The data dogs are howling

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1:14Shutdown or the Federal Reserve? Shutdown or the Federal Reserve? We're going to go Federal Reserve. From American Public Media, this is Marketplace.

1:36In Los Angeles, I'm Kyle Rizdahl. It is Wednesday today. This one is the first of October. Good as always to have you along, everybody. Interestingly, the macroeconomic story of this Wednesday is not the government shutdown. It is bad and it is not a great way to run the world's most important economy. But big picture, it is probably just going to be a ripple. The big picture, big news is that the Supreme Court this morning said Lisa Cook can stay at the Federal Reserve at least until it hears arguments in that case in January and then decides. So it's lucky for us that we were able to get another Fed official on the phone today.

2:14Austin Goolsbee is the president and CEO of the Federal Reserve Bank of Chicago. Austin, welcome back to the program. Kai, great to talk to you again. I have to start with the Lisa Cook news. Obviously, the Supreme Court this morning, as I said in the introduction, is letting her stay in the office at least till arguments on this case in January. I really dislike prefacing questions, but I kind of have to at this point. Every time I ask a Fed governor or a regional Fed president like yourself about the politics of this economy, the invariable answer is it doesn't affect things at all. It is simply not believable that the tumult around the Federal Reserve in politics right now with Stephen Mirren and Governor Cook is not at least somewhere in your mind.

2:56Discuss. Well, let's separate two different things. One is what drives FOMC decisions around the table when we're setting interest rates? And there, everyone takes the job extremely seriously. And what drives interest rate decisions is the economic outlook and the data and what the economic conditions are. In this, I'm not a lawyer. I don't know anything about the cases that are being made or going to Supreme Court. I do know that the Fed needs to be independent from political interference when setting interest rates. It's as simple as that. Do you worry that that independence is at risk now? I don't worry because, A, I'm not a worrier type.

3:46But B, as I say, when you sit around the table at the FOMC, my observation is people take the job extremely seriously. And so I have no reason to think that that won't continue. All right. Let me get you back in your comfort zone. And I ask you this question, as you have described yourself many a time on this program, as a data dog. We are, as you know, in the middle of a government shutdown early stages. Yep. We're not going to get the jobs number on Friday. You are a data dog. How worried are you about the shutdown in this economy? and your ability at the central bank to figure out what the heck is going on.

4:21Yeah, look, the data dogs are howling because, you know, we're not getting our usual supply of information. I will say I consider the Bureau of Labor Statistics job data to be the absolutely best data source on jobs and statistics in the entire world. If we aren't going to have those, it's problematic. That said, the Chicago Fed has come out with some new job market indicators and we'll be releasing them tomorrow, which give a real-time forecast of the unemployment rate using 11 different sources, some private, some public. It will allow us to say what the unemployment rate would have been. And kind of one of the key rules of the data dogs is sniff every piece of data that hits the floor because it might be food.

5:21And so that's what we're going to have to do. I mean, the best number is the BLS number. But if we don't have that, we're going to use the Chicago Fed numbers and other numbers. Perfect timing, actually, for you guys to be rolling this thing out. Let me ask you, though, about the job market, because you have said in a speech or in some remarks the other day, and this is just an observable fact, we are in a low hiring, low firing environment, right? There's not a lot of stuff going on there because consumers and mostly employers are really nervous. What do you make of that? Yeah, that's an unusual situation to be in.

5:59And that's one of the things I've been trying to highlight is that's not a normal recession. So if you looked at payroll employment and saw it going down, normally if that were the beginning of a recession, you would expect that the layoffs would be going up. But layoffs aren't really going up. But the hiring rate is low. I do think some significant part of that is the natural result of uncertainty, that there's a lot of stuff going on that as I'm out here in the 7th District talking to business leaders, they're still saying, well, we're trying to get clarity of where the tariff rates are going to end up, what's going to be exempted.

6:41They're a bunch of question marks that people are sitting on their hands a little bit. And that contributes to an environment where they're not letting people go, but they don't want to hire people either because they want to get some clarity. Yeah. And in plain English, people sitting on their hands does not economic activity make. Yeah, true. But yet at the same time, a lot of times what we'll do is go look at the most cyclically sensitive, interest rate sensitive parts of the economy as the canary in the coal mine to tell you where are we in the business cycle. That's normally business investment, consumer durables, housing construction.

7:22And we're getting a mixed picture if you look at that. Business investment is actually pretty strong. Consumer spending overall has been looking surprisingly strong so far, even for the third quarter. Housing construction is the weak spot in there. So we got some cross currents and going into a period where you're trying to figure out, is this a transition? And then you're not going to get the data is just that much harder. Yeah. You have talked about being worried about cutting too fast, cutting interest rates too fast, too early. So given all that you've said to me this morning and that sort of belief that you have, which side of the mandate do you come down on now?

8:05Are you more worried about jobs or are you more worried about price stability? I'm worried about both. That's a great answer. Yeah. I guess my concern is we've been four and a half years above the inflation target. And when inflation was shrinking and it felt pretty comfortably to me, like we're on path to 2%, I was, as you know, pretty out front saying I think rates can keep coming down. I still feel that way, but I'm starting to get a little more concerned when inflation is going the wrong way. We've been four and a half years above 2 % and now inflation is rising. and counting on that inflation will probably be transitory and just go away.

8:58Given the history of the last three, four years, that makes me nervous. And while the Bureau of Labor Statistics is down, let's remember, those are the folks who also tell us the inflation readings. And while we have some other indicators of the job market, we don't have that many indicators about inflation. and that we started to see a kind of a disturbing uptick in services inflation, which is not really likely to be driven by tariffs, that is an area of concern at the least. You know, I was going to let you go, but then you went and used the word transitory, which honestly coming out of the mouth of a central banker is a gutsy move, man.

9:43I should have whispered it. Right. You totally should have. Do you believe that these tariff impacts will be transitory on the price level? I certainly hope so. You know, the theoretical argument is if it's a one time, one and done tariff, that would increase the price level and it would not be a lasting inflation shock. But the thing is, so far, it hasn't been won and it is not done. So I think we want to be a little way. I think we want to be a little careful. I still think the underlying economy is a pretty strong economy and that we can get rates down a fair amount. I just don't. I want us to be careful, overly front loading before we have the evidence.

10:26Austin Goolsby, it's Chicago Fed. Thanks, Austin. It's always good to have you on. Guy, great talking to you again. On Wall Street today. Well, let's see a government shutdown. Weaker than expected labor market news. What? Me worry? We'll have the details when we do the numbers.

11:06If you are, perchance, wondering why all of this shutdown, Mishigas, is happening right now, Now, October the 1st is basically New Year's Day for the federal government's finances, the beginning of its fiscal year 26, which will run through the end of September 2026. And Washington isn't the only one whose budget doesn't work on that traditional January to December timeline. Lots of private companies do it, too. So why? Here's Marketplace's Matt Levin. There's not a lot of partying for federal fiscal New Year. No ball drop from the top of the Congressional Budget Office. no Ryan Seacrest broadcast from the roof of the IRS.

11:44University of Maryland federal budget expert Phil Joyce didn't even stay up till midnight last night. It's not really much of a celebratory event because we usually haven't done the things we need to do by the beginning of the fiscal year. So it's a little bit more of an opportunity to commemorate failure than it is success. Congress decided in 1974 to push the beginning of the fiscal year back to October 1st to give it more time to deliver a budget. Joyce says even if Congress has only met that October 1st deadline four times, starting the fiscal new year on the actual calendar new year would be a bigger headache.

12:22If the fiscal year started on January 1st, then it would be December when we were having all these sort of machinations around, you know, trying to approve the budget. While they disagree on just about everything else, neither Republicans nor Democrats want to work the holidays. Those holidays are when big box retailers do most of their business, which is why companies like Target and Walmart end their financial year January 31st. 31st. Mike Bellen is at accounting and consulting firm PwC. I think it's for peace of mind that many of those companies have chosen a 131 to make sure they are capturing the revenues, returns, activity for that really busy period.

13:08And they kind of have the peace of mind to close the books at January 31st. Doing year-end financial results during the holiday rush is just too much work. So companies add a month of breathing room. Even if a company wants to change its fiscal year, it might also have to change other aspects of the business, like its performance review schedule. There's a lot more to think about outside of just financial reporting, tax, legal, operational matters, employee matters that have to be considered. So it is a pretty heavy lift. And private companies can't postpone their budget deadlines as easily as Congress apparently can.

13:44I'm Matt Levin for Marketplace.

13:57here's a story about how scale really does matter walmart says it's going to remove synthetic food dyes and some other additives from all of its store brands by 2027 that's private labels like better goods and great value which is as it happens the most popular in-store brand in america Walmart says 90 percent of its products are already free of those additives. But as Marketplace's Megan McCarty Carino reports, even a 10 percent change for a retailer as big as Walmart, that's a big deal. Walmart dominates grocery sales in the U.S. and its competitors aren't even close. The retailer gobbles up almost a quarter of the market share, says analyst Arun Sundaram at CFRA Research.

14:41So there's a pretty large gap between Walmart and the rest of the grocery industry. He says their private labels have been a driver of growth in recent years as inflation-weary consumers hunt for deals. So any changes to those products are sure to make waves. It's a sign, you know, of where consumers are heading, where grocery retailers are heading, and we're probably going to hear other retailers follow suit. Walmart has transformed the food landscape before, like when it leaned into organics in the mid-2000s. Phil Lempert at Supermarket Guru says Walmart helped bring that once niche market mainstream.

15:17It blew it up. Now about 80 percent of all consumers buy some organic foods, and a lot of them are buying it from Walmart. But the surge in demand for organic products also blew up the supply chain of what had been mostly smaller scale farms, says Marion Nessel, professor emeritus of nutrition and food studies at NYU. Well, it became industrialized and the big producers pushed the Organic Standards Board to relax requirements. The sudden switch to natural food colorings could also challenge supply chains, says David Schoenaker, a food industry consultant and former president of the International Association of Color Manufacturers.

16:02Take, for instance, carmine, a natural substitute for synthetic red dye used in sauces and baked goods. Carmine is made from the female cochineal insect that only grows on cactuses in Peru, the Canary Islands, and a little bit in Mexico. Okay, there's only so many of those cactuses. He says more competition for natural dyes like carmine could mean higher prices for red velvet cake. I'm Megan McCarty Carino for Marketplace.

16:47coming up it could be used to fund sidewalks or infrastructure it is the community development block grant but first let's do the numbers the Alindustrial is up 43 points today about a 10 percent, 46 ,441. The Nasdaq up 95 points, four-tenths percent, 22 ,755. The S &P 500 tacked on 22 points, about three-tenths percent, 6711. Matt Levin was talking about the whole concept of the fiscal year. Apple just started a new fiscal year as well. It gained three-tenths percent. Today, Disney also rang in a new fiscal. Its shares went the other way down, 1.3 percent to start its FY26. Megan McCarty-Curino was talking about Walmart and synthetic dyes.

17:31shares of the Bentonville behemoth were in the red, losing 1%. Today you're listening to Marketplace.

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20:16This is Marketplace. I'm Kai Rizdolm. One of the things that's not going to be happening because of the government shutdown is the September jobs report from the Bureau of Labor Statistics that we were supposed to get Friday morning. Austin Goolsbee and I were talking about that. But one does make do with what one's got. And what we've got is the National Employment Report, which was out this morning from the payroll processing firm ADP. The private sector dropped 32 ,000 jobs last month, most of them at small and medium sized businesses, as Marketplace's Daniel Ackerman explains. John Ebis runs a small landscaping firm in Minnesota.

20:52He's got five employees right now, same as he's had all season. But looking ahead... The future projection to me is downhill. Ebis says it's getting harder to drum up business. The customer base that we had before was wider, and that's narrowing. He says his remaining customers tend to be the wealthier ones. They're less concerned about price, right? They're less price sensitive. However, it's a narrow patch. And he's not sure how long he can keep going without slashing his workforce. Tuan Nguyen, an economist with RSM, says with prices rising and consumer sentiment falling, companies like the one Ibis runs are the canaries in the coal mine.

21:34Small and medium-sized businesses are often the ones that are under the most pressure in this situation. Nguyen says they just don't have much room to maneuver around changes in consumer behavior or tariffs. Smaller firms have been and will continue to be far more likely to raise prices in response to tariffs, while larger firms can afford to absorb some of the costs. Nguyen says small firms might have no choice but to shed workers. Today's ADP numbers suggest that's what's happening. And even though large firms with 500 or more employees added jobs last month? This is such a small proportion of total employment, it makes no difference to the overall trends.

22:15Pavlina Chernova is a professor of economics at Bard College. She says 90 % of employers have fewer than 100 workers, and right now, they're not eager to hire more. It's another look at the weakening labor market. And to track what happens next in that labor market, Chernova says the ADP data is helpful, but it's no match for the Bureau of Labor Statistics. Because that is a far more comprehensive data source. For now, though, Chernova says she'll take any data she can get. I'm Daniel Ackerman for Marketplace.

22:54There's a kind of inside the Washington, D.C. beltway saying about budget negotiations that's relevant to this next story. The president proposes, the Congress disposes, the saying goes. That is, the president sends his budget wish list up to the Capitol. Congress actually decides what to appropriate. And when the government eventually reopens, lawmakers are going to have to decide whether to keep funding a 50-year-old program aimed at helping lower and middle-income Americans and the communities they live in. Community Development Block Grants, they're known as, CDBGs. They've been used for everything from infrastructure upgrades to Meals on Wheels to arts programs.

23:35The White House zeroed them out in its budget proposal for this fiscal year. Their committees in both houses of Congress have put them back. Marketplace's Henry Epp went out to see what actually happens with these grants in the real world. Alicia Westcott of Burlington, Vermont, is trying to get her online nail business off the ground. The type of nails I do are more like wow factor. She makes long, elaborate acrylic nails, often decked out with glittery illustrations of cartoon characters. I like to mix like Y2K pink, black with like a little bit of grunge, but also like 90s cartoon aesthetic.

24:12She's built up a following over the past few years, showing off her nail creations in Instagram and TikTok videos. And now she's starting to sell her own custom kits of acrylics and glitters so her followers can make similar nails, which is why she's been spending a lot of time in John Gergely's office. He's an advisor at the Microbusiness Development Program at the non-profit Champlain Valley Office of Economic Opportunity. Shopify wants the tax ID? Yeah, it keeps showing me a red... Okay, let me see what that does. Okay. Gurgley and Westcott hunch behind a computer to wade through a state tax form.

24:48Gurgley's here to advise hopeful entrepreneurs like Westcott, thanks in part to a community development block grant. About$70 ,000 federal dollars a year supports the program. He's already helped Westcott set up an LLC, put together a business plan, and after tackling that tax form, Gurgley helps her figure out the per unit cost of the tiny amounts of glitter she sells in her nail kits. So you paid, in this case, what,$134 for three kilograms, right? Mm-hmm. Three kilograms is, what, 3 ,000 grams, correct? I don't know. Let me look it up. No, it is. It is. Okay, okay. Gergley pulls out a calculator to figure out the cost of each 10-gram jar of glitter Westcott plans to sell.