It's a good time to be an asset owner

This episode explores the complexities of the current economic landscape, focusing on asset ownership and consumer behavior amidst inflation and fiscal policies.

1. Consumer spending remains robust, especially in essential sectors, despite ongoing inflation, which complicates economic forecasts.
2. Services inflation is a significant challenge, as it is less responsive to policy measures like interest rate adjustments.
3. The IMF has expressed concerns about the sustainability of the U.S. fiscal path, emphasizing the need for careful economic planning.
4. The episode highlighted the real-world impact of economic policies and market conditions on local businesses, exemplified by a feature on the Port of Baltimore.
5. Discussions on the wealth effect and asset ownership demonstrate the mixed feelings Americans have about the economy, with asset owners feeling wealthier on paper.

1: Introduction

Kai Rizdahl opens the episode with a reflection on personal wealth changes over the past year, setting the stage for a deeper exploration of asset ownership and economic conditions. Kai Rizdahl: "Do you feel like you're wealthier than you were maybe a year, year or two ago?"

2: Consumer Behavior and Inflation

Discussion on how continued consumer spending amidst high inflation could affect the economy, featuring insights from Jordan Holman of The New York Times. Jordan Holman: "People keep buying, people keep consuming."

3: Fiscal Concerns and Global Economy

Courtney Brown discusses the IMF's report on global economic growth and U.S. fiscal policies, with a focus on the challenges posed by conflicting governmental actions. Courtney Brown: "The IMF gave the US a kind of lecture, like a kid who is in big trouble with its mom."

4: Local Economic Impact

The episode concludes with a segment on the Port of Baltimore, illustrating the direct impact of broader economic issues on local businesses. Dawn Speakman: "We move about 120 to 150 containers a week, and now we're down to nothing."

1. Monitor Essential Spending: Given the robust consumer spending on essentials, individuals should track their expenditures in this category to better manage their budgets.
2. Evaluate Discretionary Purchases: Consider reducing spending on non-essential items, especially those with high inflation rates.
3. Stay Informed on Economic Policies: Understanding current and proposed fiscal policies can help in planning personal finances more effectively.
4. Explore Inflation-Resistant Investments: In times of high services inflation, look into assets or sectors that historically withstand economic shifts.
5. Support Local Businesses: Recognize the impact of global economic conditions on local markets and consider supporting local enterprises.

Thanks to a strong stock market and record home prices, asset owners are feeling richer, even if it’s only on paper. Today, we get into the “wealth effect” and how it may play out in the presidential election. Also: Higher prices slow Procter & Gamble sales, the “catastrophic” halt to a Baltimore port business, and why companies change the metrics they report to investors.

People

Kai Rizdahl, Jordan Holman, Courtney Brown

Companies

The New York Times, Axios

Books

None

Guest Name(s):

None

Content Warnings:

None

Kyle Rizdahl
Okay, so look, serious question. Do you feel like you're wealthier than you were maybe a year, year or two ago? From american public media, this is marketplace in Los Angeles. I'm Kyle Rizdahl. It is Friday, today, the 19 April.

Good as always to have you along, everybody. The wealth effect and Mitchell Hartman coming up at the bottom of the program. Program first, though, this in no particular order. The following things have happened this week in this economy. Retail sales figures came out.

The International Monetary Fund had some things to say. Various and sundry officials from the Federal Reserve opined. What does it all mean? Do you suppose that's why Courtney Brown is here? She's with axios.

Jordan Holman is here as well. She's at the New York Times. Hey, you too. Hey, Kai. Kai.

Jordan, let me start with you. Retail sales came out Monday. I guess that puts this in chronological order, higher than expected. Consumers, riddle me this. If we keep buying, what is going to bring inflation down?

Jordan Holman
That is a riddle in itself. But when I talk to the retailers, of course, you know, that's welcome news. People keep buying, people keep consuming. It makes it easier for them to plan their business, but it doesn't take away the sting that shoppers say they feel when they're buying prices or buying things that have higher prices. I think one kind of asterisk here, here is that when you look at the retail sales report from this week, it does paint the picture of people are buying things that they need, gas, food, restaurants, personal care, and they're pulling back, it seems, on the things that they already have too much of or that they're seeing high prices on.

So people complain about electronics, furniture, clothes. Those sales were down overall. So you see people making these trade offs. So, but. All right, so I'm going to change gears a little bit here then, Courtney, and ask you about services inflation.

Kyle Rizdahl
Right. Because goods inflation has largely been tame. Services inflation is stickier right now. Right. The things like haircuts and all of those things.

And that is not really susceptible to interest rate adjustments. Right. So what do we do with that? Yeah, I think if I were Federal Reserve chair Jerome Powell, my go on my. Yes.

Courtney Brown
Huge promotion, obviously. Um, but if I were him, I think my big question was be, would be why can't we just have the 2023 economy back? You might remember things are really good then. Consumer spending was really strong, yet inflation was falling alongside that strong consumer spending, really kind of setting up this soft landing story. Now we have this strong consumer spending, definitely on the good side, which is measured in the retail sales report not so much reflected the services side of the economy in this report, but we know that that side of the economy is doing really well.

So what is it going to take to get prices on the services side of the economy if not down, just prices rising more slowly? We don't seem to have the answer to that question yet. And when you think about what's keeping inflation high, it is on the services side of the economy. There isn't this giant disinflationary wave on the good side anymore that's making up for the hot thing we're seeing on the surface side. So this is the big puzzle, or riddle, as you will for the Federal.

Kyle Rizdahl
Reserve, the theme of the program today. So Jordan, look, if we've got all that going on, and as Courtney said, the economy is growing. The International Monetary Fund came out this week and said the global economy is going to grow at 3.2 ish percent. The United States is doing really, really well. We are in fundamentally in this country good shape.

Jordan Holman
Yes, yes. But what we keep hearing is that people don't feel that way. And then that's also this concern. If people don't feel that way, then maybe their actions won't show it and kind of going back to the good services. Another thing that could help is if people just feel like it's too expensive to eat out or it's just too expensive to get your hair cut, maybe that's another way that you pull back.

But consumer behavior is confusing. And so this is the big riddle to continue this trend. Well, I'm always, I'm always staying with reytles, but let me ask you this, Jordan. Since you are both a consumer in this economy and an expert on the retail economy, has, has your retail, have your retail habits changed? Yeah, I definitely cook at home so much more.

I think a lot about like those trade offs of is it really worth paying gratuity and sitting down and getting a drink outside my house or I'm just gonna eat inside. Interesting. Courtney, more with the International Monetary Fund. And you and Neil pointed this out in the Axios macro newsletter, either this morning or yesterday, frankly. Sorry, time is a blur.

Kyle Rizdahl
The IMF is not at all happy with the fiscal stance of the United States. In fact, I think the IMF said it's the fiscal path, the fiscal stance, which is to say how much debt we have, is of concern. What do we do with that now? Yeah, the IMF gave the US kind of a lecture, like a kid who is in big trouble with its, with its mom. Yeah, I think it's one of the sharper worded warnings that we've gotten from the IMF on what they call this unsustainable fiscal path that the US is on.

Courtney Brown
They called us out. They called China out and they said, look, something's gotta give. They literally said something's gotta give. Either the path that we're on continues and there are huge global spillovers. And you kind of further prevent the disinflationary process because you've got government spending that's so strong, it's kind of stimulative on one hand, but then you have monetary policy, which the Fed is in charge of trying to constrain the economy.

So these two things are at odds. And the IMF is basically saying that, you know, we have to get our house in order and several other big economies around the globe also have to get our house in order. Okay, but look, hang on, Courtney, because the big credit rating agencies have been yelling at the United States for. When was the downgrade, right. 2011 was the first downgrade.

Kyle Rizdahl
We just had another warning about it, and now we have the IMF and lo and behold, nothing has changed in our fiscal stance. Yeah, and the, it's so funny. Not haha funny, but interesting. Funny that the IMF essentially said that this is a year in which we're probably not going to get much progress in terms of getting into a healthier fiscal situation because we have elections and President Biden wants to do more spending. President Trump has said he wants to cut taxes.

Courtney Brown
So it seems like any candidate you get, I'm not really sure how the deficit is going to shrink in the years ahead. Right. And it's not only elections here, it's elections in many, many other places. Jordan's super quick with an eye toward my computer monitor here, which is saying that the tick tock bill could come up in the house this week. You guys, you and your colleagues at the Times had a big spread on the TikTok phenomenon in this economy and the ways it has woven itself into our daily lives, even if you're not a user, which, oh, by the way, is me.

Kyle Rizdahl
Totally fascinating. Totally fascinating. Yes, it is already warping your brain. You don't know it. And the way we cook, we shop, yeah, we talk, we diagnose ourselves.

Jordan Holman
And so we just thought it was a good moment ahead of this vote tomorrow. Like step back and say even no matter what happens tomorrow, tick tock has already infiltrated our lives. So please check it out. Absolutely. Read that piece.

Kyle Rizdahl
Jordan Holman and the New York Times and her colleagues there on that story. Courtney Brown at Axios, the newsletter she writes is called Axios Macro of Neil Erwin. Thanks, you two. Have a good Friday. Thanks, guy.

Courtney Brown
Have a good weekend. See you. Wall street to end the week, not a great day for tech stocks, actually, which is not a great sign for tech earnings that are coming next week. We will have the details when we do the numbers.

Kyle Rizdahl
All right. Jordan was talking about this a second ago, stuff that people keep spending on despite higher prices. Consumer package goods is high on that list, shampoos, laundry detergents, diapers, razors and so on and so on. Demand there has been pretty resilient, even with prices where they are. The consumer packaged good conglomerate Proctor and gamble released quarterly earnings this morning.

Sales were up a bit, but they were short of expectations, due in part, the company says, to wait for it, higher prices. Marketplaces. Kimberly Adams has that one. Even though sales were up for P and G, it wasn't really because more consumers were buying their stuff. It just cost more.

Kimberly Adams
And in some parts of the business, prices drove down sales. That matches trends. Natalie Gallagher, principal economist at forecasting firm Prevadiri, is seeing from consumers they're experiencing. A lot of price fatigue. They might have taken price in stride a little bit more in 2022 and even into 2023, but we're absolutely seeing that consumers are really responding to the weight on their wallets, and they're responding.

In several ways, says Charmin Adoran, a professor of marketing at Bryant University in Rhode island. Some consumers use products more sparingly, right? Or reduce the frequency of their purchase to manage their budget. Consumers are also looking for more sales. Using coupons or maybe even buying in bulk during promotions to kind of mitigate the impact of these price rises.

Others are giving up and switching to private label brands. But when you're as big as procter and gamble, you can fight back. Because P and G is able to spend the type of dollars they spend in marketing, they can keep themselves ahead or parity with the private label brands that are in that category. Phil Kafirakis is president of the International Food Service Manufacturers Association. P and G has increased ad spending by 14%.

They're not going to lose too much market share. They might be more aggressive in one quarter versus another and then back off, because I think they have that flexibility and that keeps them in the game. Because at the end of the day, if you really like your shampoo and you can afford it, you'll probably just stick to what you like. Even if you're bitter about the price in Washington. I'm Kimberly Adams from Marketplace.

Kyle Rizdahl
The state of Maryland says that last year the port of Baltimore handled a record 52 million tons of international cargo valued at more than $80 billion since the collapse of the Francis Scott key bridge. Though the port is mostly at a standstill. And while savage crews are working hard to clear the wreckage, many others are waiting in the wings to be able to get back to work. Here's today's installment of our series, my economy. I'm Dawn Speakman.

Dawn Speakman
I'm the owner of Drayage Solutions. We're a woman owned drayage company, and we operate out of the Port of Baltimore. The terminology for drayage is that you basically pick up a container and you take it to the warehouse. We move about 120 to 150 containers a week, so it's about 7000 a year. And now we're down to nothing.

It's pretty catastrophic for us. We had some work for a few days that was already in the pipeline, but after that, we are 100% shut down. So it is catastrophic. We are at a complete standstill. Halt.

Me personally, I didn't really think it happened. My brother contacted me at 03:00 in the morning and sent me a text message. And I thought he was kidding. I thought his phone got hacked or something. So I called him up and he was like, no, it really did collapse.

And then I was up from 03:00 on watching the news. We actually did have containers to pull out of the port that day. So I did have drivers in the port that day that had happened, and I had sent them a message that said, you know, please be careful. It was an interesting day. As more of the media came out and we watched different videos of it, you know, then reality set in, and it was like, okay, this is a horrific event, and how are we going to recover from this?

We have a staff of seven drivers. I have not had work for them since April 1. I've been able to keep paying them. I started this business with my own money and didn't have any loans until COVID. So we haven't used the small business Administration until COVID, and we may use it now, but I would prefer that's like a last resort.

We did apply for a grant through the state of Maryland, so we're hoping to hear back by the end of the week with that. The intention is to keep them on the payroll and pay them their full salary until we can get things back to normal.

We are very optimistic. I'm a very positive and optimistic person. We have to be patient, though, and we have to pray for the specialists and the professionals that are working to remove the debris and open up that channel. This is a very large undertaking, and we're going to just do whatever we have to do to make it through. We made it through COVID.

We're going to make it through this and ultimately we will get back to normal. It's just how long is it going to take for us to get there?

Kyle Rizdahl
Dawn Speakman there, founder and president of Drage Solutions in Baltimore, Maryland. We cannot do this series without you. So let us know what's up, would you? Marketplace.org myeconomy coming up, we're gonna have countertops in about five days, which will be a lifesaver. Oh, the renovation blues.

But first, let's do the numbers. Dow industrial is up 211 points today, about a half percent. 37,986. The Nasdaq fell 319 points, just over 2%. 15,282 big tech reports next week.

S and P 500 down 43 points. Nine tenths percent, 49 and 67. For the week, the five days gone by, the Dow was unchanged. The Nasdaq off 5.5%. S and P 500 lost just over 3%.

We heard from Kimberly Adams about Procter and Gamble. Well, they foamed up about a half percent today. Looking at some competitors. Colgate Palmolive up just over 1%. Arm and hammer maker, church and Dwight grew one and a 10th percent today.

Bond prices went up. When that happens, the yield goes down. The yield on the ten year treasury note fell to 4.62%. You're listening to marketplace.

This is Marketplace. I'm Kai Rzdal. Megan McCarty, Corino was telling us yesterday about how Netflix is getting more into mobile gaming, looking for new ways to grow beyond just adding new subscribers. Speaking of which, subscribers, that is. Netflix also says it's going to stop disclosing exactly how many of them it has.

Disclosing company metrics beyond profits and losses and other general financials is something a lot of companies usually do. So we had marketplaces. Henry Epp spent some time today looking into why companies choose to share those kinds of numbers and why they might choose to stop. When a company is in its infancy, there's a decent chance it's not yet turning a profit. So instead of focusing on just how much money it might be losing, company leaders may point investors to some other metric that tells them, hey, we matter.

In the beginning, it's all about getting mind share. It's all about land grab. Santos Rao is at Manhattan Venture Partners. You need to show that, hey, we are growing. We're here.

Kyle Rizdahl
We're a sizable company, and in the. Place of profit margins, subscriber numbers or retail foot traffic or time spent on an app can show investors that a company could make more money in the future. It's sort of like how parents talk about their kids when really little, says Sarah Kunst, managing director of Clio Capital. When a kid is born, you say this baby is five days old, and. Then it turns to five months old.

Henry Epp
But at some point, she says, those early measures evolve. Like it would be weird if my parents started bragging about how I'm turning 405 months old tomorrow. I think I'm doing that math right. And so in general, as something is around longer, how we measure this changes. In Netflix's case, subscriber numbers aren't the company's whole story anymore, says Matteo Arena, a professor of finance at university.

Kyle Rizdahl
There might be other ways to increase the revenue and profits outside just simply. Increasing subscribers selling ads on its cheaper subscription tiers, for example. It's also a sign that the company is profitable now and more mature, arena says. Reaching maturity for a company is almost another word for slower growth, which is. Kind of inevitable for a company that grew really fast for years.

Henry Epp
At some point, that level of growth is unsustainable. But now, says Steve Kaplan, a professor at the University University of Chicago, Netflix has the luxury of telling investors to focus on their bottom line, look at. Our revenues, look at our cash flows, and judge us on that. And, you know, if we're growing those, then good things are happening, and subscriber. Numbers are probably doing fine.

I'm Henry EpP for marketplace.

Kyle Rizdahl
Kimberly Adams has been doing a series for us the past couple of weeks, exploring the disconnect between the strength of the economic fundamentals, GDP growth, the unemployment rate, all, you all know the list as well as I do. She's been looking at the disconnect between them and how people are feeling about the economy, which, broadly speaking, is not that great. A pause here, then, for the flip side of that coin, specifically, something called the wealth effect, the thing that happens when the stock market is up and home values are up and the people who own stocks and homes feel wealthier, which they are, at least on paper, as promised. Here's Marketplace's Mitchell Hartman. It's a good time to be an asset owner in America.

Mitchell Hartman
According to the Fed, from 2019 to 2022, the median net value of a home, that's the current market value minus mortgage debt, rose from $139,000 to $201,000. That's a 45% increase in value for the typical homeowner in just three years. Evan Carr has been riding this home equity train. Just moved in about a week and a half ago, but at this point we've done all new hardwoods. Carr is walking me through his new mid century modern home full of glass and wood paneling.

Kyle Rizdahl
We're going to have countertops in about five days, which will be a lifesaver. You must be doing a lot of takeout. It's a lot of takeout. We have a wall oven in a microwave. Carr and his wife paid 960,000 to get into this leafy suburb of Portland, Oregon, and their previous home we bought.

At about 520, sold it for 860. Took about four years to renovate, but we were able to gain that market appreciation. Israel Hill is cars realtor. The leveraging of equity, that's a big thing. Houses took a monster jump through COVID, and people are cashing out of that equity.

Mitchell Hartman
For most middle and upper middle class families, the majority of their wealth is tied up in their homes. When home prices plummeted in the great Recession, median household wealth fell by nearly half, says NYU economist Edward Wolf. The good news is that it finally recovered by 2022. In the early years of the pandemic, soaring home prices helped drive median household wealth up by 37%, and the recent bull market has driven it up even more. The very wealthy, whose wealth is heavily invested in stocks, saw a good rise in their wealth.

Middle class does benefit when the stock market rises, mainly through pension accounts like 401 ks. All this has a knock on effect for the consumer economy. When the zillow estimate on your house goes up, you feel a little richer, even if you can't or don't want to sell. Right now, mayor statman studies behavioral finance at Santa Clara University. If the value of the house has gone up, you might spend one, two, or 3% of this increase.

If that increase is in the value of your 401k, even though it is long term, you might spend a bit more. While the wealth effect may be boosting consumer spending, it doesn't seem to be doing much for consumer sentiment, says Chris Jackson at public opinion firm Ipsos. We're waiting to see if the current bull market is reflected in public sentiment of like, oh, the economy's back on track, things are doing well. Or if inflation continues to keep people depressed. The wealth effect may also have political implications.

Mitchell Hartman
In every presidential election since 1984, when the S and P 500 rose in the three months before the election, the party holding the White House won in November when the market fell, that party lost. Theoretically, a rising stock market should benefit. The incumbent, Princeton presidential historian Julian Zelizer. Even if you're not investing in the stock market, you see it on the news. It's a kind of tell about whether a president is doing good or bad.

Julian Zelizer
So there's many reasons you'd think it would help, but it's not clear that it is. Zellizer doubts it'll make much difference if the bull market continues into the fall. For one thing, with President biden in the White House, Republicans feel more narrow, negative and Democrats more positive, no matter how well the economy is doing. And Zelizer says there are other reasons the wealth effect might not pull much weight right now. Structural costs that Americans face, such as student debt, are much more pertinent in terms of how someone evaluates the economy than what they read about a bull.

Mitchell Hartman
Market, which only affects slightly more than half of Americans who even own stock directly or in a retirement account. I'm Mitchell Hartman for marketplace.

Kyle Rizdahl
This final note on the way out today, two numbers for you. The first is 1.92. That is measured in percent. It is also the drop in Tesla shares today. Number two is 3878.

That is measured in cybertrucks, the total number of them that Tesla has shipped to date, all of which, every single one, have now been recalled because, says the National Highway Traffic Safety Administration, the accelerator pedal could get stuck in the accelerate position. Our theme music was composed by BJ Lederman. Marketplace's executive producer is Nancy Fargali. Donna Tam is the executive editor. Neal Scarborough is vice president and general manager.

I'm Kai Rizdahl. Have yourselves a great weekend, everybody. We will see you again on Monday. All right, this is APM.