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You want data? We got data. And we got seven minutes to talk about it, too, so stick around. From American Public Media, this is Market Class. In Los Angeles, I'm Kyle Rizdahl. It is Friday today, 26 July, I do believe. Good as always to have you along, everybody.
The data this week came with a variety of initialisms attached. GDP for gross domestic product, of course. PCE as well for the personal consumption expenditures index. The feds go to inflation gauge. Here to help us gauge what it all means are Nila Richardson. She's at ADP. Kate Davidson is at Bloomberg. Hey, you two. Hey, Kai.
Hi, Kai. So, Kate, we will begin with you and the data gross domestic product growing in the second quarter at 2.8% annualized, better than people had been expecting. PCE in this morning, the Fed's preferred inflation gauge at the headline level 2.2 and a half percent, 2.5%, about in line with expectations, a touch better maybe. And, you know, the past couple of months, it's been at Fed's desired 2% level. What do you make of this?
Yeah, I mean, this is like the soft landing in action, right, Kai? That's certainly what it seems like. This is exactly what the Fed is going for. Inflation is continuing to improve, but it's basically showing that the Fed's tightening campaign, you know, this year of high rates, rates have been at the
current level for a year this week. It's the highest in more than two decades. And in some ways, you didn't see in some ways, it might look like they're not really having that much of an effect. There's not that much bite. But we have seen this kind of gradual cool down. We've certainly seen inflation come down. And yet we're seeing the economy pretty much hold up. Consumers are still spending. That's healthy. Companies are investing. They're buying a lot of a
equipment. So this is exactly what the Fed wants to be seeing. All right. Hold that thought on consumers, because, Neela, I want to ask you about the long and variable lag, right? Powell talked all the time as they were in the process of raising rates. Monetary policy works with a long and variable lag. Thank you, Milton Friedman. And that it was going to take a while for inflation and the economy to respond. It follows then that
monetary policy works with a long and variable lag when they cut rates as well. So gauge for me, if you will, the overshoot danger here, that they keep it too high for too long with the numbers looking as good as they are.
Yeah. So those lags are important. That's embedded in the Fed's forward guidance. It's embedded in everything they do. And to give you a sense of how long that lag is, it's usually six months to a year, depending. So if they start cutting rates now, there's...
no guarantee that that's going to show up instantly in things like GDP. Now, the good news is that GDP was stronger than most economists expected. So the economy is still in a pretty strong state, at least stronger than what economists previously thought. So if they start cutting relatively soon in the next few months, it doesn't look like that we'll have an uptick in inflation and or a downturn in inflation.
Right.
The observation that you just made gets lost all the time. It's like once the Fed starts cutting, they're going to keep cutting. No, a data dependent Fed that is patient on the way into a rate cutting cycle will be patient and data driven through a rate cutting cycle.
That means that they may cut and then take a couple of months off, see how things go, cut again. And so it's going to be a while, back to Kate's point, that consumers actually feel the effects of the rate cut when they start cutting.
Okay, so two consumers, and thank you for that segue, Neela Richardson. You could probably host this program. Kate, let me ask you about consumers who continue to spend. We saw that in the GDP figure the other day, and yet consumer sentiment, we learned this morning, is at an eight-month low. Consumers feel terrible, but they're still spending. How long can that possibly go on?
I don't know. It feels like the same story month after month. Maybe it's the heat, Kai. I don't know. They're grumpy. Consumers know, understandably, it's legitimate. Prices are still very high. And I think they are still frustrated about that. People remember, it was just a few years ago, prices were a lot lower. And I think that they're still hanging on to that. They're still feeling that. We saw in the latest data that if you look at the
the current conditions gauge, which is part of this Michigan sentiment survey that came out today, that fell to the lowest since the end of 2022. And the sense from the director of the survey, at least as she related, was that high prices are continuing to drag down attitudes, particularly
particularly for people with a lower income. So even though people, you know, if you look at the survey results for what people expect for inflation, I mean, they see and they expect that it's coming down, but they're just still feeling the pinch, you know, in their pocketbooks when they go to the grocery store, when they go to the gas station. And that's what's just continuing to weigh on attitudes. Yeah. Okay. So I had thought that maybe today would be a good time for my favorite game. What is Jay Powell thinking in five words or less? But Nila, I know you hate that game. So we're not going to play that game. We're going to play a different game.
The Fed meets next week, Tuesday, Wednesday. He will, of course, take questions after the announcement comes out. Let's say you're in that room, Neela, in the building on Constitution Avenue and you get a question. What's your question for the Fed chair?
Great. My question to Chair Powell is this. We know that the Fed is data dependent, but what data are you looking at now? If you look at this entire inflation cycle, the data in perspective has changed. It started with job openings.
And the point that was made by the Fed was something to the liking of there were two job openings for every one unemployed worker. So the labor market was still very tight. Is that still the right metric we're looking at? Or have we morphed into something else? Is it PCE inflation? Is it core PCE?
see inflation? Is it housing? What are you depending your views on? And I think that will give us more of a trajectory of where inflation is going, where it's likely to pop up and what the Fed is actually worried about now. All right, good. And now, Kate Davidson, you can deploy your army of Bloomberg reporters, but you get to go in the room this time. What do you like to ask the Fed?
Yeah, I mean, I think I would ask Chair Powell about the timing and the pace and the size of potential cuts, because I actually disagree with Neela's earlier comment a little bit. I don't think that Fed officials want to cut and then wait for a while and see what happens. Yeah, I don't
think they're going to be going every month by any means or every meeting. I do think that they'll be a little bit slower and deliberate, and I think that they will want to see how the economy reacts, but I think they don't want to be in a situation where they're just kind of hanging around. Because if they...
If they didn't mind that, I feel like they would have cut by now. So how are they thinking about this? Is it going to be a quarterly sort of cadence? I don't think that Jay Powell would answer that really. But I do think it's worth asking what would it take for you to cut rates by more than a quarter percentage point because there are traders that are actually starting to increase bets on a possible 50 basis point. That's a half a percentage point cut at a meeting sometime this year if the labor market weakens. So that's what I'd ask. Hmm.
Very interesting. Kate Davidson of Bloomberg, where she's in charge of economic policy coverage, and Neela Richardson at ADP. Thanks, you two. Thanks, Kai. On Wall Street today, they were buying the dip, people, buying the dip. We'll have the details when we do the numbers. ♪♪♪
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That PCE number that Neil and Kate and I were talking about got all the headlines, of course, but there was more in there that is worth a mention. Personal income was up in June. We are bringing home more money. Consumption was up, too. The thing that's down is savings. The personal saving rate, how much we all save divided by disposable income, was 3.4% in June. That is the lowest that number's been in more than a year and a half. Marketplace's Stephanie Hughes explains why it matters.
When describing how consumers are doing right now, economist Robert Frick likes to quote comedian Larry David. I like to say it's pretty, pretty good. We're earning more. We're spending more. But there's a reason there's a couple qualifiers in there before good. Frick, who's with the Navy Federal Credit Union, says most people don't have much money left over to save.
Lower income people truly are tapped out. And the burden of inflation is still very real and heavy. And we're going to certainly be feeling that for at least a year or two to come. It's not just higher prices, it's higher interest rates. If people have been buying things on credit or taking out loans, they have even less money left over, says financial risk consultant Mayra Rodriguez-Valladares.
Credit cards certainly have been brutal for American consumers, right? The rates have been so high. And so it's very difficult for Americans to save. Others are choosing not to save because there's more tempting places they can put their money.
Merrill J. Reynolds Jr., who's on the faculty of the banking school at Southern Methodist University, says people who can afford to are investing. Might be real estate, might be stocks. Potentially the stock market or other types of investments out there have certainly been more lucrative, provided you know what you're doing. For those determined to stash some money away, economist Robert Frick says to snap up a savings account with a higher interest rate.
They're not going to be around forever, and they're pretty, pretty good. I'm Stephanie Hughes for Marketplace. Manufacturing in this economy? Honestly, it gets a bad rap. We don't make anything here anymore, is what you always hear. But actually, we do. More than a quarter million manufacturing factories and facilities employ around 13 million people and account for more than 10% of this entire economy.
According to the most recent Beige Book from the Federal Reserve, how well any given manufacturer is doing right now depends at least in part on where it is, literally where it is. According to the Fed, different regions of the country had, and this is a quote, widely disparate trends in manufacturing activity ranging from brisk downturn to moderate growth. It's up in the Northeast, stable in Texas, having a rough time in the upper Midwest. But why? Why?
Marketplace's Daniel Ackerman visited a factory in Waltham, Massachusetts to find out. The machines on the shop floor of Queen Screw have weathered their fair share of business cycles. We have some old-fashioned Brown and Sharp screw machines that were built in World War II, 1940s, that we still run. Peter G. Babigian is general manager. You want to see them? He takes me to a five-foot-tall machine that's used to make all kinds of precision parts. Right now, it's stamping out small plastic rings.
The rings will be used to make medical devices, and Babigian says he's produced quite a few recently. He's not sure why customer orders are up, but he suspects it's the medical industry trying to find equilibrium after the pandemic.
I think during COVID, people ramped up and oversupplied. People have now depleted some of that inventory, so we've picked up a little bit. Many of Babigian's customers are local. The Northeast has a strong biomedical industry and lots of drug makers that support manufacturers like him.
which could explain why manufacturing is up in the region, says Jason Miller, a professor of supply chain management at Michigan State. The Northeast is not a manufacturing powerhouse in general. But he says in Massachusetts and New York... There's a lot of pharmaceutical manufacturing, which has been one sector that has been doing particularly well. Other kinds of manufacturing, though, in other parts of the country have struggled of late. Some of the most...
Negatively affected sectors over the past few years have been furniture with a downturn in housing activity. That's not great for furniture makers in North Carolina and Michigan, which illustrates something important about American manufacturing. Different parts of the country make different things. I often think that Americans forget how big the United States is.
We always see really big differences in the economic situation across the country. Betsy Stevenson is an economist at the University of Michigan. She says the early days of the pandemic saw a huge shift in consumer spending, away from services and towards goods.
Unprecedented, but short-lived. Not many of us are impulse-buying couches anymore.
Stevenson says spending has shifted back towards services, travel and health care, and that doesn't affect manufacturers everywhere the same way. That's not going to impact somebody who's manufacturing medical devices. That is going to impact somebody who's manufacturing couches. There are some unifying economic forces facing manufacturers everywhere. One has to do with that election coming up.
One of the biggest challenges for them is uncertainty. Carolyn Lee is president of the nonprofit Manufacturing Institute. Uncertainty in regulation, uncertainty in laws and policy, all of that has a chilling effect. Legislation passed under the Biden administration has led to record investment in factory construction, but it's unclear if that can continue.
Also, Lee says there are 603,000 more challenges for manufacturers. That's the number of unfilled jobs in the sector. And so we continue to be challenged by a structural skills gap.
It is absolutely affecting manufacturers everywhere. Still, in a country that makes much of its food in the agricultural heartland and a lot of steel near the Great Lakes, the story of manufacturing is just going to look different depending on where it is. I'm Daniel Ackerman for Marketplace.
Coming up. When you think about all the man hours that were involved, you wonder how you made any profit on the goods. A gentle reminder here that labor is a company's biggest expense. First, though, let's do the numbers. ♪
Dow Industrials up 654 today, 1-2-3%, 40,589. The Nasdaq gained 176, that's points. 1% is the percent, finished at 17,357. The S&P 500 grew 59 points, 1-10%, 54,59. For the five days gone by, the Dow picked up 0.8%. The Nasdaq down 2-10%. S&P 500 gave back 0.8%. Industrial conglomerate 3M,
You know what that stands for, right, DMs? Hit me up on Twitter. Soared 23% today on quarterly revenue that beat expectations. The company also issued an upbeat outlook for its full-year earnings. Bosch added about a half percent. DoorDash rushed up 4% today after the research firm Redburn Atlantic initiated coverage of that stock, indicating strong upside price potential. Deliveroo added 2%. Bond prices went up. Yield on the 10-year T-note first real move this week down to 4.19%. You're listening to Marketplace.
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This is Marketplace. I'm Kai Risdahl. Here is something you might have figured just kind of intuitively, should your mind be the type that wanders to office vacancy rates. According to Moody's, one in five office spaces in this economy are empty. That is the highest vacancy rate ever, and there are those who think it is going to go higher.
Bad as that is, it's an opportunity for some. Developers in major cities want to turn some of that unused office space into housing, but they are looking for government subsidies to make it happen. As WBOR's Simone Rios reports now from Boston, the city is offering building owners a 75% property tax break to ease things along.
When a Los Angeles-based firm bought a six-story office building in Boston, the plan was to renovate, says CIM Group's Rich Kershaw. We were going to upgrade the elevators, upgrade the bathrooms, redo the lobbies and the facade, and hopefully increase the rent. The building was an industrial warehouse before becoming office space. It's a stately old structure, almost the antithesis of the glass towers going up in other parts of the city.
That's because demand for the most modern workspaces in Boston is as healthy as ever. Standing in the empty building next to huge glass panes overlooking the city's south end, Kershaw says they did do the upgrades, but then the pandemic hit. Work from home became the norm for many urban workers, and he could only lease out one of six floors.
I don't see the office being a viable use for the near future. So I think the residential is perfect. The office building is one of 13 in Boston whose owners are exploring so-called resi-conversions. The city says this can do two things. Ward off the threat of office vacancies while adding apartments in one of the country's most expensive housing markets.
Helping lead the effort to explore resi conversions across Massachusetts is Tim Love of Utile Architecture and Planning in Boston. Your downtown will be more successful if you've got more people living over the commercial space on the ground floors. That is going to make your downtown more lively and less a place that goes quiet after five o'clock. This also helps preserve old buildings, but only a slice of them are viable for converting.
Among the other challenges for developers are high interest rates, costs for labor and materials, and the need to overhaul mechanical systems. Not to mention, housing generally commands lower rents than office spaces do. That's why the state is offering owners up to $4 million for resi conversions. And developer Rich Kershaw says these subsidies are key. It's gotten us all here to talk about this and start looking at it seriously.
Developers also face Boston's affordability requirement. 20% of new housing must be set aside for people with lower incomes. Other cities are moving ahead on similar projects. Chicago is in the middle of a massive conversion involving 10 city blocks. The city was able to set aside more than $150 million in subsidies to convert four commercial buildings into apartments. Three of every 10 units will be considered affordable.
And New York City is looking to rezone to make it easier to do conversions in more neighborhoods. Valerie Campbell is a land use attorney in New York. Our clients have a lot of interest, particularly if these current zoning initiatives become effective, we're going to see a lot more office conversions.
Campbell says most New York resi conversions are happening in pre-World War II buildings. But now developers are considering newer structures that are more difficult to convert, with huge floor plates and windows that don't open. Back in Boston, conversions are not likely to fix commercial real estate or solve the city's housing crisis. The city says it needs 69,000 new units in the coming years.
But conversion proponents say doing even one building can make a big difference, starting on its own block. In Boston, I'm Simone Rios for Marketplace.
With all the flashy economic data we got this week, GDP yesterday, PCE today, what I think we missed was advanced retail inventories from the Census Bureau. In June of this year, retailers had 5.3% more stuff on their shelves than the same month a year ago. Stuff, inventory that somebody has to count. Here's today's installment of our series, My Analog Life. My name is Rod Fuller.
I grew up in San Diego, but now reside in South Jersey, and I'm a retired IT exec. Back in the 70s, as I was just starting college, I responded to an ad for a new auto parts chain. They were looking for an inventory clerk to inventory physical goods in one of their stores. The process involved taking inventory sheets,
And you would just run down the list and count the number of parts, mark it in the column. You'd put the date that you inventoried it, and then you'd send those sheets back to the office. We didn't realize it at the time, but it was quite an unwieldy process. You counted the entire store at least once a month. But there were certain categories like oil and air filters where you do them twice a month.
I remember doing a vendor called McCord Gaskets. Nobody liked counting that because they would be stacked side by side and there'd be literally hundreds and hundreds of this stuff and you'd have to go through, pull them out, make sure that the two that were in that slot were actually the same two items so that you could then go, okay, CP101, two.
move on to the next one. And honestly, there were times where you just went, yeah, it looks close enough. In an auto parts store today, the computer keeps track of what was sold. Every time you get rung through the register, they scan that barcode. The inventory is immediately decreased by one for that item that you just bought. When you think about all the man hours that were involved in
You wonder how you made any profit on the goods because when we had just eight stores, there was 12 people working on it. And to me, that's, wow, that's just unbelievable. Rod Fuller, South Jersey. You can tell us about your analog job from back in the day at marketplace.org slash myanaloglife.
This final note on the way out today, one last nod to interest rates to end the week. We talked about the Fed meeting next week. I mentioned yesterday the Bank of China cutting one of its key interest rates. Today, the Russian central bank made a move way in the opposite direction. Its key interest rate was bumped up to 18 percent today, one eight percent double where it was a year ago because, said the chair of the central bank, overheating in the economy has remained considerable.
Wartime footing and all that, right? Our theme music was composed by BJ Lederman. Marketplace's executive producer is Nancy Fargali. Donna Tam is the executive editor. Neil Scarborough is the vice president and general manager. And I'm Kyle Rizdahl. Have yourselves a great weekend, everybody. We will see you again on Monday, all right? This is APM. Understanding personal finance can feel like an impossible task, but it doesn't have to be that way.
I'm Janelia Espinal, and on Financially Inclined, I'll guide you through simple money lessons that will change your financial future. Learn about credit scores, how to avoid scams, and why you need a savings account. Plus, we explore the brain science behind FOMO and what you can do to make smarter money decisions. Listen to Financially Inclined wherever you get your podcasts.
