Planet Money - Grocery prices, credit card debit, and your 401K (Two Indicators)

Episode Date: April 17, 2024

What's going on with consumers? This is one of the trickiest puzzles of this weird economic moment we're in. We've covered a version of this before under the term "vibecession," but it's safe to say, the struggle is in fact real. It is not just in our heads. Sure, sure, some data is looking great. But not all of it. What's interesting, is exactly why the bad feels so much worse than the good feels good. Today on the show, we look into a few theories on why feelings are just not matching up with data. We'll break down some numbers and how to think about them. Then we look at grocery prices in particular, and an effort to combat unfair pricing using a mostly forgotten 1930's law. Will it actually help? Today's episode is adapted from episodes for Planet Money's daily show, The Indicator. Subscribe here. Help support Planet Money and get bonus episodes by subscribing to Planet Money+ in Apple Podcasts or at plus.npr.org/planetmoney.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

This message comes from NPR sponsor Elastic. Over 50% of Fortune 500 companies use Elastic to help them make insightful and impactful decisions at speed with search AI, taking your data into the future. Learn how at searchpowered.elastic.co. This is Planet Money from NPR. Adrian, I don't know how often you frequent your local supermarket, but grocery prices are not okay right now. It's like over six bucks for a family-sized box of Cheez-Its, which, you know, that's

my personal barometer for inflation. Oh my gosh, that is a barometer of inflation that I understand. Though, truthfully, I'm a cheese nips person more than a cheese its person. I think they just taste less healthy. Yeah, that's important. The struggle is real though. Grocery prices have gone up 25% since January 2020. And that's how pace the increase in inflation overall.

And grocery prices hold a kind of special place in our economics brains. We feel the pain of inflation every single time we pay those new higher prices week in, week out, and pretty much everyone shops. Yeah and just like contrast that with some of the positive data points right now. Like rising wages. If you get a cost of living pay adjustment maybe it feels great when you first hear about it but then it gets direct deposited in your bank account and you kind of stop feeling it week in and week out. But also, it is tough out there.

And if it feels that way, it kind of just is that way. Hello and welcome to Planet Money. I'm Wayland Wong. And I'm Adrian Ma. Today on the show, one of the toughest puzzles of this weird economic moment we're in, how consumers are doing, and a few theories on why feelings are just not matching up with data. Then we look at grocery prices in particular, and an effort right now to combat unfair pricing

using a mostly forgotten 1930s law. It's two of our favorite stories from our daily show, The Indicator, after this. Favorite stories from our daily show, The Indicator, after this. Black perspectives haven't always been centered in the telling of America's story. Now we're taking center stage. Introducing NPR's Black Stories, Black Truths, a collection of black-led stories from NPR's podcasts. Search NPR Black Stories, Black Truths wherever you get your podcasts. It's a high stakes election year, so it's not enough to just follow along. You need

to understand what's happening so you are fully informed come November. Every weekday on the NPR Politics Podcast, our political reporters break down important stories and backstories from the campaign trail so you understand why it matters to you. Listen to the NPR Politics Podcast wherever you get your podcasts. Today, we're looking at three signs that show where consumers may be struggling after years of high inflation plus the end of pandemic era federal support. And before we get to those three signs, it might be helpful to remember how big a financial cushion we got in those early pandemic years. Economist Peter Ganong is a professor at the University of Chicago. He studies how households

are doing economically. And he says the median household saw its bank account balance go up by a whopping 50 to 60 percent at the start of the pandemic. There was a really big increase in people's bank account balances, both because income went up and because they pulled back on spending. The next three years has basically been gradually working through that backlog and gradually returning to normal. In other words, people are spending down those fattened bank account balances.

At the same time, the last couple of years of high inflation have eroded their purchasing power, so that money isn't going as far. And Peter says the increase in people's real income is slowing down. That's income with inflation taken into account. It sort of seems just by accounting that as income growth slows down,

one of two things has to happen. Either spending growth has to slow down or we will see people draw down their savings and increase their borrowing in various ways. And credit card balances, in fact, have been climbing and climbing. The New York Fed tracks household debt and it found in the fourth quarter of 2023, credit card balances hit a record $1.1 trillion. Now, Peter says rising credit card balances aren't necessarily a bad sign.

They could point to optimism, you know, people spending more because they're expecting their income to go up. Yeah, but it is a worrying sign if people can't pay off their credit cards. And that brings up our first area where consumers are feeling the pinch, credit card delinquency rates. The New York Fed says that in the fourth quarter of 2023, more than 6 percent of credit card balances fell into what's called serious delinquency. That means they're at least 90 days behind. Delinquency rates for credit cards are back on the rise after falling during the early part of the pandemic. As measured by credit cards, people's health got a lot better in terms of fewer people being behind on their credit card payments. And now the share that are behind in the credit card payments is going back up and it's actually higher now than it was pre-pandemic.

And so, yeah, that does seem like a piece of bad news to me. The Federal Reserve's interest rate hikes in 2022 and 2023 led to higher interest rates across the economy for everything from mortgages to auto loans. And for credit cards, the typical rate went from around 15% at the start of the pandemic to just over 21%. I mean, that is a 42% increase in credit card rates. It's a huge jump. And that's made it even harder for people with delinquent accounts to catch up.

Researchers at the New York Fed said their data on credit card delinquencies is a signal of increased financial distress, especially for younger and lower income households. And it's among lower income households where we find our second sign that consumers are feeling the pinch. That sign is falling sales at Family Dollar. Family Dollar's parent company recently released its quarterly earnings report. Those are the official numbers that publicly traded companies report to shareholders and securities regulators. And the company said that same store sales fell 1% in the latest quarter from a year earlier. In that same report, it named a culprit, a reduction

in SNAP benefits, formerly known as food stamps. During the pandemic, SNAP recipients got a temporary boost in benefits. This extra money stopped in 2023, though. According to one estimate, households in some states lost nearly $100 a month in food benefits. Others lost upwards of $250 a month. Karen Gardner is a senior policy associate at the Center for Science and the Public Interest. It's a consumer advocacy organization focused on healthy food.

Folks who already have limited incomes and limited access to healthy food, when budgets are even tighter, they are making really hard choices about what to feed their families. Karen worked on a 2022 survey of SNAP recipients and low-income consumers who live near dollar stores. Most of the people who participated said they shopped at least once a month at Dollar General, Dollar Tree, or Family Dollar. And the survey showed also that most of these shoppers were buying food at dollar stores to stretch their budgets at the end of the month or when SN snap benefits were running low. But now their options might be limited. Family

Dollar has announced it's closing 600 stores this year. Its parent company owns Dollar Tree as well and another 400 Family Dollar and Dollar Tree stores will be shutting over the next few years as their leases expire. That's 1,000 stores that are going away. And that could put further pressure on shoppers that don't have other options for food. Karen says it could mean traveling further to shop or needing to use food banks. In some rural communities, the dollar store is the closest and only grocer for a while. I've been wondering a lot about where those dollar stores will be and hoping that we'll

learn more soon. So to recap, so far we've talked about credit card delinquencies and dollar store sales. Two signs consumers are feeling economic pressure as pandemic savings run low. Our third and last indicator has to do with a specific kind of savings, retirement savings. And this sign is maybe not as clear cut as the others we've talked about, but it definitely caught our eye. Vanguard recently reported that 3.6% of its customers with retirement plans initiated a hardship withdrawal in 2023.

That means they asked to take money out of the retirement accounts to cover an immediate need like a medical expense or to prevent eviction or foreclosure. And it's worth pointing out this 3.6 figure is a record. It's up from 2.8% in 2022. And Vanguard says the increasing rate of hardship withdrawals could signal financial stress. But here's where it gets a little complicated. Economist Peter Ganong says there's been some important changes to 401k plans in the last several years. More employers are now automatically enrolling their workers in 401k plans. That means lower-income workers now have this new kind of financial cushion. It's supposed to be used for retirement, of course, but it can also be tapped for unexpected crunch times.

Meanwhile, Congress has made requesting hardship withdrawals easier for customers. So when it comes to these increased hardship withdrawals, Peter says more data is needed to know how worried we should really be. It makes it harder to interpret this as like an indication of stress unless you account for all these sort of institutional changes that are going on in the background. So we've covered credit card delinquencies, dollar store sales, and hardship withdrawals from retirement accounts. All these add up to a bigger picture of how some consumers are feeling the pinch right now, especially those people at the margins.

After the break, the big emotional elephant in the room when it comes to bad vibes about the economy, inflation at the grocery store, and a Biden administration plan to pull a 1930s-era antitrust law out of retirement to fight unfair pricing. We'll ask, is this actually good for consumers? This message comes from NPR sponsor Organic Valley, a co-op of small organic family farms. Dairy farmer Tyler Webb shares how he and his family work with nature to manage challenges on the farm.

When I think of land stewardship, it's taking the opportunity to like slowly walk through your farm. To listen. To try to observe subtle patterns. When you're not reliant upon pesticides and herbicides and things to navigate your way through farming, you're looking for ways to work in harmony with our ecosystem. From a pesticide perspective, flies can be a concern.

And so a lot of this bird habitat we have on the farm is because we're looking for tree swallows. They just cruise around all day long and eat flies. They come back every year in April and they put a big dent on the fly population during that period. Discover organic valley dairy at ov.coop.org. at ov.coop.com. What does it mean to be Black in America? In NPR's Black Stories, Black Truths, a collection of stories as varied, nuanced, and dynamic as the Black experience, you'll hear it means everything.

Search NPR Black Stories, Black Truths, wherever you get your podcasts. Maybe it's time to rethink the resume. So traditionally you would say like stand out, have like two beautiful columns and colors, make it visually appealing, like do none of that anymore. What works when humans review a resume may not work as well when AI tools are involved. In our latest bonus episode, a conversation with Hilke Schallman, author of a new book on the promise and perils of AI and hiring. You can check that out now if you're a

Planet Money Plus listener. If that's you, thanks. If that's not you, it could be. You get bonus content, sponsor-free listening, and support our work. Just go to plus.npr.org. The largest grocery retailer in the U.S. is Walmart. Now according to several industry estimates, Walmart's market share is around 25%. But back in the 1930s, decades before Walmart was even founded, another grocery chain dominated the industry called the Great Atlantic and Pacific Tea Company, or just A&P.

Timothy Richards is an economist at Arizona State University. He studies agriculture and food, and he says A&P was basically the Walmart of the 1930s. A&P at the time was going coast to coast. And there was a fear that it was destroying these little mom and pop businesses. Yeah, large companies like A&P could leverage their size

to get more favorable pricing from their grocery suppliers. They could then charge lower prices than the mom and pop grocery stores. And this was putting small businesses in jeopardy during the Great Depression. And so in 1936, Congress passed the Robinson Patent Act. It was an antitrust law focused on combating price discrimination at the wholesale level. Price discrimination is when a seller charges different pricing for the same good or service.

So they passed the Robinson Patent Act essentially to prevent suppliers from charging different prices to ANP or other big retailers than they do to small businesses. So the Robinson-Patman Act basically says that you have to charge the same price for goods of like kind and quality. And the Robinson-Patman Act wasn't just for groceries. Over the years, it's been used in court cases involving products like cigarettes and trucks. The Federal Trade Commission brought hundreds of cases under the law in the 1960s. But then it fizzled out.

Timothy says one major reason why is that there are some pretty big ways to get around the Robinson-Patman Act. Yeah, so for example, suppliers are allowed to give discounts for somebody purchasing a lot of a good. Volume discounts are allowed. Also, a supplier is allowed to charge a lower price if they can prove they're doing it to compete with another supplier. So let's say it can point to a competitor that's selling the same product for a lower

price. And so the law just didn't seem very effective in practice. Then in 2007, a bipartisan federal commission recommended repealing the Robinson-Patman Act. The commission said that when the law was used, it protected small businesses at the expense of larger, more efficient companies, and therefore prices likely went up for consumers. The law wasn't repealed, but it was essentially shelved. It's such a dead horse of a piece of legislation. So now trying to revive different sections of it, that's why it's so controversial, because it literally was not being used by the government.

And yet one group trying to resuscitate this supposedly dead horse piece of legislation is the National Grocers Association. It's a trade group representing privately owned supermarkets. Randy Arseneau is a member of that trade group and also CEO of Affiliated Foods, which is a grocery wholesaler based in Texas. He distributes groceries to hundreds of independent retailers in eight states. In the last 25 years,

it has continually progressively got worse as Walmart got bigger and the Kroger's of the world got bigger the inability for us to be competitive on cost has gotten worse. Randy's company is a middleman in the grocery supply chain. It buys you know truckloads of breakfast cereal and cake mix for manufacturers then it marks up those items and sells them to grocery stores. The stores in turn mark up their breakfast cereal and cake mix a little more and sell them to shoppers. But Walmart and other large chains don't have to buy their breakfast cereal and

their cake mix from wholesalers like Randy's company. They can negotiate directly with manufacturers. And Randy says the problem is the prices he pays at wholesale are higher than what Walmart charges their customers. Take Betty Crocker cake mix, for example, right? Our cost is a dollar 65 wholesale. Walmart's are a dollar 38 on the shelf. So we're higher before we even touch the box. You know, it's basically put me in a fight with one hand behind my back and expecting me to win the battle. It's almost impossible.

Of course, the reason Walmart's able to get such low prices from manufacturers is because it's so big and buys so much. But smaller grocers say the Wal-Marts of the world, you know, they're getting too big of a discount. We can buy in the same quantity, which is typically a truckload. Ted Balastriori is the third generation owner of Sendix Food Market in Wisconsin. He operates 18 stores in the Milwaukee area, and he buys products through a wholesaler that's cooperatively owned by the grocery stores themselves.

Ted says that by pooling their purchasing power, he and his fellow grocers can match the buying muscle of a mega retailer. There's no difference between a manufacturer sending a truckload to a national chain versus our co-op warehouse. Ted is also part of the National Grocers Association, and the trade group may find a sympathetic ear at the FTC. Cheralina Khan said in 2022 that the agency is taking a fresh look at Robinson-Patman. But whether reviving the law would result in lower grocery prices for a wholesaler like Randy Arseneau and therefore lower prices on store shelves, that is where things get a little complicated.

In an ideal world where the Robinson-Patman Act gets enforced, is it that your prices would get lower or would it be that at Walmart those prices would get higher? Well I think that we converge in the middle somewhere because the manufacturer does have to make money. The endgame is the opportunity to be the same and so our costs would go down and Walmart's costs you know would go up. mean, so like when you think about all the people who shop at a Walmart or a Kroger, they could be paying more for groceries. Potentially. Yeah. And prices at a neighborhood grocery store could go down. But still, higher prices at the places where most of our grocery dollars go is a very

tough sell. Economist Timothy Richards says the debate over the Robinson-Patman Act kind of pits fairness against efficiency. Like, it might not feel fair that a mega retailer can get preferential treatment from suppliers, but it is efficient. And the basic philosophy of American antitrust law, Timothy says, is protecting competition and efficiency. As soon as we get into questions of fairness, that's a political decision, right?

And if politicians want to start rewriting antitrust laws to be fair, that's another kettle of fish. Fundamentally, the way that antitrust laws are designed, it's always what's best in the mind of the consumer, right? And that is variety, that is assortment, that is cheap prices. Everything else is nuance above that. Consumers want low prices, full stop. But speaking of politics, a couple weeks ago, 15 Democratic lawmakers and one independent

who caucuses with them sent a letter to the FTC asking the agency to revive the Robinson Patent Act. So cheaper cheese crackers in a possible future? Well, it might depend on where you buy them. These stories from Planet Money's short daily podcast, The Indicator, were originally produced by Cooper Katz McKim. They were engineered by co-Takatsuki Chernovin and Nisha Hines. They were fact-checked by C.R.

Juarez. Kakin Kenan edits the indicator. I'm Wayland Wong. And I'm Adrian Ma. This is NPR. Thanks for listening. This message comes from NPR sponsor Organic Valley, a co-op of small organic family farms. Dairy farmer Tyler Webb shares how he and his family

work with nature to manage challenges on the farm. When I think of land stewardship, it's taking the opportunity to like slowly walk through your farm. To listen. To try to observe subtle patterns. When you're not reliant upon pesticides and herbicides and things to navigate your way through farming, you're looking for ways to work in harmony with our ecosystem.

From a pesticide perspective, you know, flies can be a concern, and so a lot of this bird habitat we have on the farm is because we're looking for tree swallows. They just cruise around all day long and eat flies. They come back every year in April and they put a big dent on the fly population during that period. Discover organic valley dairy at ov.coop.org. Support for this podcast and the following message come from Dignity Memorial. sourced.