The business cycle is getting less cyclical

This episode discusses the evolving dynamics of the business cycle, focusing on how traditional economic patterns are being altered by global economic forces and government interventions.

1. U.S. interest rates remain high to combat persistent inflation, attracting global capital and strengthening the dollar.
2. The strong dollar is impacting other economies, leading to imported inflation and potential policy shifts abroad.
3. Government interventions in response to the pandemic continue to fuel economic activity, delaying typical recession cycles.
4. The traditional business cycle model is becoming less applicable, as external shocks and continuous interventions alter expected economic phases.
5. Future economic downturns may be triggered by significant external shocks rather than cyclical downturns.

1: Introduction

Host Kimberly Adams sets the stage for a discussion on the global role of the dollar and the U.S. economy's position in the business cycle. Kimberly Adams: "Let's zoom way out today and look at where the dollar is in the global economy and where the US economy is in the business cycle."

2: The Strong Dollar

Discussion on why the U.S. dollar remains strong and its effects on international trade and economies. Sabri Ben-Achour: "The dollar is strong because more people want dollars...and just like everything from Taylor Swift tickets to toilet paper, more demand means more expensive."

3: U.S. Economic Health

Exploration of how U.S. economic policies and market strength are influencing the traditional business cycle. Valerie Ramey: "Let's start with what happens near the bottom of a cycle. In a recession, often there are layoffs, so the unemployment rate starts going up, investment will typically go down."

4: Government Influence

Analysis of the prolonged economic expansion influenced by government spending and policy. Seth Carpenter: "The Inflation Reduction Act, CHIPS Act, those are both catalyzing government spending and private sector spending in ways that I think are still contributing to overall economic spending."

1. Keep an eye on interest rates as a signal for investment opportunities.
2. Diversify investments to hedge against currency fluctuations.
3. Stay informed about government policies that could affect economic conditions.
4. Consider the impact of global economic trends on domestic business operations.
5. Prepare for potential economic shocks by maintaining flexible business and personal financial plans.

Expand, slow down, contract and recover. Businesses tend to make decisions based on what stage of the business cycle the economy’s in. The problem is, that doesn’t work so well anymore. We’ll get into it. Also: The hot U.S. dollar causes trouble overseas, college grad unemployment is up, and what other food programs can learn from WIC.

People

Kimberly Adams, Sabri Ben-Achour, Valerie Ramey, Seth Carpenter

Companies

Federal Reserve, Brown Brothers Harriman, Wells Fargo, Royal Bank of Canada, UBS, Stanford University, Nationwide, Morgan Stanley

Books

None

Guest Name(s):

None

Content Warnings:

None

Kimberly Adams
Let's zoom way out today and look at where the dollar is in the global economy and where the US economy is in the business cycle. From american public media, this is Marketplace in Washington, DC. I'm Kimberly Adams, in for Kai Risdahl. It's Tuesday, April 23. Good to have you with us.

We'll start the show talking about the power of the almighty dollar, which has been on something of a tear recently compared to our trade partners. On average, the value of the US dollar has gone up 4% already this year compared to the japanese yen. The greenback has strengthened by almost 16% this year. And Japan and Korea, they are not happy about it. Marketplaces.

Sabri Benishore reports the dollar is strong. Because more people want dollars. And just like everything from Taylor swift tickets to toilet paper, more demand means more expensive. Yes, we see continued demand for dollar assets win thin is global head of market strategy at Brown Brothers Harriman. I caught up with him on the phone on the actual trading floor, where he executes trades for mutual funds and pension funds and endowments from around the world.

Sabri Ben-Achour
They want dollars partly because dollars let them buy us stocks. Stocks. The US has strong growth, strong earnings potential, and so we are drawing in global equity investment. And then there's the US's interest rates. They're high.

They make investors money. The Fed has one of the highest policy rates in the developed world, and other central banks are starting to move toward cutting rates. Eric Nelson is a macro strategist at Wells Fargo. Us interest rates aren't high by accident. The Fed needs to keep them high because month after month after month, inflation data has been coming in too hot.

Investors saw that and realized interest rates would stay higher for longer. Alan Robinson is a senior vice president at the Royal bank of Canada. The key moment for us was when we got the third consecutive month of hotter than expected inflation readings. And that really changed the way we looked at the dollar. The dollar has risen so sharply, it's become a problem for South Korea and Japan.

Brian Rose is senior US economist at UBS. Things have gotten so extreme that Japan is importing inflation now because the currency is weak. Importing inflation because things paid for in dollars like oil are suddenly more expensive. Eventually, a country might have to raise its own interest rates to compete for global flows of money, even if that is not good for its economy. Sometimes you have to raise rates even though you don't really want to.

But money goes where money grows. And right now, that's the US in New York. I'm Sabri Ben, ashore for marketplace Wall. Street today, a batch of solid corporate earnings reports had traders feeling optimistic. We'll have the details when we do the numbers.

Kimberly Adams
For more than 200 years, economists have been pointing to the tendency of economies to expand, then slow down, contract and eventually recover. Lather, rinse, repeat the shorthand term for this, the business cycle. But as we have been saying pretty regularly on this program since 2021 or so, a lot of things we took for granted about this economy in the before times don't seem to be quite so certain in this post pandemic world. So marketplaces Justin Ho looked into where we might be in the business cycle and what that might imply about what's coming down the road. There's a reason it's called the business cycle.

Sabri Ben-Achour
Studying the health of businesses is very close to studying the health of the economy overall. That's Valerie Ramey, senior fellow at the Hoover Institution at Stanford University. She's also a member of the business cycle dating committee at the National Bureau of Economic Research, which is as close to what we have as official arbiter of when business cycles start and end. Let's start with what happens near the bottom of a cycle. In a recession, often there are layoffs, so the unemployment rate starts going up, investment will typically go down.

Eventually the recession ends and then the recovery phase starts, Ramey says. Businesses might start asking existing staff to work longer hours. Then if they become more certain that this is going to be a sustained recovery, then they'll start adding more workers and hiring new employees. The unemployment rate starts falling. Businesses start investing in new equipment and new factories.

At some point the economy catches up to where it was before the recession. But eventually, Ramey says, that expansion phase of the business cycle hits a peak, investment tends to slow down the unemployment rate. Typically. First you'll see that it stopped declining and then maybe leveled off. This phase is also known as the late part of the business cycle, says Kathy Bos Janczik, chief economist at Nationwide.

She says when the unemployment rate is low and the economy is pretty much maxed out, there tends to be a side effect. You start to see at that point demand sometimes outstripping the supply availability in the economy and you tend to get inflation. Sounds familiar, Bostanc says. This is probably where we are in the business cycle right now, and if you look at what's next in the rotation, things don't look great. That is typically then when you start to see contractions set in and then we're back to recession.

At least that's the theory. The recession that has not occurred has been the most forecasted recession in my memory, and we are not in a recession. That's Ann Villamel, an economics professor at the University of Iowa. She says the economy is nowhere near that point in the cycle. Right now, economic growth is still strong.

So is the labor market. Consumer spending is solid. People's real incomes are solid. You're actually better off. You can buy more goods and services every year.

A big reason, Villemill says, is that the economy is still feeling the effects of the government's response early in the pandemic, all of the relief aid and other fiscal and monetary support. And Seth Carpenter, global chief economist at Morgan Stanley, says government aid just kept coming. The inflation Reduction act chips Act, those are both catalyzing government spending and private sector spending in ways that I think are still contributing to overall economic spending. Put another way, Carpenter says, this expansion is probably going to keep going for a while, which is not even that unusual in recent history. Look at what happened after the financial crisis in 2008.

The economy bottomed out and then started expanding and expanded from the end of the financial crisis to COVID, that's a ten year long period, Carpenter says. At some point in the future, a recession probably will happen and the business cycle will finally start over, but not because the cycle just keeps on turning. People want the cycle to be something that is almost an inexorable force that goes up and then comes down and that you can't stop it when in fact, the duration, the length of the expansion, I think is very much indeterminate at any point in time, Carpenter says. That's because the reset will most likely happen because of a big outside shock, like when the.com bubble burst, the housing market imploded, or COVID spread around the world. Whatever little predictive power the business cycle had before, Carpenter says, this one proves it has even less.

I'm Justin Ho for Marketplace.

Kimberly Adams
Today, the Senate advanced the package of foreign aid bills that includes the much discussed TikTok ban, the Protecting Americans from Foreign Adversary Controlled Applications act. Yes, that's the name contains a provision that would force the app's chinese parent company, ByteDance, to sell TikTok's us operations within a year or be banned from the country. President Biden says he'll sign it should it cross his desk. But really, this is just the latest example of rising tensions between the US and China over technology and the Internet. Megan Bobrowski wrote about this for the Wall Street Journal.

Thanks for joining us. Thanks for having me. So set the scene here. It looks more and more likely that the Senate is probably going to pass. The House passed legislation against TikTok.

How has China responded so far? So China has said that they would not allow Bytedance to sell TikTok to a us company. They say that it is artificial intelligence, and they are not allowing the export of that technology. So that's one part here. And then they've also taken some retaliatory action by getting the App Store in China to take some apps off the App Store, which happened just this week.

Artificial intelligence. Why that argument in particular? So this is, you know, in the tech world, which I cover, this is like the next big thing. It's almost like the reinvention of the Internet, if you will. It's this new transformative technology, and everyone sort of wants a piece of it and is doing what they can to sort of get into this.

Megan Bobrowski
And so China, you know, arguably does not want to export the technology behind TikTok, which has been wildly successful in the United States. Should this get signed into law, who are the winners, especially here in the United States? So the winners would. There's a couple different ones, but other social media companies so meta, for instance, which owns Facebook and Instagram, and Snap, which own Snapchat. Last week, Snapchat's stock actually went up on this news of the TikTok ban.

So presumably they are going to be the ones who are benefiting here. Is there a good evidence that consumers of TikTok, the users, are ready to hop onto other platforms? So this is where it gets interesting, because, you know, obviously consumers are on multiple platforms, and so there's sort of a question of where would they spend their time if not on TikTok? And presumably it might be Instagram, it might be Snapchat, but it still really remains to be seen. And, you know, many of these people who are on TikTok do not want it to be banned in the first place.

Kimberly Adams
You also write that the reaction from tech executives has been mixed. Elon Musk, for one, said that he doesn't support a TikTok ban. What's the broader sort of vibe in the corporate world to all of this? Yeah, it's interesting. There's sort of mixed reactions on, you know, on both sides.

Megan Bobrowski
There's people who do want it banned, there's people who don't for competitive reasons. Elon Musk being one of them. Mark Zuckerberg, actually, you know, years ago, was raising concerns about TikTok and has since sort of receded into the background and has been pretty quiet recently on whether he supports a ban. Or not. It feels like increasingly we live in this world where there are multiple different Internets, and particularly when it comes to China and the US, there's the Internet as it exists in China.

Kimberly Adams
And then what we have here with what's going on with TikTok, what does that diversion look like further down the road? Yes. So you sort of have this, these almost like two parallel Internets that are, that are existing in both of the different countries. So already in China, Facebook spanned, Instagram spanned, a lot of Snapchat spanned, a lot of these social media apps are banned that are pretty popular here. And, you know, in China, they even have their own version of TikTok.

Megan Bobrowski
So it's a completely different app over there. And so there's already sort of different Internets and social media that exists. But if the US were to ban TikTok, that would make this divide start to become even more stark and the Internet start to look drastically more different. Megan Bobrowski is a technology reporter for the Wall Street Journal. Thanks so much.

Thanks for having me.

Kimberly Adams
Like Megan was just saying, countries and companies all over the world are trying to gain or maintain an edge in the great AI race. Take, for example, Microsoft, which today introduced its smallest AI model to date, called the Phi three mini. While large language models grab a lot of the headlines, a number of companies are working on creating smaller language models. They are generally trained with less data, which means they may know less but also require less processing power, which means they can be cheaper and work on smaller devices. Marketplaces.

Stephanie Hughes has more. You can think of generative AI systems as having differently sized brains. UVA economics professor Anton Kornik says the large language models are experts. They know a lot about a lot of different things. And then there are also much smaller models.

Sabri Ben-Achour
Their brain is more like the size of a dog brain or something like that. But sometimes you don't need or want your AI system to be all knowing. Ohio state engineering Dean Ayanna Howard says, take an automaker who wants to work with a developer to create an AI chatbot for dealerships so they can ask questions about different car models. You want it to be fast, you. Want it to be quick, and you.

Kathy Bostjancic
Wanted to know a lot about the benefits of cloth versus leather seats. But you don't need to take up its computer brain space by training it on things like healthcare. And so we're starting to see a lot of companies adopt these much more specialized models. Howard says smaller AI systems can also let companies store their data locally. It doesn't become part of the ecosystem so that your competitors have access to your data.

Smaller models also require less computing power, and Da Davidson's Gilleria says that's a giant money saver. The cost for using these models will be considerably smaller, which will make it possible for us to have a lot more applications. For example, Laria says, we could see more phone apps that'll do things like summarize all your emails or easily make a restaurant reservation based on where your calendar says you'll be later. Essentially a smaller AI model where the data set is you. I'm Stephanie Hughes for marketplace.

Coming up, 72oz of cereal. So it's not by boxes, it's by ounces. Isn't the proper measurement of cereal in bowls of said cereal. But first, let's do the numbers. The Dow Jones industrial average gained 263 points, 710 percent to finish at 38,503.

Kimberly Adams
The Nasdaq picked up 245 points, one and six tenths per, to close at 15,696. And the S and P 500 gained 59 points, one and two tenths percent to end at 50 70. Tesla reporting first quarter earnings today revved up one and eight tenths percent. GM advanced four and four tenths percent on better than expected first quarter earnings and revenue. The automaker also raised its full year guidance and said it sees, quote, positive variable profit in its electric vehicle operations.

In the latter half of the year, rival Ford improved almost a half a percent. Bonds rose. The yield on the ten year t note fell to 4.60%. And you're listening to marketplace. With access to so much information, it's hard to feel like an informed, discerning citizen.

Sabri Ben-Achour
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 Risdahl. 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 at which things get more expensive. Because in a world that's constantly changing, we all need to stay smart.

Listen to make me smart wherever you get your podcasts.

Kimberly Adams
This is Marketplace. I'm Kimberly Adams. A possible TikTok ban, a shortage of affordable housing, rising global temperatures, artificial intelligence. There's a lot to keep Gen Z up at night. Hopefully not doom scrolling on TikTok, but according to an annual report out today from the Bureau of Labor Statistics, we may need to add unemployment to that list.

Data show that college educated Gen Z ers are having a harder time finding a job than they were a year ago. Marketplace's Elizabeth trovel has the story. The jump in unemployment among recent college grads comes at an odd time in this economy, says Patricia Anderson with Dartmouth. As we've been raising interest rates and all these things like I keep saying, wow, you know, but the job market's still so strong. This is sort of the first sign I've seen of it not being as strong as I thought it was.

E
The Bureau of Labor Statistics found unemployment increased 8.6% to 12.3% among 20 somethings with bachelor's degrees from October 2022 to 23, which is pretty high when you. Think about the overall unemployment rate right now is 3.8. It was college educated women that drove that increase in unemployment. Georgetown University's Jeff Strahl says he's heard anecdotally from students that it has been tough to find work. But a lot of evidence that I've been hearing is that the tight labor market is more the less than bachelor's market.

Today's report showed that unemployment decreased for recent high school graduates not enrolled in college. That says college enrollment remained flat. Celeste Carruthers is with the University of Tennessee. Enrollment has been stabilizing, but it still hasn't recovered to its pre pandemic level, where 66% of young adults, recent high school graduates were enrolled in college. The current job market for high school graduates could be keeping enrollment down.

But down the road, skipping college could be a mistake for Gen Z. Historically, there's been a very strong return, just in strict financial sense, of going to college. And even though college grad unemployment is up, it's still lower. And for those with no degree at all, I'm Elizabeth Troval for marketplace.

Kimberly Adams
A program targeted at low income people with young children, is getting a refresh. The supplemental nutrition program for women, infants, and children, better known as WIC, serves low income, pregnant and postpartum parents and their kids up to age five. The USDA's updated food package for WIC users includes a boost to the fruit and vegetable benefit and takes into consideration dietary and allergy restrictions on things like whole grains and dairy options. This comes as some lawmakers are pushing for more purchasing restrictions in other food aid programs like school meals and snap benefits marketplaces. Savannah Marr has more every month.

Kathy Bostjancic
The Stone family in Spring Arbor, Michigan, is faced with a challenge, making use of seven gallons of low fat milk, which is a lot even with a baby, a toddler and a seven year old in the mix. Because mom Annie Stone says her growing kids need healthy fats. And besides, who really wants skim milk? I don't know anybody who drinks skim milk, but that's what WIC prescribes because skim milk has less saturated fat. So Stone pays out of pocket for her family's preferred dairy and gets creative with the WIC allotted stuff.

So I have been making yogurt with that, but you have to add heavy cream to it. For seven years, Stone says, WIC has taken the edge off her monthly grocery bill. Shes grateful for the help. She recommends the program to friends but warns them that their new shopping list will come with a learning curve. So, for example, 72oz of cereal.

So its not by boxes, its by ounces. And you know who doesnt have time to do math at the grocery store? Parents of little kids. Stone has mostly memorized the specific brands and amounts of food she can buy with her WIC card. But still, every time I go to checkout, I like cross my fingers and hope, like, oh, I hope that's still applicable.

WIC is highly restrictive by design. It's meant to target specific common nutritional deficiencies in new moms and kids. Park Wilde, a professor of food and nutrition policy at Tufts, says there's evidence that approach works to promote, for example, healthy pregnancies and infant birth weights. I mean, thats one of the most poignant health outcomes you could mention. But for any food aid program, Wildy says, restrictions to promote nutrition come with costs.

Sabri Ben-Achour
It could make the program less appealing to the clients, causing them not to participate in the first place. About half of eligible families participate in WIC. That number drops to as low as a quarter when kids are too old to qualify for infant formula and parents have to navigate that hyper specific grocery list. In 2020, more than 80% of eligible households took advantage of much more flexible SNap benefits. The program keeps getting bigger and bigger.

Kathy Bostjancic
Angela Rashidi with the American Enterprise Institute says inflation has driven up Snap enrollment and costs. And she says some lawmakers want to leverage the growing program to promote better nutrition, much like WIC. If you're going to increase benefits, then you should also place expectations on what people are going to purchase with the those funds. Rashidi hopes to see funding in the farm bill for pilot programs to test out everything from a soda purchasing ban to a WIC inspired specific food package for SNAP. Not everyone is convinced.

Kimberly Adams
I think it's overly simplistic to think that restrictions will really move the needle. Diane Whitmore Schatzenbach, an economist at Northwestern, says a lot goes into buying food besides cost, like cultural preferences, allergies, how much time you have to cook meals. How hard it is to feed your family. Right? Like I've got three kids and the number of dinners that all three of them like is a narrow set.

Kathy Bostjancic
Whitmore Schatzenbach favors financial incentives for buying healthier with food aid, though that tends to add to program costs. Annie Stone, the mom of three in Michigan, says the most useful part of her WIC allowance will increase when the USDA's changes go into effect. The $70 a month she gets to spend on fruits and vegetables with no other restrictions. I love that part of the program. The ease of navigating that money is awesome because she can choose the foods she knows her family will actually eat.

I'm Savannah Marr for marketplace.

Kimberly Adams
This final note on the way out, quite a bit of labor news coming out of the Biden administration. Today. The Department of Labor finalized rules that raise the salary threshold for overtime. Right now, you just have to make a bit over $35,500 a year before you can lose overtime eligibility. That will bump up to close to $44,000 in July and more than $58,000 next year.

And over at the Federal Trade Commission, they voted three to two to ban non compete agreements. Not only will employers no longer be able to force workers to say they wont take jobs with competitors or start similar businesses, theyll have to toss old agreements as well, assuming it survives the inevitable legal challenges. Our digital and on demand team includes Carrie Barber, Jordan Mangy, Dylan Mietinen, Janet Nguyen, Olga Oxman, Ellen Rolfes, Virginia K. Smith, and Tony Wagner. Francesca Levy is the executive director of digital and on demand.

And I'm Kimberly Adams. We'll be back tomorrow, everybody.

This is APM. 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 Risdahl. 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.

Sabri Ben-Achour
Because in a world that's constantly changing, we all need to stay smart. Listen, to make me smart, wherever you get your podcasts.