Consumer sentiment slumps

This episode delves into the current state of consumer sentiment, highlighting a growing pessimism despite positive economic indicators like low unemployment and rising stock markets.

1. Consumer pessimism persists despite low unemployment and a buoyant stock market, primarily due to fears of sustained inflation.
2. Essential costs, particularly for housing and food, are expected to keep rising, outpacing wage increases.
3. Consumers are increasingly turning to credit cards to maintain their spending levels, a trend that adds to the financial strain.
4. There is a noticeable shift in labor market dynamics, with fewer people willing to change jobs amidst economic uncertainty.
5. Industries dependent on discretionary spending, like travel and hospitality, are advised to adjust marketing strategies to cope with consumer cutbacks.

1. Economic Overview

Amy Scott discusses the surprising persistence of consumer gloom despite favorable economic indicators. Key topics include inflation expectations and the impact on consumer behavior. Amy Scott: "There's a downbeat sentiment like they're waiting for that other shoe to drop on their heads."

2. Market Reactions

Insights into how markets and industries, especially fast food, are responding to changing consumer spending habits. Stephanie Hughes: "McDonald's is reportedly looking to introduce a dollar five burger, fries and drink deal."

3. Labor Market Shifts

Discussion on the slight loosening in the previously tight labor market, with consumers less inclined to quit their jobs. Tim Quinlan: "You're just no longer seeing as many people advertising outside of their businesses saying help wanted urgently."

4. Consumer Strategies

Consumers are strategizing more on necessary versus discretionary spending, impacting sectors like hospitality and travel. Christina Sargent: "Shift from marketing two week trips to short getaways."

5. Policy and Economic Shifts

Analysis of government and business responses to economic shifts, including the introduction of recovery-ready workplace initiatives. Megan McCarty Corino: "More than 350 employers in New Hampshire have joined the initiative."

1. Budget wisely, especially for essentials like food and housing, as prices are expected to rise.
2. Consider using credit cautiously; explore budgeting tools that help track and manage spending.
3. Stay informed about labor market trends to make educated decisions about job opportunities.
4. Evaluate discretionary spending, prioritizing needs over wants in uncertain economic times.
5. Support local businesses and short getaways to help manage travel costs.

Americans are feeling worse about the economy. And that’s partly to do with fears about lasting inflation. According to the latest data, consumers expect inflation to rise three-tenths of a percentage point a year from now. Also in this episode: Why people are eating less fast food, how employers are helping workers with addiction recovery and what lower demand for second homes means for the general housing market.

People

Amy Scott, Neela Richardson, Stephanie Hughes, Christine McDaniel, Tim Quinlan, Christina Sargent, Savannah Marr, Megan McCarty Corino

Companies

New York Fed, Wells Fargo, Middlebury College, Moody's, Johns Hopkins, Genfoot

Books

None

Guest Name(s):

None

Content Warnings:

None

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Amy Scott
When you're driving 70% of the economy, expectations matter. From american public media. This is Marketplace in Baltimore. I'm Amy Scott in Fer Ki Risdahl. It's Monday, May 13.

Good to have you with us. If you caught Friday's show, you heard economist Neela Richardson say this about the american consumer. There's a downbeat sentiment like they're waiting for that other shoe to drop on their heads. She was talking about how in spite of low unemployment, falling gas prices and a rising stock market, consumers are feeling pretty gloomy about the economy, partly because of their fears about lasting inflation. Today, more data to back that up.

According to April's survey of consumer expectations out this morning from the New York Fed, consumers expect inflation to be around 3.3% a year from now. That's up 0.3% from what they were predicting in March and the gloomiest outlook since November. Marketplaces Stephanie Hughes has more. George Mason economist Christine McDaniel has found herself getting annoyed at lettuce in the last few years, specifically its price in the grocery store. It's still much higher than what I remember, and my wages have not gone up that much.

Stephanie Hughes
You know, that kind of sets the tone for me for the rest of that shopping trip, McDaniel says. Today's report shows that consumers expect that kind of discrepancy between price growth and wage growth to continue not just with lettuce, but all food, gas, housing. And, you know, that makes people kind of anxious the survey also notes that consumers do expect their household spending to rise. But Wells Fargo senior economist Tim Quinlan points out many people are relying on credit cards to keep their spending where it's been. And I think when you're kind of dipping into credit every month to sustain the spending, it doesn't feel good, especially when consumers are less certain their earnings will grow as much as they expected in the coming year and they're holding onto their jobs.

The survey also finds consumers say they're less likely to quit. Quinlan says people are picking up on a slight loosening in what had been a very tight labor market. You're just no longer seeing as many people advertising outside of their businesses saying help. Want it urgently. Consumers, while trying to keep their jobs, are expecting to spend more on the need to haves like housing and food and fun.

Discretionary want to haves might get squeezed, says Middlebury College economics professor Christina Sargent. And so I think if I were in an industry that relied on those discretionary purchases, I would be a little. Bit nervous by this report that includes hospitality and travel. Sargent says if she were in either of those businesses, she'd shift from marketing two week trips to short getaways, you. Know, a weekend here and there or a fancy dinner out.

She'd also start targeting her messages to people who live nearby so they wouldn't have to spend as much to get there. Like, hey, people of Philadelphia want to visit Baltimore. In Baltimore, I'm Stephanie Hughes for Marketplace. Of course you do. The last read of the consumer price index, by the way, was 3.5% annual inflation.

Amy Scott
We'll get the April data on Wednesday. On Wall street today, kind of a quiet start to the week. We'll have the details when we do the numbers.

In another sign of the wary consumer treating themselves to as much fast food, recent earnings reports from companies like McDonald's, KFC and Pizza Hut show softer than expected sales, smaller transaction totals and reduced foot traffic in restaurants as customers reject inflated menu prices. One tool to win those customers back could be the tried and true value meal. McDonald's is reportedly looking to introduce a dollar five burger, fries and drink deal marketplaces. Savannah Marr has that story. When fast food menu prices started to surge in 2022, customers just sort of rolled with it, partly because we were seeing rapidly rising prices everywhere, says restaurant analyst Sarah senator at bank of America.

But now, at this point, we're starting to see disinflation or slowing price growth at the grocery store. And so consumers are no longer willing to accept steadily increasing prices, especially for a product. We expect to be cheap, and at a time when people are feeling less spendy. Part of why you go to a chain restaurant is because you know exactly what you're going to get and how much you'll pay. Senator says low income consumers in particular are fed up being surprised by their fast food bill at the drive thru window.

Enter the budget meal. It's becoming more of a dogfight now. Mike Sukaro is an analyst with Moody's. He says fast food value promotions have taken a hiatus these last few years, but now chains are scrapping over fewer customers. So you come up with a package that will compete in this very challenging environment.

The hope is that a meal deal with fries and a drink will lure back customers who've reverted to cooking at home or brown bagging it to work. It's really attracting consumers to come there and then order more stuff. Shubran Shu Singh, a professor at Johns Hopkins, says if customers are just there for the value meal, that's where promotions can start to backfire. And he's not sure how long these chains can offer cheap meals just to get people in the door. Five dollar meal cannot be a permanent thing on the menu because it's just not sustainable.

With the inflationary pressures franchises are facing, Singh says the days of super cheap fast food might just be behind us. I'm Savannah Marr for Marketplace.

If you find you're paying more to fill up your car in the coming weeks, it may be because you're buying a different blend of gas as stocks of winter gasoline run out and refineries switch to summer blends, which tend to cost a little more in order to feed those refineries. Last year, the US imported more than 8.5 million barrels of petroleum a day. But at the same time, this country exported more than 10 million barrels a day. Marketplaces Kaylee Wells looked into why were selling that oil instead of using it ourselves. This is mostly a chemistry problem.

The crude oil were buying is thick and its got lots of sulfur, hence its called heavy source. The stuff we're pulling up here isn't and doesn't, so it's called light sweet. All that variation in the chemistry of the oil means that you can't refine all oil the same way. They have to go through different processes. Hugh Daigle teaches petroleum engineering at the University of Texas at Austin.

He says, our refineries were designed to process oil coming from Mexico and Venezuela. And a lot of that tends to be relatively heavy and relatively high in sulfur. Then a little over a decade ago, shale fracking took off in the US, and so did the supply of light sweet oil. But even if the refineries here could flip a switch and start refining that oil, gas, buddy analyst Patrick Dehaan says it's coming out of the ground in the wrong places. The need is infrastructure.

Stephanie Hughes
You may produce all this light sweet crude oil in Texas, but if you don't have pipelines to the nation's refineries to deliver it, how are you going to be able to utilize it? So importing foreign crude oil is cheaper. Meanwhile, Dahan says increasing renewable energy demand is making investments in fossil fuels riskier on top of all the infrastructure obstacles. Economist Kevin Hack with the Energy Information Administration says the US gets a better deal from countries with heavy sour oil. Supplies because it's harder to refine them.

They tend to be priced more cheaply than a light sweet fruit oven. So we buy and refine the cheaper stuff, and we sell our more expensive stuff to places that can't do that. There's one more discount. The majority of our oil comes from our closest neighbor. There's also not a lot of ability for canadian producers to move it outside of Canada.

Amy Scott
That strong relationship with Canada makes the US oil supply more resilient against geopolitical turmoil. Lists point to Russia's ongoing war against Ukraine, as an example. There was a gas price spike when countries stopped buying russian oil. But relatively quickly, the global market reached equilibrium again. I'm Kaley Welch for marketplace.

50 million people in the United States have a substance use disorder, and most of them are in the workforce, according to federal data. Untreated addiction at work can obviously cause big problems, turnover, absenteeism, increased healthcare costs and injuries, on top, of course, of the personal toll on individuals and their communities. So in recent years, some employers have taken a larger role in supporting the recovery of their employees. Now, with a boost from the White House, last fall, the Biden administration launched a resource hub and a national institute to promote recovery ready workplaces marketplaces. Megan McCarty Corino has more on what that means.

Megan McCarty Corino
Sean Canizzaro's first paycheck from the Genfoot shoe factory in Littleton, New Hampshire, back in February 2019, was for $336. Let me show you right here. This is my check stuff. I keep it in my office and I look at it every day, because. A few months before he started at Genfoot, Cannizzaro had nearly died.

They found me flown in a pool from overdose on fentanyl. He'd been in and out of prison and had tried many times to get clean ending up at a sober living recovery home in Littleton. They hooked him up with the job at Genfoot, loading and unloading raw materials and finished boots. They saw something in me, and here's where I get like choked up, you know? They saw something to me that I didn't necessarily see in myself at the time.

Stephanie Hughes
He was a hard worker. He had positive attitude, an infectious positive attitude. Everybody loved him. Mark Bontap is a plant manager at Genfoot. People could see that this was a great guy, and he just has a medical problem that needs to be addressed and he needs support with it.

Megan McCarty Corino
Genfoot could provide that support thanks to a New Hampshire state initiative started in 2018, which offers training and advice for businesses looking to become recovery friendly. At Genfoot, that meant recruiting workers like Cannizzaro from local recovery homes and giving them time on the clock to attend court appointments or counseling sessions. They would let me do my twelve step meetings in my headphones, like on. My phone, Fonta says. Sometimes staff members drive people to appointments, and the company keeps track of their drug tests and treatment progress, and it.

Stephanie Hughes
Makes it a part of their job responsibilities to stay in recovery, he says. The company costs have been nominal and there have been benefits, like a stable workforce that kept the factory open through the pandemic. Workplaces are uniquely positioned to support employees because it's where they spend most of their time, says doctor Rahul Gupta, the director of drug control policy at the White House. It also allows them to retain those hardworking employees, which is, of course, better for the bottom line of the businesses as well. More than 350 employers in New Hampshire have joined the initiative, and about 20 other states have created their own recovery ready workplace programs in the past.

Not recognizing that substance use disorder is a disease no different than diabetes or hypertension has led us to create punitive policies in business that have been ineffective. Some large employers have realized this, including Google and Amazon, where Josh Palacios is a senior program manager. Amazon offers resources for both virtual and in person treatment, but Palacio says the most important thing a company can do to support recovery is talk about it. Allowing people to be their most genuine self at work, especially in vulnerable situations like that, is really how you can make an impact on people's lives. Palacio says his opioid addiction began with a teenage injury.

Megan McCarty Corino
While juggling medical appointments during recovery, he told his Amazon supervisor her support encouraged him to start a recovery employee resource group in 2022, which now meets once a month. I want people to know that they're not alone, that there's like minded people at work at all levels, from the warehouse to the C suite. Sean Canizzaro in New Hampshire worked his way up at Genfoot over several years. Now he owns three sober living recovery homes and has been clean for more than five years. And it all started from $10.50 an hour from someone saying, all right, kid, we're going to give you a shot.

He's now getting his own company, state certified as recovery friendly so he can do the same for somebody else. I'm Megan McCarty, Corino for marketplace.

Bridgette Davis
Coming up, I saw the benefits of that underground economy, a different kind of numbers. But first, let's do ours. The Dow Jones industrial average fell 81 points, two tenths percent to close at 39,431. The Nasdaq picked up 47, seven points, three tenths percent to finish at 16,388. And the S and P 500 gained one point, less than a 10th of a percent.

Amy Scott
We'll call that flat to end at 52.21. Savannah Marr was just telling us about the return of the meal deal for fast food chains as they try to beat inflation. McDonald's slumped one and three tenths percent. Wendy's dipped three and four tenths percent. Yum.

Brands, which owns KFC, Pizza Hut and Taco Bell, dropped nine tenths percent. OpenAI released a new version of its deep learning model that powers chat. GPT, the artificial intelligence company, says the new app is faster and can respond to voice commands, and it's free on desktops and smartphones. Shares of Microsoft, which backs OpenAI, dropped a quarter of a percent. You're listening to marketplace.

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With access to so much information, it's hard to feel like an informed, discerning citizen. That's why on make me smart, which is a podcast from Marketplace, we make it easy for you to stay in the know. Hi, I'm Kai Rysdal. Every weekday, Kimberly Adams and I unpack the latest from Washington, DC, the Senate. Minority leader has announced that he will step down as the republican leader.

What's happening in AI? I mean, don't buy at the top, but holy cow, artificial intelligence and all the companies related to it are the hot new thing. And we do the numbers so as a refresher. Inflation is the rate of increase in the prices of things. It's not just sort of things getting more expensive, it's a speed at which things get more expensive.

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Amy Scott
This is Marketplace. I'm Amy Scott. It's that time of year when school is drawing to a close. The weather's warming up, and wealthier Americans will soon migrate to their second homes near beaches, lakes and mountains. And while that might be the dream for a lot of folks out there, the market for second homes has hit a bit of a slump.

Redfin says mortgage demand for vacation homes fell by 40% last year and doesn't show much sign of picking up marketplaces. Elizabeth Troval reports on what's going on and what it might mean for the market for first homes. Low interest rates and the pandemic lockdown caused a flurry of second home purchases. Ali Wolf, with real estate data from Zonda, says some primary homebuyers were priced out of their local markets because oftentimes. You'Ll find that those looking to purchase.

The second home are looking to buy. One in an area that is maybe. Traditionally more affordable, maybe a bit more seasonal. Many people who could afford to buy a home or a second home did just that, says Darrell Fairweather with Redfin. But with mortgage rates being higher now, that demand has significantly fallen.

Elizabeth Troval
In Austin, second home mortgages decreased 63% in 2023. Austin Board of Realtors economist Claire Knapp says it's relieved some pressure on that housing market, which has seen much interest from folks moving to Texas. As we've had a little bit less demand from the second home buyers, you know, it's trickled into the primary home market in the sense that there's just more inventory on the market for those buyers. In Orlando, real estate agent Rose Kemp says she's seen renewed interest in second homes and sales dropped in 2023. She just sold one to a Wisconsin couple who plan to move to Orlando in a few years to be close to Disney.

Stephanie Hughes
Great couple, real fun couple. And they decided they wanted to move forward and buy ASAP because what they feel is that the values are continuing to climb. And in another hot market, Las Vegas real estate agent Mary Perry says homes there continue to be in short supply as outsiders move in, including second home. Buyers, but also empty nesters getting smaller homes, people that are having families getting bigger homes, and, yes, lots of first time homebuyers and veterans, she says. This year, sales are rebounding despite higher interest rates and home prices.

Elizabeth Troval
I'm Elizabeth Troval for marketplace.

Amy Scott
State run lotteries are popular in this country. Last year, Americans bought more than $100 billion in tickets, according to the Economist, and most of the biggest jackpots in history have been claimed in the past two years. Less talked about, though, the fact that the majority of people who buy lottery tickets are low income and typically dont get much in return for their wagers. But theres another game with a long history in this country called the numbers. On its face, it runs a lot like the daily lottery.

You pick digits, place bets, that kind of thing. Only the proceeds generated from this lottery tended to circulate in communities often overlooked by the government. Justin Cremont has this story. In Detroit, a woman well call Esperanza, typically takes around ten bets over the phone each day. You said you wanted seven?

Esperanza
Two. Two. How do you want that? $5 straight or $5 wheel? This is a game called the numbers.

Justin Kramer
Esperanza's customers call her to wager on combinations of the random digits that will be drawn in this evenings daily lottery. There's a complicated formula of probabilities for different sequences. Esperanza, that's a pseudonym, is a numbers runner. You're gonna play it for 50 cent box. That's 750 times two.

The numbers game has always been illegal. It was invented in Harlem about a century ago, 40 years before legal state lotteries. Bets were taken in person then, and players gambled on digits drawn from unpredictable clearinghouse totals, the records of exchanges of money between banks in Detroit. In the 1940s, the numbers became a $10 million a year underground industry. The game was especially big with auto workers.

Esperanza worked at General Motors in the 1970s. It was a livelihood at the plant. I would go out in the plant and collect people's bets. Like with any gambling, there were winners and losers with the game. But many black Detroiters back then saw their bets as a contribution to their community.

Redlining and segregation made it almost impossible for black people to acquire wealth, so the numbers offered a necessary workaround, says Bridgette Davis, who wrote a memoir about her mom's three decade career in the game. She noticed that her neighbors were plain numbers with bookies, and she just thought, well, I could take folks bets. I could do that. As her mom's Detroit business grew, she found it easier to be generous with her money when friends or family needed a boost. Her whole thing was, I'm here to just help black folks get ahead.

The business made their home a lively place. I have so many warm memories of my mom actively running her business, and a lot of it has to do with the phone ringing and the doorbell ringing, the activity and the bustling. I did not understand all the pressures that she was facing. Among these pressures, states beginning to legalize lotteries in the 1960s and seventies. Around then, the numbers acquired a reputation in the media as exploitative because it was underground.

Bridgette Davis
They associate that with people who lack integrity. It seemed to Davis that those negative depictions were used to help direct people toward the profitable state lottery. I remember these articles that came out in the seventies that were denigrating the numbers. I was stunned by it because it was so different from my lived experience. I saw the benefits of that underground economy.

Justin Kramer
So does Felicia George, author of when Detroit played the numbers. The typical perspective of playing the numbers is negative. I am not trying to romanticize this. What I am saying is we overlook the positive that came from it. Positive, says George, like how numbers dollars flowed into low income black communities.

Numbers runners were typically banked by large businesses. They were headed by executives nicknamed the numbers men. There were, of course, numbers men who took advantage of their customers, people who won and lost big. But the numbers men were known for funding the NAACP, legal black owned businesses and social services. The government fell short on these numbers.

Stephanie Hughes
Made started insurance company. It was corporate social responsibility before it was even called corporate social responsibility. But as legal lotteries expanded, the numbers receded, says Bridgette Davis. It had been such a secret life. And when you keep a secret, you keep the good memories about that secret private, too.

Justin Kramer
And for her, that means losing more than just a game. I'm Justin Kramer from Marketville Place.

Amy Scott
This final note on the way out. Today, one of the most influential philanthropists in the world is leaving the foundation she helped create. Melinda French Gates announced today she's stepping down as co chair of the Bill and Melinda Gates foundation. Since it was established in 2000, the foundation says it's awarded nearly 78 billion in grants supporting public health, education, gender equality and global development. As part of her departure, French Gates says she will receive $12.5 billion for her own charitable work, which she says will focus on women and girls in the US and around the world.

Our daily production team includes Andy Corbin, Elise Hasan, Maria Hollenhorst, Sarah Leeson, Sean McHenry and Sophia Terenzio. I'm Amy Scott. We will be back tomorrow.

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Stephanie Hughes
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