Much ado about affordability

0:00This Marketplace podcast is supported by Wealth Enhancement, who ask, do you have a blueprint for your money? Wealth Enhancement can help you build the right blueprint for investing, retirement, tax, and more. With offices nationwide, there's an advisor who's ready to listen and craft a blueprint for your future. Find out more at wealthenhancement.com slash build. You've finally broken loose from work. Three friends, one tea time, and then the text. Honey, there's water in the basement. Not exactly how you pictured your Saturday. That's when you call us, Cincinnati Insurance. We always answer the call because real protection means showing up, even when things are in the rough.

0:45Cincinnati Insurance. Let us make your bad day better. Find an agent at CINFIN.com. One word, six syllables, the new, new way to talk about this economy. From American public media, this is Market. class.

1:16In Los Angeles, I'm Kyle Rizdahl. It is Tuesday. Today, this one is the 25th of November. Good as it always is to have you along, everybody. We are going to get to the newest buzzword about and for this economy in just a little bit, but we're going to start with data of the government kind, delayed though it was. Up first, the producer price index. Inflation at the wholesale level is another way to think about that. Three-tenths of one percent higher in September than it was in August. Yes, this is old data, but that's not so bad given, you know, everything. Core PPI came in a little bit softer than what most people were expecting.

1:55So that caught me a little bit by surprise. Economist Nicole Survey at Wells Fargo there. Since we are not going to get personal consumption expenditures index. The Fed's favorite, as you know, tomorrow is scheduled. Again, thank you. Shut down. This PPI is going to matter all the more at the central bank's meeting in a couple of weeks. You have a committee at the Fed that seems, oh, they seem pretty split. You have some people who are more worried about the stable maximum employment side of the mandate. And then you have some folks, the Hawks, that are a little bit more worried on the inflation side.

2:30And so I think what this data does, what it shows us is that it actually gives some evidence because the core PPI came in a little bit softer than expected. It maybe tells those hawks, those people on the committee that are worried about the inflation side, that inflation is not spiraling out of control. Well, yes, but what about the people more worried about the labor market? They can say, look, this PPI data suggests that this inflationary picture, It looks a little bit more benign. Why not focus more on the employment side where we are seeing some weakness? The unemployment rate ticked up in the latest report that we saw.

3:07Add it all up. And so I think the crux of the data, I think, would put more of the committee towards a cut in December. That's our call. But like I said, I'm grasping for straws here a little bit. I don't think it changes the reaction function dramatically just on this PPI report alone. Disclaimer noted. And honestly, we are all kind of trying to read the tea leaves, right? We got an update on consumer confidence this morning, too, down to its lowest reading since April. Part of that, though, was just timing. Most of the survey period was occurring while the government, the federal government, was still shut down.

3:44J-PAL and the gang do like their hard data. It is true, but vibes matter, people. I think this report does show you that potentially there is some room for a little bit of pullback in spending because of just the magnitude of the shift in confidence. But again, take it with a grain of salt, just as we've seen that there's a disconnect between what consumers feel and then what they actually do. Grain of salt noted. Also, because today was, relatively speaking, kind of a data palooza. Retail sales for September came out today, spending two tenths of one percent higher. Growth, sure, but less than the month before and less than people had been guessing.

4:23Marketplace's Kristen Schwab has more on what that might mean as we head into prime spending season. The overall feeling about September's retail sales report? Blah. Mark Sandey is chief economist at Moody's Analytics, and he says slowing sales growth isn't necessarily a red flag, especially after retail sales went up more than expected in August. But it's clear September's data isn't a reason to celebrate. It just feels like consumers coming into the Christmas buying season are kind of tired. That fatigue carried across categories. Car sales fell by three-tenths of a percent. Electronics and appliances dropped half a percent.

5:04Clothing sales down seven-tenths of a percent. You know, if you kind of look at the components of the retail sales report that go into producing consumer spending in the GDP accounts, it was basically zero. Blah, blah, and more blah. Of course, one month of one type of data doesn't tell us exactly where the economy is heading, says Sam Zeef, global macro strategist at J.P. Morgan Private Bank. You can't look at any data report in a vacuum. Remember, this was September retail sales. We're still missing October. And we won't get an October jobs report because of data that didn't get collected during the government shutdown.

5:45A report out from ADP today says private sector job losses ramped up over the last month. Definitely shows that the labor market is going through a soft patch. Which has a direct impact on how much people spend in this consumer-driven economy. We're also missing fresh data on inflation. Information that helps economists understand where retail sales increases are coming from. The last inflation reports show prices keep rising. Bethann Bovino is chief economist at U.S. Bank. What that says is people are spending more money but getting less in return. So much that Bovino says even higher income households are changing their shopping habits.

6:29We're seeing a bit more trading down, searching for value than certainly we had not seen in the past. It means there could be more. Blah. Ahead. I'm Kristen Schwab for Marketplace. Come on, that was pretty good. Blah, right? Wall Street today, sure. Stocks, yay. Bonds, though, gang, bonds. We'll have the details when we do the numbers.

7:22One U.S. dollar today against a basket of the world's other floating currencies is worth about 3 % more than it was a couple of months ago, mid-September, to be just a bit more precise. That's quite a turnaround from the first half of this year when the greenback tumbled on worries over tariffs and how they were destabilizing global trade and also, and oh, by the way, this economy. Marketplace's Justin Ho has more on the dollar's pickup. Throughout the last few weeks, investors have been betting that the Federal Reserve will hold interest rates steady next month because it doesn't have much government data to help guide its decision.

7:56They may push it off and wait for confirmation of economic data before they actually look to cut rates again. That's Chuck Tomes with Manulife Investment Management. He says that expectation actually caused interest rates on short-term government bonds to rise. That boosted demand for those bonds and, by definition, for the dollars you need to buy them. People want to look at where you can get the highest yielding opportunities in a lot of times. So you saw the U.S. dollar be a little bit more attractive to people looking at where they want to allocate capital. But Tom says in the last few days, many investors have gone back to thinking the Fed will lower rates next month.

8:37That's after a few Fed officials said a cut in December would be appropriate. That said, there are plenty of factors that are continuing to boost the dollar's value. I think it's the least dirty shirt in the laundry basket. That's Sebastian Malaby, senior fellow at the Council on Foreign Relations. He says many other currencies in that laundry basket have been getting weaker, thanks to stagnant economic growth. Growth in Germany in the third quarter has been flat. And France is in sort of permanent budget-cum-political crisis. And so the two main economies in Europe have been very sluggish. Malaby says the Japanese yen has been weakening too, after the Japanese government approved a big round of stimulus.

9:17And stimulus means the government's promising more government spending, therefore more bond issuance, and that is negative for the yen. To be clear, Malaby says the factors that eroded confidence in the dollar this year are still at play, including the president's tariffs, also his attacks on central bank independence, and the growing national debt. But overall, he says investors are getting more accustomed to those risks. Thinking is? There may be long-term attrition in the competitiveness of the U.S. economy if there are tariffs, but we're not panicking anymore. The administration's policies will continue to affect the dollar's value.

9:54Ed Gresser with the Progressive Policy Institute says if tariffs cause consumer spending to drop off in the coming year. That means we are buying fewer yen or euros or yuan or pesos. So the value will tend to diminish a little bit. And that would cause the dollar's value to rise even more. I'm Justin Howe for Marketplace.

10:20Should you be up early in the morning wondering what is going on in the world of business and the economy? I have a suggestion for you. The Marketplace Morning Report. David Brancaccio and the gang get up real early to tell you what you need to know. Check it out.

11:01I'm going to talk about a word here that you've been hearing a lot lately. A lack of affordability. To address affordability. The affordability crisis that is pushing. We have this new word called affordability, and they don't talk about it enough. That was South Carolina Congressman Jim Clyburn, Treasury Secretary Scott Besant, Zoran Mamdani, the mayor-elect of New York City, and the president of the United States. Politicians from both sides of the aisle, all within the last week or two, talking about affordability. So we're going to talk about it too, because it's becoming a stand-in for how politicians are talking about this economy.

11:35My name is Jessica Rett, and I'm a professor of linguistics at UCLA. Do you want me, I have some thoughts on like the differences between the word economy and the word affordability. Should I just launch into those? Please. They're both nouns, but affordability is a much weirder noun. Weirder? We come to it via this indirect route. It starts off as a verb, afford, and then we put an ending on it to make it an adjective, affordable, and then we put another ending on it to make it a noun. So it's a nominalized, de-verbal adjective. Who says economists get to have all the fun with the jargon, huh?

12:13I will say it again. a nominalized, de-verbal adjective. Learn something new every day on this job. This sort of snaky path from a verb to a noun means that we were able to distill a bunch of adjectival properties or properties that the adjective that it comes from holds, that the word economy doesn't hold. Whether or not something is affordable is easy enough to understand. Whether or not something is economic, well... Nouns like economy often describe a bunch of dimensions all at once, but affordability is really honing on a particular dimension. All right, so let's dig in just a little bit.

12:53So if I have the word liquid, it could refer to a bunch of different properties at once, like viscosity, ability to evaporate, boiling point, pourability. But if I use the word pourability, I'm just focusing on one of those dimensions. Affordability is one dimension of this entire economy, but it is the one that for sure is hitting home. The economy is something that you have to have a PhD in order to be a specialist in. There are economists. They live in Chicago or wherever they might live. But everyone's an expert in affordability because it's very subjective, right? It's relative to their own personal experience.

13:35And, you know, it's something that they have a daily interaction with. Yes, there is a more cynical take to be had here. If you're a politician trying to connect with voters, affordability is a way easier thing to talk about than the entire economy. So that's the Ph.D. linguists' breakdown of affordability. What about the Ph.D. economists? The ones we spoke to, you should know, do not live in Chicago. Yes, that's true. People do talk a lot about affordability more than before. Mihaela Pintia is chair of the economics department at Florida International University. So when we talked about different economic indicators such as GDP growth, inflation, unemployment, so this typically reflects the health of the economy.

14:26We tell you about those big macroeconomic indicators most every time they come out. And even though unemployment and inflation, at least in our latest kind of outdated because of the shutdown readings, are a little higher than what the Fed wants, they're pretty solid by historical standards. But we have known for a while now that people don't feel solid about this economy. See also another term that was trendy a couple of years ago, vibe session. The disconnect between those economic stats and how people are feeling, affordability bridges it pretty nicely. What about me? Yes, maybe somehow everybody else is doing OK.

15:03But why is it that I'm left behind? Why is it that I have a hard time just living my life? The answer is that all kinds of essentials cost more than they used to. Abdullah Al-Burrani is an economist at Northern Kentucky University. I have friends that when they talk about affordability, they're talking strictly about grocery prices. And then I have friends as well that are thinking about if they should be working or not because child care has become so expensive. It's bigger than just year over year inflation. Let's take what happened over the past 10 years. According to the most recent data we've got, it's from September.

15:43Compared to 2015, grocery prices have gone up by about 30 percent. Shelter costs by about 50 percent and medical care costs by more than 30 percent. Is my income growing at a rate that allows me to buy the products that sustain my life? And the answer for a lot of people is not really. And I think that's what the average American is complaining about when they bring up the term affordability. Which makes sense. But even though affordability, or the lack of it really, is easy to feel, it is a little trickier to measure. The common conversation that I have with people is, can I afford life, which is the subjective part because we spend money on different things and we have different priorities.

16:31And that's where it gets a little complicated. Complicated because one person's life might include paying back student loans, another's feeding a family of five, yet another's paying a mortgage. And if you multiply all those differences out, there are endless definitions of affordability. It's subjective, like Abdullah Al-Burrani said, but it lands because it does capture the reality of life in this economy right now.

17:24Coming up. So you can call us at midnight in your jammies. Uh, good to know. But first, let's do the numbers. Dow Industrial is up 663 points today. 1.4 % closed at 47 ,112. The NASDAQ picked up 153 points. That is close to 0.7%, 23 ,025. 65. The S &P 500 found 60 points in the couch cushions, about 9 tenths percent, 67 and 65. Kristen was telling us about the shape of retail as we barrel into the heart of the holiday spending season. Well, here we go. Dick's Sporting Goods picked up two tenths percent, said it was going to close some footlocker stores. Best Buy rose 5.3 percent on the day in its latest quarterly report.

18:07It said consumers were spending a nice amount on cell phones, laptops and game consoles. Same store sales. We went over those the other day. They rose 2.7 percent. And Kohl's up 42%. Today, the retailer raised its full-year forecast and surprised investors by posting a quarterly profit. Told you earlier about affordability. So here are some affordable companies. Dollar General, the one that has a yellow sign with black letters, grew 2.5%. Dollar Tree, that's the one with the mildly abstract green tree in the logo. It was up 5.4%. I defy you to help me tell them apart. Bonds up. Yield on the 10-year T-note down to 4.0%.

18:43That is a bet, gang. The Fed is looking to cut. That's what the market's saying. You're listening to Marketplace.

19:15Let us make your bad day better. Find an agent at CINFIN.com. It's never too early for Lowe's Black Friday deals. Snag some of our biggest savings of the season right now, like 25 % off select pre-lit artificial Christmas trees. And get yourself free Select DeWalt, Cobalt, or Craftsman tools when you buy a select battery or combo kit before the Black Friday rush. Because everyone loves free stuff, right? Lowe's. We help. You save. Valid through 12-3 while supplies last. Selection varies by location. The McDonald's snack wrap is back. You brought it back. Ranch snack wrap. Spicy snack wrap. You broke the internet for a snack.

20:02Snack wrap is back.

20:08Lowe's early Black Friday deals are going fast. Don't miss up to 50 % off select major appliances. Plus, up to an extra 25 % off when you bundle select major appliances. And with Christmas around the corner, you're going to need more string lights, right? Save$4 on GE LED 100-count string lights. Now just$5.98. Lowe's, we help. You save. Valid through 12-3. Selection varies by location. Select locations only. While supplies last. See Lowe's.com for more details. This is Marketplace. I'm Kai Rizdahl. All right, quick. What's big? Green comes out of Moline, Illinois, and can tell you a thing or two about this economy.

20:49If you guessed John Deere Farm Equipment, you know more about Moline than the average person, I would say. Also, more ways to figure out what is economically what, too. The maker of Iconic Tractors and Farm Equipment reports results tomorrow, which will tell us a thing or two about how the trade war is playing out in ag and in manufacturing. Marketplace's Savannah Peters has that one. John Deere's annual Day Before Thanksgiving earnings call means the company plays a special role in lots of analysts' holiday traditions. We have fond memories where my kids would be in the backseat and I'd be doing the Deere conference call from some parking lot somewhere.

21:27Stephen Volkman watches the industrial sector for Jeffries. This year, he'll take the call from his home office, and he'll be looking for signs of how Deere is managing tariffs on steel, aluminum, and components it imports to its U.S. factories. There's been a lot of inflation in equipment markets, and frankly, there's a little bit of fatigue, I think, around price increases. Volkman says U.S. manufacturers are trying to avoid passing more costs onto their customers. Deere has predicted tariffs will take a$600 million bite out of its 2025 profits. The company is facing pressure on the demand side, too, with farm profitability slipping.

22:11Chad Hart is an agricultural economist at Iowa State University. Whenever we see that decline, it tends to also mean that, you know, farmers heighten their belts. Hart has his eye on Deere's year-over-year sales as a reflection of farmers' optimism, or lack thereof. You're talking about, you know, large tractors, combines that can cost hundreds of thousands of dollars. And so when incomes are dropping, it's hard to justify that large expense. John Deere also makes construction equipment. And Kristen Owen, senior analyst with Oppenheimer, expects that to be a bright spot in tomorrow's report. I think it tells us a lot about the day-to-day economy that we all exist in, whether it's the food that we're eating on the Thanksgiving table or the roads that we're driving over.

23:03In this time of lagging economic data, Owen says John Deere's performance gives us a window into how American companies are navigating the trade war squeeze. I'm Savannah Peters for Marketplace.

23:37Artificial intelligence, I'm sure I do not need to tell you, is everywhere. where social media is clogged with AI slop. Everybody's got their own chat GPT-like assistant. It is changing how we live and work. So we're going to spend the next couple of installments of our series, My Economy, talking about just that. My name is Rhonda Conger. I am the vice president of CBH Homes in Boise, Idaho. I kind of make a joke about this, but I don't know if you know the Savannah Bananas, the baseball team, and they're still playing baseball, but they're doing it so differently. And that's kind of how I want to view us as a home builder, that we're out there, you know, doing things completely different.

24:20And that's what really one of the main reasons why I think we embraced AI so early.

24:29One of the things that I always say is we're a tech company that happens to build homes. You know, know, we have a saying around here at CBH Homes that speed wins. And so, you know, when we dove into AI, that was one of the main reasons. We just knew that it was going to help us compete at such a different level if we were open to it. Obviously, we started at the basic level, like everybody else, writing emails and you're writing job descriptions and you're like a PR release. And then we started using it for higher level things, analyzing data and looking at, all areas of the company in different ways.

25:11We use AI for our sales follow-up and for our long-term connection because people need to be constantly reminded about buying a home. And that takes a lot of connections, a lot of emails, a lot of phone calls. And so we have an AI that does the lion's share of our long-term follow-up for us so that our team can spend more quality time with people who are ready to buy right here, right now. You know, if you want to look at from a buyer perspective is we introduced it to our warranty department. And so you call into our warranty department and you're going to talk to our AI agent first. And they do such a good job of answering like, you know, what's my paint color?