Off-price retailers shine as consumer moods sour

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0:48On the program today, we will do that Friday thing that we do, and then we'll talk about you. Yes, you. And why you are so discontent. From American Public Media, this is Marketplace.

1:16In Los Angeles, I'm Kyle Rosdahl. Friday, today, 21 November. Good as always to have you along, everybody. The data has started flowing, kinda, so we have an idea of where this economy, well, where it was back in September. That is where we're going to start today with Greg Ip at the Wall Street Journal. He is a one-man show for us today. Hey, Greg. Hey, Kai. How are you? I'm well. So let's talk the September jobs data, 119 ,000 new jobs, unemployment rate ticked up to 4.4%. First of all, your gut on what it tells us. Well, good news. We got more jobs in September than people were expecting, 119 ,000.

1:55Bad news, we learned that the number of jobs actually shrank in the month of August. So if you actually average those two months, you get around 60 ,000 jobs a month, which is not a boom time, but also not a really bad time. It's sort of like just puttering along. Now, as you pointed out, the unemployment rate did tick up to 4.4%. And in fact, it seems to have been ticking up steadily over the last three or four months. So when you put those two pictures together, very slow job creation, slowly rising unemployment rate, and a few other things that we know about, like the fact that there aren't a lot of people claiming unemployment insurance, it looks like what we call the no hire, no fire economy.

2:37Not a lot of hiring going on, but not the kind of ways of layoffs that you expect if the economy were actually going into a recession. Well, no waves of layoffs is a good thing, but I'll point you to another data item that came out today. The Bureau of Labor Statistics said that it's just canceling the October report on the consumer price index, inflation at the consumer level. Number one, what do you think of that? And number two, if you got one piece of data that you could grab right now, what would it be? it would be that piece of data that we're not not going to get the october cpi uh because um i mean think about it there the next inflation report we're going to get is uh going to be actually for the month of november and that'll be in the middle of december which will actually come after the federal reserve's next policy meeting and what are the two things people care about most right now the job market and inflation well we have some job data but we have no inflation data So there's a very important part of the economic picture missing.

3:42And since all people seem to want to talk about these days, including, you know, President Trump, whether he likes it or not, is affordability. It would be sure nice to have some of the official consumer price index data on hand. But it just looks like we're not going to have any for a little while. I saw this idea go by on my social feed today, and I would credit it if I remembered. Somebody had said, you know, the Fed ought to just push its meeting back to wait for this data. Just quickly, what do you think about that? I mean, they're never going to. Yeah, I don't think so. I mean, if they really wanted to, they could just decide not to do anything in December, and then they'll meet again in January.

4:19But, you know, the fact that they don't have data on the economy doesn't mean that nothing is happening in the economy. and the two things that they care about, the job market and inflation, need to be dealt with, whether or not they actually have the numbers in hand. It's like I said yesterday, it's Schrodinger's economy. You know, the economy could be great, it could be terrible, we're not going to know until we open the box. Yeah, that's right. Like, we don't even have a date for a new GDP figure. And honestly, for those of us in the, you know, who watch these numbers for a living, it's a little bit of a scary process opening up that box.

4:53That said, we've been getting a flow of sort of private data along the way. And we have the stock market to watch on a daily basis. And that kind of reinforces, I think, the overall picture of an economy that's got a sluggish labor market and a little bit of an inflation problem. Let me ask you a little bit, Greg, about the Fed. We had Heather Long on the program on Wednesday-ish, I think. And we were talking about the Fed for some reason and how there's been lots of chatter, let's call it, from Fed officials. They would probably be offended to hear it called chatter, but they've been making lots of speeches and they are, number one, being very specific about what they think about the course of interest rates.

5:31And number two, there is very strong disagreement. And that's a quote from the Fed minutes about what they think ought to happen. Heather's position is that all this dissent is good. I'd be curious to hear what you have to say. Well, look, as a general matter, yeah, you don't want groupthink. you would expect that think thoughtful people would have disagreements on the data and what they should do. That said, I've been watching the Fed for many, many years, and I don't recall a meeting that had so much disagreement and so many potential dissenting votes as the one we're going to have in the second week of December.

6:07Now, why is that? Well, I think one reason is because, as we were just discussing a minute ago, is that the data are telling two kind of contrasting stories. It's telling us that the job market is sluggish, and that would normally call for lower interest rates. But the last data we had on inflation tells us that around 3%, it's still too high, at least too high for the Fed, which wants 2 % inflation. And that would call for keeping interest rates steady. So the fact that you have data pushing in opposite directions, it's not surprising. There's a contingent of officials that want to deal with the labor market and cut rates.

6:43And a contingent of officials say, no, we should worry more about that high inflation and not cut rates. And so to that extent, I think dissent is understandable and perhaps, yes, healthy. But there's another piece of it which is perhaps not so healthy. Because you can see in the backgrounds of the people advancing these positions, a lot of the people who want to cut rates were appointed to the Fed by President Trump. And we know that President Trump has been very insistent that he wants low interest rates. On the other side, some of the people who don't want to lower interest rates are associated with former President Joe Biden or Democrats.

7:20So to the extent that these positions reflect not disagreements about the data, but political preferences, that is probably not so healthy. And I think in the coming year, because we are coming to a time when there will be a new Fed chairman, when the current chairman, Jay Powell, steps down, it would be a bit worrisome if we see politics become a more important factor in determining how the Fed sets interest rates. I think that is a very, very, very big if. And I think it probably leans one very specific way coming up in May when Jay Powell steps down. Greg Ipp of the Wall Street Journal. Greg, thanks a lot.

7:55Thanks for having me. Wall Street today, you know, the thing about markets is that you never know what they're going to do one day to the next. Big up day to end a big down week at the corner of Wall Street and Broad and Lower Manhattan. We will have the details when we do the numbers.

8:42You sure can say this for the American consumer. We are consistent in our discontent. November's consumer sentiment data from the University of Michigan came out this morning. And it turns out we feel pretty much the same this month as we felt about the economy last month, which was pretty bad. One thing about consumer sentiment surveys in general, though, is that they, like so very much else, are becoming increasingly political. If your party's in the White House, you're more likely to feel good about the economy. If your party is not, you're more likely to feel bad. And as Marketplace's Kristen Schwab reports, that split has become so persistent, there are some economists that are questioning how much consumer sentiment even matters anymore.

9:22There are two kinds of economic numbers. Soft data like consumer sentiment and hard data like consumer spending. And Hector Sandoval, who directs the economic analysis program at the University of Florida, says historically the first was a good predictor of the second. Before the pandemic, it worked perfectly. Then came COVID, historic inflation, and a presidential election. Though political affiliation had always influenced consumer sentiment, the correlation became more pronounced. Now it's more noisy. Now that there is some kind of contamination, if you want to call it like that, on how we measure the mood of consumers.

10:00The mood is moody enough for some economists to question the usefulness of the data. Joanne Hsu, who directs the surveys of consumers at the University of Michigan, says one way to better gauge sentiment is to hone in on how independents feel. Because their confidence tends to land somewhere between that of Democrats and Republicans. And that is something that hasn't changed. We've seen that now through across three different presidential administrations. Because the independents do seem truly independent, Xu says the survey records what party respondents currently lean toward, and over time, many flip back and forth.

10:37This sort of volatility is why Sophia Beig, an economist at Morning Consult, says answers about how people are feeling now are more accurate and less partisan than answers about long-run expectations. Because you probably voted for or support the economic vision of whatever party is in power and then feel better about the future. Or the opposite. You didn't vote for the party in power, so you think things will get worse. Begg says what's notable is when this trend breaks. Morning Consult's survey shows Republican sentiment is in sharp decline. Through a lot of what was going on in the early days of the Trump administration, they continued to be more and more optimistic about the economy.

11:20But now it's been going down pretty steadily since June. Even though their party is in power. I'm Kristen Schwab for Marketplace.

11:59On the list of government economic data that we have gotten was an update on trade this week. The trade gap in August, the difference between what we bought from overseas and what we sold abroad, The trade deficit narrowed in August. Imports in particular were 5 % off from the month before. Again, that's August. Thank you, shutdown. But private data from the shipping company Descartes shows imports stayed weak in September and October. What then do you suppose that might portend? Marketplace's Justin Ho is on it. Every month, Zach Rogers, a professor at Colorado State University, surveys supply chain managers.

12:37He asked them how much they're charging for shipping and how much capacity they have on trucks and trains and in warehouses. And a few months ago, he noticed something he'd never seen at this time of year. We saw in August, September, and then through the first half of October that capacity was growing faster than price. Rogers says that's unusual because this is peak season as retailers try to stock up ahead of the holidays. And so supply chain capacity is usually low and prices are high. But this year, he says companies shipped a lot of stuff before the president's tariffs kicked in. Most of the things that needed to be imported for the holiday season came in in the summer.

13:19And so all these places had a lot of inventory sitting there for three months. And during those three months, nothing was really moving. But even if companies already have the holiday goods they need, Rogers says it can be a worrying sign when transportation capacity grows faster than the price of transportation. And every time we've seen that happen for, you know, three, four months in a row, we've dipped into a freight recession. Freight recessions are basically times when the transportation sector gets smaller. Profits shrink. Hiring slows down. Some transportation companies might go out of business.

13:55And the sector has already been showing signs of stress, says Megan Schoenberger, senior economist at KPMG. One of the biggest leading indicators for freight is trailer production. So it's the production of the trucks that transport goods. It is extremely low at the moment. Schoenberger says the freight sector has been struggling for a while now, really ever since the pandemic. And while consumer spending has been holding up this year, the biggest question we have moving forward is once people start to run out of those inventories that they stocked up on, do they start to restock the shelves with the same products?

14:30Do they order less? Schoenberger says a freight recession isn't the same thing as a recession recession. But if businesses do end up ordering fewer goods, Schoenberger says that would be a red flag for the overall economy. We've actually never really seen a significant decline in goods spending outside of a recession. Companies have a few reasons to order fewer goods this coming year. Tom Goldsby, a professor of supply chain management at the University of Tennessee, Knoxville, says for one, companies don't know how consumer spending will hold up, given how difficult it is to forecast anything thing right now.

15:04Rather than relying on inventory to provide that safety blanket, as so many organizations would, as they would typically maybe enter into a healthy sales period, they might take more of a wait-and-see approach. Plus, ordering too many goods can be costly. And if we see the general economy cooling off, it's going to be even more costly because it means you're holding on to inventory for a longer period of time. But the economy might also keep humming along. And in that case, low inventory levels could actually cause the freight sector to pick up steam. Zach Rogers at Colorado State says retailers would end up bringing in more goods more often.

15:44Because the pressures of cost on inventory is so big, it could actually push freight into a more robust market because you need a lot of transportation if you're going to be turning things over quickly. And that could help bring the freight sector out of recession. I'm Justin Ho for Marketplace.

16:22Coming up. We have buyers. Policy change. We don't. Gotta go find some more. And so it goes. But first, let's do the numbers. The Dow Jones Industrial Average up 493 points today, about 1.1%, 46 ,245. The Nasdaq grew 195 points, about 9 tenths percent, finished at 22 ,273. And the S &P 500 added 64 points, about 1%, 66 and 2. For the five days gone by, the Dow and the S &P both trimmed about 1.9%. The Nasdaq declined 2.7%. Bitcoin continues to drop and so do crypto mining companies like Riot Platforms down about a half percent. American Bitcoin down 3.3 percent. Apparel retailer Gap jumped 8.2 percent.

17:09Today, the San Francisco-based company beat expectations on same-store sales. You hear that from time to time, the phrase same-store sales. What does it mean? Well, it's the change in revenue for existing stores over a set period of time. It's a way to calculate sales growth for established locations. Does not repeat not take performance at brand new stores into account. Now you know. Bonds were up. Yield on the 10-year Tino down 4.06%. You are listening to Marketplace. This is the story of the one. As a maintenance supervisor at a manufacturing facility, he knows keeping the line up and running is a top priority.

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18:22And with VentureX, you get access to over 1 ,000 airport lounges worldwide. Open up a world of travel possibilities with a Capital One VentureX card. What's in your wallet? Terms apply. Lounge access is subject to change. See CapitalOne.com for details. This is Marketplace. I'm Kai Rizdahl. Let's discuss retail now, shall we? We got earnings from a couple of big retailers this week that tell two different stories. Target came first. It reported a third quarter decline in traffic and sales, and it cut its outlook for the year. TJX followed. That's the owner of TJ Maxx, Marshalls and Home Goods, off-price stores, as they're called.

19:01They actually beat expectations and raised their profit forecast. Marketplace's Carla Javier looked into the advantages then of being an off-price retailer. The off-price retailers are really strong right now, says analyst Janet Kloppenberg of JJK Research. There's very few retailers who are performing at the level that TJX is performing at. That success starts with the business model, says Nicole DeHoratius at Columbia Business School. A lot of times they're buying excess inventory from other retailers or other brands. She says the challenges facing retail lately, including tariffs, benefit the TJX model.

19:43The more challenge that the traditional retailer has in ordering goods, in forecasting inventory, in forecasting their own demand, the better off the TJX companies are because there's going to be supply and demand mismatches. Which means excess inventory to buy and sell. They're providing high-quality products at a less-than-normal retail price. Peter Zaleski, an economist at Villanova, says that's why these stores consistently get a lot of traffic. It's not a very highly cyclical company. So in a boom, they may not see sales spike, but in a recession, they may actually pick up customers. The off-pricing is especially attractive now, says Stephanie Sigelski of ICSC, a trade association for the marketplaces industry.

20:32consumers are getting hit at the grocery store. And so they're trying to find ways to, you know, still get those things that they need and clothes for themselves and for their children, but doing so at a lower price point. And even though they are getting deals at the big box retailers too, she says consumers also enjoy the hunt for that perfect shirt that might not be at their local TJ Maxx next time. I'm Carla Javier for Marketplace.

21:20Back in 2021, the American Rescue Plan, that's the Biden era pandemic recovery law, it created a couple of programs to boost local produce ecosystems. That's local farms and ranchers and small-scale growers. In April of this year, the Trump administration canceled both. So now those growers and the groups that benefited are scrambling to find new markets in what is already a challenging business, as Marketplace's Elizabeth Troval reports. On a plot of land next to Highway 90 in southwest Houston, Toto Alamasi chose me around his less-than-an-acre farm. Here he grows sugarcane, cassava, okra. Wearing a bucket hat and red button-down, he holds up a plant with little magenta pods.

22:04This is the rosal pod, hibiscus. We grow this in Africa, back home. Home is the Democratic Republic of the Congo. Alamasi moved to Houston in 2011 through the U.S. Refugee Resettlement Program and was connected to a non-profit called Planet Forward, which was created to help refugees learn to farm in Houston. To farm here, it looks like back home. Only back home, we have only two seasons. He and his wife have adjusted to farming the four seasons here in Houston. It's a full-time job for them. It isn't lucrative, but it's been enough for them to pay their bills. We sell to the farmer's market, and our big customer is Planted Forward, the organization.

22:46Planted Forward buys a lot of produce from Alamasi and other refugee farmers and sells it to wholesale purchasers like the Houston Food Bank. Well, they used to. This year, the Trump administration ended the USDA funding that food banks used to buy produce from local small-scale growers. That has left food banks with less produce and farmers like Alamasi without buyers for their crops. It's a problem that's top of mind for Planet Forward CEO Najjar Ruffman, who I meet at the nonprofit's food hub where produce is cleaned and stored. It's sort of a micro warehouse where the farmers can come in, they could sort out the produce, they could weigh it, they could wash it.

23:27Planet Forward is under a major overhaul right now to help keep farmers like Alamasi in business. They're looking for new buyers and shifting to a more cooperative model. Can we come together and can we prioritize which produce to grow based on what the market demands are? If one farmer is very good at one particular crop, let them do more of that and let the other farmers do less of that. Rothman is also trying to expand Planet Forward's educational mission beyond refugees, since that program has mostly winded down under Trump. Now they're working with schools and the formerly incarcerated and on getting farmers special certifications that would allow them to sell to new buyers like cafeterias.

24:09And they're not the only ones having to pivot. I meet farmer Jeremy Peaches at his grocery store. He buys from local growers, and he's also a farmer himself and lost buyers because of the USDA cuts. It's just a sign of the times. Like, we have buyers, policy change, we don't. Gotta go find some more. But while he looks for new buyers, he can't totally stop planting. Because what if I find one, but I don't have that product ready? Then that means I can't fulfill a need. So it leaves uncertainty. But he is scaling back from growing on 25 acres to 15. And he's hired fewer workers. Peaches says small farmers have to do everything on their own.

24:56That's why pooling together produce to nail down higher volume contracts is a strategic pivot. That's why co-op or these groups need to get together, do more marketing and find more buyers. But organizational change takes longer than harvest season. And farmers like Toto Alamasi have produced the need to sell now, this year. He can't count on the food bank. He fears what this means for his business. If even food bank cannot come back, we are afraid how we will continue. Food bank was our bigger customer. The market cannot finish on. He's not sure what he's going to do. He's not selling enough produce right now to cover his mortgage.

25:43But for now, he keeps tending to his farm. In Houston, I'm Elizabeth Troval for Marketplace.

26:22This final note on the way out today, which is a reminder that I definitely need to call my agent. Maybe you saw this the other day, that Parmigiano-Reggiano, the cheese, is going to be repped, as they say in Hollywood, by the talent agency UTA. The Consortium of Parmigiano-Reggiano said, and this is a quote, Parmigiano-Reggiano stands for simplicity, quality, and depth, and we are excited to explore new formats and platforms to express this story globally. I am totally calling my agent on Monday. Totally. Our theme music was composed by B.J. Liederman. Marketplace's executive producer is Nancy Fargali.