transcript

Speaker 1:
[00:00] Vantage Score, the modern credit score used by 3700 institutions, including 9 of the top 10 banks. Built with trended and alternative data, Vantage Score is more predictive, scoring 33 million more consumers than conventional credit scores. Now accepted by Fannie Mae and Freddie Mac for conforming mortgages, Vantage Score 4.0 safely unlocks approximately 2.7 million new mortgages and up to $1 trillion in new loans. Better credit score, better data, better mortgage decisions. vantagescore.com.

Speaker 2:
[00:33] This message comes from Capital One Commercial Bank. Your business requires commercial banking solutions that prioritize your long-term success. With Capital One, get a full suite of financial products and services tailored to meet your needs today and goals for tomorrow. Learn more at capitalone.com/commercial. Member FDIC.

Speaker 3:
[00:59] What should you look at to see what the war is doing to this economy? Well, when you find out, let us know, would you? I'm kidding. I'm kidding. From American Public Media, this is Marketplace. In Los Angeles, I'm Kai Ryssdal. It is Monday today, 20 April. Good as always. Have you along, everybody. Let us begin today with what I hope is a self-evident truth. Nobody knows what's gonna happen. The straight is open. No, it's not. Talks are happening. No, they're not. You get the picture. And should you be looking to market indicators to make sense of things? Don't. Equities honestly don't know which way to turn, and you kind of can't blame them. Oil and other commodities are being whipsawed as well, which is why we are going with the bond market to start week eight of this war. Treasuries, as have we all, have had a lot to digest, but they can be a crystal ball of sorts. Demand for government bonds can tell us how nervous investors are as they turn to treasuries in times of trouble. And the yields those traders demand can tell us how much inflation they expect. So Marketplace's Justin Ho starts us off with the signals that short, medium, and long-term government bond yields are sending us right now.

Speaker 4:
[02:29] Yields on short-term government debt, as in treasuries that mature in a couple of years or less, are heavily influenced by what traders expect the Federal Reserve to do with interest rates.

Speaker 5:
[02:39] Traders have concluded the Fed is very likely on hold at least through this year and perhaps through next year as well.

Speaker 4:
[02:48] That's Chris Lowe. Chief economist with FHN Financial. He says short-term yields are basically in line with the federal funds rate, which the Fed sets. That's a signal that traders don't expect any changes. Lowe says investors think this because the war is causing inflation to pick up.

Speaker 5:
[03:04] The Fed would, in fact, like to cut rates probably another half percent at some point, but they're not going to do it until inflation is materially lower than it is now.

Speaker 4:
[03:17] Then there's medium-term yields. Treasuries that mature in five or seven years.

Speaker 6:
[03:22] If you are investing in five-year notes or seven-year notes, longer-term inflation expectations become a bigger concern.

Speaker 4:
[03:29] That's John Canavan, lead economic analyst at Oxford Economics. He says even though the war is pushing up inflation in the short term, longer-term inflation expectations are actually tamer.

Speaker 6:
[03:39] And what we have seen since the prospect of an end to the war grew a little bit more optimistic, we've seen a decline in those inflation expectations, a notable decline.

Speaker 4:
[03:50] That kind of optimism has also helped to relieve pressure on long-term bonds that mature in 10, 20, or 30 years. Randy Vogel is head of fixed income with Wilmington Trust.

Speaker 7:
[04:00] With a less drawn out conflict or resolution to the conflict, defense spending doesn't increase as significantly, and budget deficits don't jump as big as they would have otherwise.

Speaker 4:
[04:11] Which means the Treasury Department wouldn't have to flood the market with new debt and pay higher interest rates to attract borrowers. But if the war escalates, that would most likely mean higher budget deficits, more defense spending, and higher interest rates on long-term treasury bonds and on credit card debt, mortgages, and all of the other kinds of debt that bond yields influence. I'm Justin Ho for Marketplace.

Speaker 3:
[04:35] Here's one for your macroeconomic calendar. Should you find yourself with a free moment tomorrow morning, 10 o'clock Eastern, you could do worse than tuning in to the Senate Banking Committee hearing. The guest of honor will be Kevin Warsh, President Trump's pick to chair the Federal Reserve. Wall Street today. So look, here's a thought. Maybe traders are just done with the war and all the head-snapping news thereof. Major indices down a little bit. We'll have the details when we do the numbers. There's just a lot happening in this economy right now between the lingering effects of tariffs and inflation and slowing growth and the war, and it's going to be months at least before consumers start to feel the full effects. But effects a bit short of full are beginning to crop up, and our bellwether of choice today is fresh tomatoes. The most recent Consumer Price Index shows tomato prices were up 15% in March from a month earlier, up more than 22% in the past year. Marketplace's Kristen Schwab looks at the humble tomato and the cost increases along its supply chain.

Speaker 8:
[06:08] Alejandro Sanchez has been growing tomatoes in Mexico for more than 15 years, and he says if he had to start all over, honestly, he would think twice.

Speaker 9:
[06:19] I don't know that I would have done it if I had known. It's much harder than I thought.

Speaker 8:
[06:24] Tomatoes are a high-maintenance crop. Sanchez, who's Managing Director at Vista Produce, says they need the perfect balance of temperature, light, and fertilizer.

Speaker 9:
[06:33] You can do everything right and still have a terrible year. So, for example, right now, I have pests that I didn't have 12 years ago. There's a type of spider, like red spider, never seen it. Now it's all over.

Speaker 8:
[06:48] Spiders aren't even his biggest worry right now. What really keeps him up at night is how much the economics of growing tomatoes is changing. Minimum wage in Mexico went up 13% at the beginning of the year, and cherry tomatoes are labor-intensive. Each one has to be picked by hand. Packaging has also gotten more expensive.

Speaker 9:
[07:07] Like, we had to increase the width of the polyform because tomatoes would get bruised otherwise.

Speaker 8:
[07:14] And this is all before the produce even hits the border. According to the USDA, about a quarter of every dollar Americans spend on vegetables is tied to farm production. And yes, tomatoes are vegetables, not fruits, according to US tax law. The rest of the cost of growing a tomato is mostly transportation and import taxes. David Ortega is a food economist at Michigan State.

Speaker 10:
[07:37] And so it's really this perfect storm of factors that are impacting tomato prices.

Speaker 8:
[07:44] Last summer, the US put a 17% tax on Mexican tomatoes, and the timing of that tax collided with a terrible growing season in the US. A cold snap in Florida, where most domestic fresh tomatoes are farmed, caused $160 million in damage. It's put more pressure on imports, which Ortega says makes up 70% of American supply.

Speaker 10:
[08:07] It's really tough to tease out, well, how much of this price increase is it because of the war in the Middle East versus the tariffs versus weather, just because all of these things are kind of happening at the same time.

Speaker 8:
[08:20] Skip Hewlett is chief legal officer at Nature Suite, which handles every part of the tomato chain from growing to importing to distribution.

Speaker 6:
[08:28] We like to say we take our product from seed to smile.

Speaker 8:
[08:31] He says because of the war, diesel prices are up. They spiked more than 40% in March alone. It means getting tomatoes from Mexico to grocery stores all over the US is getting more expensive.

Speaker 11:
[08:43] When you transport them, it's under refrigeration, in other words, cold chain.

Speaker 8:
[08:47] Which uses more diesel than a regular freight truck. With this long list of pressures, stunted supply, growing labor costs, high import taxes, pressure on fertilizer prices and gas prices, tomatoes will likely continue to cost a pretty penny all summer.

Speaker 3:
[09:03] You know, if you eat a hamburger, you have tomatoes on it.

Speaker 5:
[09:05] If you eat a salad, you have tomatoes on it.

Speaker 11:
[09:07] If you eat pasta, you have tomato sauce.

Speaker 8:
[09:10] And experts say it's only a matter of time before the price of fresh tomatoes starts trickling down to the price of canned and processed foods. I'm Kristin Schwab for Marketplace.

Speaker 3:
[09:45] There was some research out from Morgan Stanley not too long ago that showed about 60% of the most prestigious AI institutions on the planet are in the United States. So yes, this country is a leader in artificial intelligence, but also 40% of leading AI institutions are not here. And it turns out China is closing in fast, very fast. Sebastian Malaby is just back from a reporting trip to China to see what artificial intelligence is like there. He's with the Council on Foreign Relations, the author most recently of a book called The Infinity Machine. The headline on his piece of the New York Times about his trip is called, I went to China to see its progress on AI. We can't beat it. Mr. Malaby, welcome to the program. It's good to have you on.

Speaker 12:
[10:30] So great to be with you.

Speaker 3:
[10:31] So you go to China to talk about artificial intelligence. In a nutshell, what did you see?

Speaker 12:
[10:37] The big surprise, Kai, was that when I was there, people brought up safety more than I had expected. I was in four different cities, Shanghai, Beijing, Shenzhen, Hangzhou, and pretty much everywhere I went, whether I was talking to tech leaders at companies or AI researchers at universities, they would say to me, look, we have this window right now to make AI safer before it gets too powerful, and we need to seize it.

Speaker 3:
[11:06] Here's the thing, though, that I don't quite get about China and its development in artificial intelligence. The Biden administration, Secretary Raimondo, went to great lengths to impose limits on what the Chinese could use of American AI development, the chip exports, all of those things. And the gist of your piece is, that hasn't worked. The Chinese figured out a way around it, and we have to deal with it.

Speaker 12:
[11:28] Pretty much, yes. I mean, those export controls were imposed by the United States and its allies in 2022. So points to the Biden team for seeing this coming before ChatGPT was even released. But it didn't work in terms of depriving China of cutting-edge AI models. They went ahead and they figured out a way of building them anyway.

Speaker 3:
[11:51] Did they just reverse-engineer what we've done? I mean, it seems too simple to say that, but that's sort of... How else are they doing it?

Speaker 12:
[11:58] Well, that is part of it. There is this technique called distillation, where a Chinese model maker can get lots of outputs from an American one, and those outputs help it to more efficiently train its own AI model. But then there's also the fact that China has excellent AI engineers. It produces scientific papers on AI at a prestigious rate. We shouldn't underestimate just how good they are.

Speaker 3:
[12:25] Aside from the experts that you spoke with, how are lay Chinese people using AI? Because, look, I'm a bad example. I dabble in it, but that's the broad swath of America, right? There are people who are really good, but most people are like, yeah, it's a thing. We use it sometimes. What's it like over there?

Speaker 12:
[12:43] There's more optimism about AI in China and in Asia generally than there is in the United States. I think if you look at the polls in the US, two out of three people see AI as a threat, not an opportunity. In China, there's much more readiness to download even models that might be a bit dangerous, like the OpenClaw one, which was a big thing about a month ago. When I was in China, there were photographs in the newspapers of mom and pop consumers lining up outside tech companies to get help from the engineers to install this OpenClaw thing on their laptops.

Speaker 3:
[13:18] Just to see what it could do, just for the heck of it.

Speaker 12:
[13:20] Yeah, because it's an agent and you can tell the agent to organize all the information on your laptop, and it's fun to play around with, but it's also dangerous and they didn't seem to mind. Hmm.

Speaker 3:
[13:31] You suggest in this piece in The Times from the other day that really what needs to happen now is... I'm paraphrasing, but work with me here. Enough of the AI arms race. What needs to happen is that China and the United States have to get together and negotiate some kind of global safety pact on artificial intelligence. Is that fair as a fair characterization?

Speaker 12:
[13:51] Pretty much. I mean, some element of arms race and competition is inevitable, but I think you can try and do both at the same time. In the Cold War, that was when the agreement for the IAEA, the International Atomic Energy Agency, was done. Then you go forward to the 60s, and despite the Cuban Missile Crisis, the Nuclear Non-Proliferation Treaty was agreed. So you can have what's known as adversarial cooperation, and I think that's what we need to think about now.

Speaker 3:
[14:21] Which I appreciate, and of course, Reagan and Trust But Verify does come to mind, but Donald Trump and Xi Jinping are not Leonid Brezhnev and Ronald Reagan.

Speaker 12:
[14:28] That's true, but maybe they need to switch, right? I mean, I actually think that in China, at the elite level, in terms of sort of AI company leaders, influential academic researchers, these people whose views often do filter up into the Communist Party were much more open to talking about safety than I expected. Now, on the American side, you're right that there was no interest in controlling AI until maybe a couple of weeks ago, because then you had mythos, this new cyber hacking model come out, and all of a sudden, Treasury Secretary Scott Besson is summoning the banks, telling them to take it seriously. And I think there's a bit of a mood change in Washington about needing to regulate AI.

Speaker 3:
[15:12] Sebastian Malaby, just back from China on a reporting trip. He's at the Council on Foreign Relations. Also, he's got a new book out, mostly about the subject at hand, actually. It's called The Infinity Machine. Sebastian, thanks for your time. I really appreciate it.

Speaker 12:
[15:23] Great to be with you.

Speaker 3:
[15:47] Coming up.

Speaker 13:
[15:48] Not to toot my own horn, but we make colorful, fun, and functional things.

Speaker 3:
[15:53] Well, color me curious, huh? First, though, let's do the numbers. Dow Industrial is basically flat, 49,442. The Nasdaq down 64 points, about a quarter percent. 24,404. The S&P 500 subtracted 16 points, also a quarter percent. Ended things at 71.09. War? What war? Speaking of which, renewed unrest between the US and Iran maybe has vexed US airlines. We don't really know. Investor worry, of course, is higher fuel costs and lower demand. Delta dipped 7 tenths percent. United down 2.8 percent. JetBlue declined 2 percent. And the cruise industry, Carnival, down 7 tenths percent. Norwegian descended 3.5 percent. Royal Caribbean, or Caribbean, take your pick, down 1 and a tenth percent. Energy, you ask? Sure, we can do that. ConocoPhillips rose a third of 1 percent. ExxonMobil picked up 8 tenths percent. Chevron went the other way, down 4 tenths of 1 percent. Ahead of new figures on retail sales tomorrow, about which more in a second? Performance of a couple of retail stocks today. Dollar General lost about 2 tenths of 1 percent. Home Depot gained 4 tenths percent. Bond prices went down, yield on the 10-year. T-Note rose 4 and a quarter percent. You're listening to Marketplace.

Speaker 11:
[17:09] Advanced Manufacturing Demands Precision. Aerospace Demands Trust. In Puerto Rico, companies like Honeywell, Lufthansa Technic, and Collins Aerospace deliver complex engineering and high-value production within a US jurisdiction. That means federal regulatory alignment, strong IP protections, and fast access to the US mainland, plus competitive tax incentives and a STEM-trained workforce. From aerospace to advanced manufacturing, the infrastructure is proven, and the talent is here. It's not what's next, it's where. Puerto Rico. Visit investpr.org.

Speaker 1:
[17:47] Running a business is hard enough, so why make it harder with a dozen different apps that don't talk to each other? Introducing Odoo, the only business software you'll ever need. It's an all-in-one, fully integrated platform that makes your work easier. From CRM, accounting, inventory, e-commerce, and more. And the best part, Odoo replaces multiple expensive platforms for a fraction of the cost. This is why over thousands of businesses have made the switch. So why not you? Try Odoo for free at odoo.com. That's odoo.com.

Speaker 11:
[18:17] This Marketplace podcast is supported by Viking, committed to exploring the world in comfort. Journey through the heart of Europe on an elegant Viking longship with thoughtful service, destination-focused dining, and cultural enrichment on board and on shore. And every Viking voyage is all inclusive with no children and no casinos. Discover more at viking.com.

Speaker 14:
[18:41] This is Ira Glass of This American Life. Do you know our show? Okay. Well, either way, I'm going to tell you about it. We make stories, old-fashioned stories that hopefully pull you in at the beginning with funny moments and feelings and people in surprising situations, and then you just want to find out what is going to happen and cannot stop listening. That's right. I'm talking about stories that make you miss appointments and ignore your loved ones. This American Life, every week, wherever you get your podcasts.

Speaker 3:
[19:11] This is Marketplace. I'm Kai Ryssdal. We're going to do a one-two here on war and what it is doing to US consumers and businesses. Because while it is true that this country has been less affected than Europe and Asia, what's happening here is not nothing. Case in point, that global commodity, crude oil and its derivatives. The national average for a gallon of diesel fuel sits right now at $5.53 a gallon. That is from AAA. A year ago, it was $3.57. And for a whole lot of companies in this economy, smaller ones in particular, the costs of war are very, very real, as Marketplace's Stephanie Hughes reports.

Speaker 15:
[19:50] At West Plains Veterinary Supply in Springfield, Missouri, their customers are pet stores and farm stores, and they sell things like cattle IDs, animal vaccines, a lot of dog food.

Speaker 5:
[20:00] Pretty much everything that goes in or on an animal.

Speaker 15:
[20:03] Joseph Babbitt is an accountant with the company, which owns a fleet of trucks to make deliveries. All of them run on diesel. And since the war began, the company's fuel costs have risen on average by five grand a week.

Speaker 16:
[20:14] Just depending on how many miles we're running that week.

Speaker 15:
[20:17] Babbitt says the company hasn't raised their prices yet, but he says eventually they might have to. Rising diesel prices have also affected George Peake. He owns and operates a 100-acre cotton, soybean, and pecan farm in central Georgia.

Speaker 17:
[20:30] We're actually in a kind of a major drought right now, and so diesel is a big part of our irrigation fuel. This has just added 30%, 35% to our fuel cost, and that's concerning.

Speaker 15:
[20:45] The Peake says there's another aspect to the war in Iran. It's driven up the price of one of the crops he grows, cotton.

Speaker 17:
[20:52] That's because the big competition for cotton is polyester, which comes from oil. So the increase in oil prices has inadvertently really helped us.

Speaker 15:
[21:02] And when polyester goes up in price, that means there's more demand for cotton.

Speaker 17:
[21:06] And I'm like, yes, people, quit wearing that deadgum oil on your body, you know, wear cotton.

Speaker 15:
[21:13] In Annapolis, Maryland, commercial diver Bill Eubanks runs his own business, Harbor Diving Services. He repairs everything from small boats to large shipping vessels. He says his worry is that high diesel prices will keep people from taking their pleasure boats out.

Speaker 5:
[21:28] I need them to go out and break something up, sink, or blow something up.

Speaker 15:
[21:34] Eubanks says it's just the start of the boating season. He'll know in the next couple months whether he has successfully navigated these uncertain waters. In Baltimore, I'm Stephanie Hughes from Marketplace.

Speaker 3:
[21:45] The flip side of how businesses are doing right now is, of course, how consumers are doing. And we'll get a sense of that in the morning when the Census Bureau releases retail sales for March. Consumers, as we know, have been disgruntled for a good long while now, but that hasn't really had much of an effect on how we're spending. Marketplace Smith-Fields has more on what we might learn in the morning.

Speaker 18:
[22:07] Every expectation is that retail sales were likely strong in March. Elizabeth Pancotti at the Groundwork Collaborative says there are two reasons for that.

Speaker 19:
[22:16] One is it is tax refund season, and we know that every tax refund season, we see a bump in retail sales as folks spend those one-time refunds. And two, as prices go up, retail sales go up.

Speaker 18:
[22:29] And prices have been going up. But she says refunds, which are bigger than usual this year because of last year's budget bill, are the main reason for the expected bump in spending. That infusion of cash is likely making people less sensitive to price increases from both tariffs and the war in Iran, at least for now.

Speaker 19:
[22:46] I suspect as we head out of tax season, this is really the inflection point in all of that data.

Speaker 18:
[22:51] Especially if the war continues and prices keep rising. But Mark Matthews at the National Retail Federation says that is still an if.

Speaker 20:
[23:00] We need to see at least a few more months of higher prices, I think, before it really begins to impact consumers' ability to spend.

Speaker 18:
[23:08] Inflation fears and the war are already affecting how consumers feel about the economy. The latest consumer sentiment numbers are the worst they've ever been.

Speaker 20:
[23:17] But like we have seen since 2020, there's been a complete disconnect between consumer psyche and consumer spending.

Speaker 18:
[23:25] Gas prices have a big impact on consumers' psyches, and they're now about a dollar higher than before the war. Wendy Edelberg at WestExecAdvisor says that translates to roughly $70 more a month on average for a two-car household.

Speaker 21:
[23:39] That's unpleasant, but I don't think that that's enough to get people to radically change their spending plans.

Speaker 18:
[23:47] What could is if oil and gas prices stay high and push the cost of all sorts of other things up, too.

Speaker 21:
[23:54] I think the way that the war is going to show up is through grindingly higher inflation that just comes more broadly.

Speaker 18:
[24:02] But Edelberg says that's going to take a little time. I'm Samantha Fields for Marketplace.

Speaker 3:
[24:30] Sam just gave us the macro on expectations for the retail and consumer economy a minute ago, but it is always good to pair that big picture analysis with the micro, the people who are actually doing the buying, and for us right now, the selling in this economy. Annie Lang Hartman is one of our retailer regulars. She runs Wild Letty, that's a gift and stationary store in Leonel County, Michigan.

Speaker 13:
[24:52] Business for Wild Letty right now is actually pretty good. It's just the start of the year for us. Winter is very slow. For the year, we're up 10%, which feels really, really good. Most of the money that is coming in is online orders, and then we also do wholesale, so we work with other retailers all over the country. We're definitely feeling the price increases. Our utilities are going up. One of the things I've really been noticing is our shipping costs are going way up. We offer free shipping for online customers if they purchase a specific amount of products, so like 75 or more, with shipping costs being so high, we're definitely going to have to raise that threshold this year. I feel like I hung on for as long as I could, but it is time to raise that threshold. People that are coming in the door and spending money are just wanting to spend money on something that's going to make them happy right now. So I feel like that is the perfect place to do that. Not to toot my own horn, but we make colorful, fun, and functional things. So we're kind of hitting that with people that have spendable income right now. This time of year, it's that crunch of not much sales are coming in, but we're spending a significant amount of money getting products ready for the summer. So it's kind of just like, hold on, things are going to be absolutely wild in just a few weeks. This is my favorite time of year, kind of just getting this hard work done, so we can just focus on talking to customers in the summer.

Speaker 3:
[26:52] Annie-Lang Hartman, Wild Letty, Leelanau County, Michigan. This final note on the way out today, Tim Cook is getting kicked upstairs. Apple announced this afternoon that after 15 years in charge, Cook is going to become executive chairman. The quarter office, if you will, in Apple's billion dollar, notably round headquarters building in Cupertino, goes to John Ternes. Who, should you not be familiar with him, is currently the senior VP of Hardware Engineering. Amir Bibawe, Caitlin Esch, John Gordon, Noya Karr, Steve Mullis, and Stephanie Sieck are the Marketplace editing staff. Kelly Silvera is the news director. And I'm Kai Ryssdal. We will see you tomorrow, everybody. This is APM.

Speaker 22:
[28:14] Jingle, jingle, jingle, jingle. Gather round, children, young and old, Vermillion Bazillion's holly jolly Tax Day Season 10 premiere spectacular starring Bridget and Ryan.

Speaker 16:
[28:26] That's right, we're back with brand new podcast episodes just in time for tax season.

Speaker 23:
[28:32] And what good timing we have, right? Because Ryan needed a major lesson on getting his taxes done.

Speaker 5:
[28:37] I really did.

Speaker 16:
[28:38] I learned all about 1099s, W-2s, audits, though I probably could have skipped the deal with the strange, ominous man in the hooded cloak who said, If you choose this shadowy path, beware, you'll have to indulge in a creative interpretation of US tax law.

Speaker 23:
[28:57] Yeah, I didn't like that last part. Anyway, tune in this week to learn all about what you should and shouldn't do for a smooth tax season. Listen to Million Bazillion on your favorite podcast app.