the Hall of Fame game.

In terms of storylines for this season, one thing stands out for us. economics nerds, the collapse of the running back market. Running backs, who used to be highly coveted assets for teams, have essentially turned into commodities like soy, wheat, and corn. And because running backs have found to be largely interchangeable with one another, demand for an individual player's labor has completely plummeted and so have their salaries. Here's a stat that highlights the running back recession. Together, just two quarterbacks, Justin Herbert and Lamar Jackson, will make more this season than every projected started starting NFL running back combined.

It's crazy. It really is just such, it shows where the league was and where the league is going, which is just way more pass heavy. So you're totally right. Like it doesn't value the services of a running back as much anymore. And like the prices have reflected that. I feel so bad for running back still because it's the most physically grueling, physically demanding position and they get paid pennies on the dollar.

Kickers are getting paid more on average than running back season. Maybe they're more valuable. I know. Maybe the better ones, like, it's all about your replacement value. Like, how much are you better than your competitor who you could sign? I could just sign a younger running back for cheaper and not really lose any of my competitive edge as a football team. But then we know that markets have, you know, have been known to correct themselves.

Yeah. So, like, what's the next step here? Is the running back market going to come online? Is the, you know, the nature of the NFL playmaking going to change? Yeah, that's what they need. I think the market will rebound in some fashion. but it will be really interesting to see. All right, final number.

There's a new paper out from Sam Peltzman at the University of Chicago that examines what makes us happy. And in surveys through 2018, he found one thing by far is most influential in separating the happy from the unhappy in America. I'll give our listeners a couple seconds to think about this, and you can also just pause the tape

for however long you'd like and think. Well, the answer is marriage. people who are married are at least 30 points happier than unmarried people. Happiness in general in the U.S. has declined significantly over the past few decades, and Peltzman says that fewer people getting married is a major contributor to that decline. It's so interesting, but I guess it is just better to navigate life with someone. We were kind of joking before the show. We know some married couples, and you're like, those are the happiest people in America?

Like, that's kind of crazy. What are the rest of us doing? But yeah, I did love seeing like that that's the biggest delta between happy and non-happy people. Some of the commentary on this. Some of the commentary on this was, does marriage make you happy or happier people most likely to get married? Because sad people, no one wants to be with them. So it's so true. Yeah.

But yeah, I mean, it can't hurt. It sounds like that. If you want to put a ring on it. All right, Neil. Thank you for those wonderful numbers, as always. but I actually have a number of my own that I want to talk about for our next story, and that is 26.1 billion. That's the estimated value of the global sports memorabilia market as of 2021.

That number comes from the consulting group Market Decipher and was in an article we stumbled across yesterday in a publication called The Rob Report, which went super deep on the ins and outs of the memorabilia market. It is nuts, Neil. We're talking a game-worned Maradonna jersey selling for 9. million. Jordan's flu game sneakers selling for 1.4 million and even a Derek Jeter signed Yankees stadium seat for almost $2,000. This report was packed with so many anecdotes and weird

facts about the sheer size and craziness of the sports memorabilia market. What stood out to you in particular? What stood out to me is that there are two very different categories of collectors here. You have to go after, there's one category which is autographed cards and tickets and the other is used clothing and equipment. And what gives each of those categories value is so, and status is so different. So for the cards and tickets, it has to be super pristine mint condition, never been touched, no bends or folds. And then for the used clothing or equipment, it's how dirty can I make this?

I can't touch this up at all from its original. More blood, the better, more sweat, the better. So the fact that there are these two super popular categories with such different markers of value, it was really interesting to me. I thought that was very interesting as well. What's it out to me is actually they were looking at where's the growth opportunities in sports collection right now. And a lot of people said it's in the women's game because there's basically a non-existent

like sports collectible market for women's sports. And so there's actually scarcity there, whereas all these other markets are a little more saturated and becoming even more saturated. So like, yeah, maybe like it's an Alex Morgan signed jersey or a game orange jersey or something like that because yeah right now the market is 99% the collectible market is 99% male which is just wild because a lot of people just like gravitate towards this if if you're a guy but so a lot of analysts were saying like all right listen the women's market is where like the untapped the the real growth is is lying this is an industry in hyper growth mode and it's one that started that really

picked up during COVID and hasn't let up even if people can leave their house now the same report predicted that the size of the sports memorabilia industry will reach 227 billion by 2032. That... Right, and what is it now? It says it's 26 billion now. So that's 10xing, yeah. That's 10xing

over 10 years, which I don't... I mean, I guess it's possible, but... I don't know how they arrived at that number. We need the women to win the World Cup again, so Alex Morgan Jersey just becomes a million dollars. All right, I want to wrap up today with a little lost and found. Earlier this week, NASA heard a sound known

is a heartbeat signal from Voyager 2 that it had lost contact with two weeks ago, indicating that the 46-year-old spacecraft is alive and well. Look, I don't blame NASA for losing this thing at all. It's traveling in deep space 12.3 billion miles from Earth, dodging stars at a velocity of 34,000 miles per hour. Meanwhile, I've gone through 12 pairs of earbuds in the last three months. Still, how it lost contact is a little embarrassing. Some intern, JK, it was probably not. not an intern, gave a wrong command that tilted Voyager 2's antenna just two degrees off kilter, which was enough to sever contact with ground control. But now that NASA knows that Voyager 2 is still out there somewhere,

it's going to try to send a command that gets its antenna pointed back in the right direction. This made me so sad for some reason. Whenever I think about like Voyager 1 and Voyager 2 all the way out in space, just like hurtling through the darkness, and then to think that we lost contact with it, it literally made me, like, emotional because, like, these things have been just plugging around for so many years, and, like, I don't want them just be out there by themselves. I don't know if anyone feels that sort of kinship towards a space craft, but I certainly...

I think everyone was just beating up on this command thing, but I don't blame them. This is literally rocket science. I know. But what I was thinking about was they... I didn't realize they launched Voyager 1 and Voyager 2 at the same time in 1977. So I don't know who got Voyager 1 and who got Voyager 2. Yeah, that is interesting. interesting. Voyager 1 is further away. It's 15 billion. But if they launch them at the same time,

it's like how to, I feel like Voyager 2 is a little chip on his shoulder. It's a bit of more of a problem child too. Voyager 1, like they've kept contact with and like hasn't been a problem. But Voyager 2, they've started to shut down some instruments can serve a little power to extend their mission. So yeah, there's always there's always a problem child in any, in any duo. Apparently it's carrying stuff on board in case aliens intercept it. It's got a message in a bottle. It's got a track of natural sounds from Earth. Yeah. It's got saying hello in 55 different languages.

Which is crazy because aliens are already here, right? So why do we even need them to find a space shuttle? So apparently it only has three years left to live anyway. Like all of it's, it's just going to shut down. But I say it should try to get married so those last three years are a little happier. I was going to say it just crash land into Pluto, go out in a blaze of glory. There you go. Let's wrap it up there.

Hope everyone has a wonderful Thursday. if you want to write in and let us know your favorite grocery store, your favorite local grocery store. Our email is MorningBrewdaily at MorningBrew.com, especially if it's Big Why. Emily Milliron is our editor and producer. Samantha Vela's and Raymond Lue are associate producers. Yuchinawa Ogu is our technical director. Billy Minino is on audio. We have lost all contact with hair and makeup. Devin Emery is our chief content officer and our show's a production of Morning Brew. Great show today, Neil. Let's run it back tomorrow. All.

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