A divided government could shift the bond market

Voters have spoken and they've echoed a sentiment you may have heard before. The stock market is not the economy. From American public media, this is Marketplace. In New York on Christen Schwab in Forkirisdall, it's Wednesday, November 4th, and it's good to be here with you. Marketplace is not a politics show, but here's what we cannot ignore. The economy is inherently political, and the economy is what decided many races last night. As for what's next, we will report on it the way we always do. One day, one policy change, one data release at a time. We won't be making any guesses here today about Iran and oil prices and tariffs because we have every day forever to tackle any changes that may come. Instead, I want to start with what big picture, a divided government means, more disagreement, more gridlock, and more scrutiny over federal spending. That dynamic could have big implications for something that's been looming over the economy, the bond market, which of course affects you and me and businesses and anyone else who borrows money. Here's Marketplace's Henry Ep. One of the reasons yields on Treasury bonds have risen in recent months is because the federal government has racked up so much debt over $40 trillion. That means the government has to issue more bonds, and bond investors demand for them is not as big as it used to be, since Peter Conte Brown, an associate professor at the Wharton School. But there is a chance that the incoming divided government could lower bond yields, because it'll be harder for a Democratic Congress to get the president's signature on big spending bills and harder for the president to pass big tax cuts. Cooper Howard is Director of Fixed Income Strategy at Charles Schwab, which is a Marketplace Underwriter. There's potential for more fiscal constraint going forward because of the divided government side of things. That could mean the government takes on a bit less debt, doesn't need to issue as many bonds, so bond yields tick down. And lower government bond yields matter to consumers and businesses, as Campbell Harvey at Duke, because when Treasury yields go up, it usually triggers an increase in yields that corporations get for their bonds, consumer loans, and importantly mortgages. The bond market could also get some relief from the new Congress because Democrats will now have more influence over President Trump's appointments to the Federal Reserve, Harvey says. The chance of one particular party capturing the Federal Reserve has decreased, given the election. And an independent Fed is less likely to make decisions that could drive up inflation, and bond yields, Harvey says. But there is also a risk the new dynamic in Washington could royal the bond market, because Congress and the president will have to agree on funding the government. And if they don't, the government could shut down. Again, Peter Conti Brown at Wharton. A long drawn out shutdown could push us over the biggest of cliffs, which is default. That scenario is unlikely, but even just the possibility of the Federal government defaulting on its debt payments could send bond yields up. I'm Henry App for Marketplace. Wall Street today, historically markets tend to get a boost after a election day. When some uncertainty becomes a little less uncertain, we'll have the details when we do the numbers. Here in the next slide, we'll see how the economy will change. A big issue that was up for debate in a handful of states was property taxes, essentially asking voters to prioritize financial relief for homeowners or fully fund public services like fire and sheriff's departments and libraries. The results were kind of split. Among the larger measures, Florida voted for a property tax exemption. Wyoming voted against one. Marketplace's Caitlin Tan has the details. Wyoming is considered the most conservative state in the country and generally prefers less taxes. But last night, residents voted overwhelmingly against a 50% cut in property taxes. I think we all know it was going to be close. I thought it might be a little closer than this. King Coversland oversees the Wyoming Tax Payers Association. He thinks the vote was in response to a previous property tax cut that took a toll on public services. We've seen closures of libraries on certain days, slower service and emergency services like fire or inability to maintain their equipment. He says it could have gotten much worse had the latest tax cut passed. That's what happened in Florida last night. I don't think I envy Florida and what they're going to be experiencing. Florida voters approved a tax exemption on as much as $250,000 of a home's value. What that translates to for Florida's county and city budgets, billions in revenue lost annually. The tax foundation's Jared Walsac says there's a few ways to respond. They can cut spending. They can raise property tax rates on all the property that remains in the base or they can raise other taxes and fees. The second option, raising rates on higher value property, is actually kind of progressive, says Christopher Berry. He's a professor at the University of Chicago because what that's doing is benefiting people who own the lower valued properties. Berry says that's meaningful at a time when everything is really expensive, especially housing. Generally speaking, property taxes are the second biggest component of your home ownership costs right after the mortgage and property taxes go up over time whereas your mortgage payment doesn't. That's because the taxes typically attach to home values, which have gone up in a lot of places post-COVID, says David Meriman. He's a professor at the University of Illinois, Chicago. Areas where they've had the most appreciation, kind of feel what the most they see big increases. And that's when you get big movements to reform property taxes. Meriman says what it comes down to is how much government and public services do you want and how do you want to pay for it. I'm Caitlin Tan from Marketplace. We got the latest data on trade this morning from the Bureau of Economic Analysis and the Census Bureau. The trade deficit fell slightly in September to $105 billion dollars, exports increased more than imports. But big picture, bottom line, we're still a country of importers. With that as our backdrop, we thought we'd check in with one of our regulars in the import business. Daniella Velasquez de Leon is the general manager of Organics Unlimited, a fruit grower and importer based in San Diego, California. Daniella, it's great to talk with you again. Hi, Kristen. It's good to talk to you as well. So the last time we checked in was in May. How has business been? How has your summer and fall? It's been a good year. I can't complain. Sales are good. Sales with every year in produce, there is always something crazy going on, but it's been a good year. What's been crazy? What are sort of the biggest challenges that are top of mind for you right now? I mean, the biggest things are definitely the cost increases that we are seeing with all of the geopolitical situation and, I mean, with bananas that are already a very low priced item, with a low margin, there's not a lot of space to absorb those costs. So that's kind of the main thing that's been taking up my attention this year. Are you talking transportation costs? Where are you seeing the biggest increases? So I'd say the three major increases are in packaging, freight, and then agricultural inputs. Corrigated box prices in Mexico have increased about 10% and then in Ecuador, they've increased upwards of 50% and that's mainly due to the large quantity of paper mills in the U.S. that have closed in recent years. So they make up a lot of the North American capacity. Transportation is also a big one. I think we've all seen it when we go to the gas station, but when fuel prices increase, it's not just the cost of getting the bananas to the U.S. it's also the cost of transporting fertilizer and packaging and pretty much everything else that's needed to produce the fruit. And then the last one is just plastic, even though there's not a lot of plastic that goes into packaging bananas, thankfully, that small amount that we do use to protect the fruit has gone up 25%. So there's some pretty hefty increases. what does that mean for the prices you set for your customers which are retailers what are you hearing from them it's a complicated year because obviously we're all experiencing inflation nobody wants to be paying more at the grocery store I mean I'm going to the store in seeing how my own prices are going up and so it's it's something that we are trying to manage on aren't and at the same time bananas are purchased on on contracts so the prices are set for the year yes sometimes you need to pass along significant costs such as was the case with tariffs but as much as possible we do try to find the way to find efficiencies I think going into next year you know it's not just us everybody in the industry you know Del Monte five stole they've all been talking about you know how much logistical costs impact the price of bananas so I think we're all sounding the alarm on you know hey looking into next year if we want quality and supply to be there we're going to have to take stock of these costs increases well taking all that into consideration do you think bananas will always be the bread and butter not to mix food but of course of your business yes because it's my family's legacy right that's what my grandfather started with and at the same time we've started to diversify we are selling papaya's now we're expecting to have coconut soon frankly I don't think we can just focus on bananas so on our end we need to continue to diversify into different items so that we can continue to serve our customers it's the day after election day so take this question as a political one or not your choice how are you feeling about the future of your family's business that is a loaded question I'm feeling I'm feeling optimistic I mean it the then renegotiation of the USMCA agreement is still underway the US is still trying to fine tune those details with Mexico and and that's important to us it is the day after elections just this morning I was looking at the results and it was such a shock that I don't I haven't even really had time to fully absorb the impact of it but overall I'm I'm feeling optimistic I always do I think we'll figure it out so that's kind of war right now Daniela Velasquez de Leon is the general manager of organics unlimited Daniela thanks so much for catching up thank you Kristen coming up now you know what keeps a lunch lady up at night I thought spooky season was over but first let's do the numbers the Dow Jones industrial average rose 1,569 points 3% to finish at 53,356 the NASDAQ added 364 points just over 1 and 4 10% to close at 25,736 and the S&P 500 found 119 points 1 and 6 10% to end at 76 88 investors took yesterday's midterm results as bad news for Elon Musk's companies Tesla slowed 3 and 1/3% and space exploration technologies aka SpaceX descended 3 and 9/10% 9 years ago drugstore chain CVS staked its future on a roughly $70 billion merger with insurer Etna now the company says a divorce is coming CVS health gave up 12 and a half percent bonds rose the yield on the 10 year t-note fell to 4.88% your listening to marketplace this is marketplace I'm Kristen Schwab Republican Democrat independent whatever opposition to data centers is not a partisan issue poll after poll has shown that people don't want them in their local communities and while that has led to statewide restrictions in Texas Oregon and New York in most of the country the fight is hyper local some residents of Brookwood Alabama a town of about 2500 people have been trying to get their city council to stop 3 data center projects and as marketplace's Kaley Wells reports that effort is forging alliances across party lines before this year that your Rotenberry and Rachel Schaeffer wouldn't have been a likely team Rotenberry is a University of Alabama student from Brookwood about 20 miles west of Tuscaloosa he also works for a Democratic congressional campaign in a very red district get along with the people around here we don't disagree because we're the same we just see a different legislative fix I found him thanks to an intro from Rachel Schaeffer she lives in cotton Dale about 10 miles downstream from where Rotenberry grew up she says she's pretty conservative her ballot this year probably doesn't match his but they agree on one issue that's very important to both of them are we really going to risk all of our environmental magical places so that we can play harder on our phones as many as 3 data centers may be coming to Brookwood and Schaeffer and Rotenberry and their allies do not want them Rotenberry is worried that a data center could make the surrounding air temperature as much as 4 degrees hotter as the Yale Environmental Law Review reported plus the noise the heat pollution air pollution the water pollution I mean it's right by the middle school that I went to middle school in meanwhile Schaeffer says she has an almost spiritual connection to the creek running behind her house she doesn't want to see data center runoff harm it I have a beautiful blue heron that has my morning coffee with me every morning that stands on one leg and we don't want to give that up I mean it's just a magical place Schaeffer and Rotenberry say the overwhelming majority of their neighbors agree with them Nick Phillips disagrees he works for applied digital the developer of reported 3.2 billion dollar project that's closest to starting construction we want to go where we're wanted right so we've gotten to spend some time with folks around the county a little bit and it's been very positive Phillips went to a Brookwood town hall meeting to answer questions and his answers were no the site won't be too loud or bright thanks to lots of forested buffer no it won't raise utility rates no toxic wastewater won't flow into the creek behind Schaeffer's house if we do need to remove some of our coolant you know we truck that off site the first time local native that your Rotenberry heard about a possible data center was in June the developer announced a new data center campus at an undisclosed location then in September the city council voted to rezone a residential area but wouldn't say why the mayor signing on disclosure agreement showed up to the first meeting said you would be cut off from speaking if you said the words data center he said this is not about data centers this is about rezoning and we're all sitting there like rezoning for what Joe what are we rezoning for the answer to that question didn't come until September on the day of the rezoning approval according to Brookwood mayor Joe barger after that the city passed a reported 314 million dollar tax break for data center construction he also says there are not three Brookwood data center projects in the works as opponents claim there's only one people don't know what they're talking about and they get their information from incorrect sources and they think they know everything and they're ignorant a second parcel of land has already been rezoned for a company tied to data center development and the owner of a third parcel of land has an address tied to a company called Provident Data Centers as for the non disclosure agreement barger says that just prevents him from leaking info to other data center developers and his constituents they trusted us and elected us to be in these positions they need to trust us we're as transparent when the time is right that we can be at this point shafers says she and her neighbors are feeling pretty resigned there's nothing we can do about it and so now everyone's just like well we hope it just doesn't destroy everything applied digital the developer says it's waiting for permit approval before I can start construction in Brookwood Alabama I'm Kayley Wells for Marketplace [Music] 30 million lunches that's how many midday meals school serve every weekday in the US it's a challenge that's become even more challenging recently schools are dealing with rising food costs costs and cuts to benefits like the Supplemental Nutrition Assistance Program or SNAP. Harvest Public Media's Peter Medlin reports on how school kitchens are doing more with less. It's lunchtime at South Elgin High School in Northern Illinois, and Kaitlyn, a junior, just sat down to eat. We have chicken off right now today, and the other auction was like with meatballs, and there's also like a sign of broccoli, but I didn't want that. The food on Kaitlyn's tray isn't purchased through her school's budget. School food programs in the U.S. have to cover their own costs through students buying lunches and federal reimbursements from the U.S. Department of Agriculture. Diane Pratt-Havner with the School Nutrition Association says that this school year, the max reimbursement is $4.85 per meal. So for less than what you pay for a latte, schools have to put together a complete meal that includes milk and fruits, vegetables, whole grains, and protein. But it doesn't just cover food. It also pays for the kitchen staff, tools, and cooking equipment, and costs are up in those areas too. It's why 95% of school nutrition leaders say they're worried about their food programs financial sustainability, according to a survey from the School Nutrition Association. And one of those leaders is Ryan McElizick. He helps feed 66,000 kids daily as the Executive Director of Food Service at the Austin School District in Texas. A fruit or a vegetable was about 25 cents a serving. Now you're looking at more of 40-50 cents per serving. Grocery prices have jumped 30% since 2020, and McElizick says since they have to run a balanced budget, they've had to make cuts. Now it's like, okay, instead of having that person there in the kitchen, I'm going to cut a person, and then you got to do it with less. Instead of serving bananas twice, we're in service just once. On top of all these financial pressures, school cafeterias also have to comply with more and more federal regulations. They've limited sodium and sugar in meals, and mandated a certain percentage of food is purchased from U.S. producers, and they want schools to cook more meals from scratch. Back in South Elgin Illinois, Aaron Noak says his school food program would love to prepare more on-site, but that requires new equipment and infrastructure. A lot of our older buildings do not have proper kitchen setups, and a lot of our elementary schools we have warming kitchens. So Noak says school districts are dealing with higher costs and more regulations, but what really worries him and other school nutrition directors are changes made in the Trump administration's signature tax legislation past last year. It's really kind of turning into the perfect storms of the say. Over 55,000 schools in the U.S. provide free meals to all of their students through a federal program called the Community Eligibility Provision or CEP. Those qualify and get reimbursed based on the percentage of their students using the federal food aid program SNAP. But over 5 million Americans have lost SNAP benefits since last year, and Noak seen that decline at his schools. That's why school districts and states like Texas, Illinois, and Kentucky have already stopped offering free meal programs. It's not financially feasible anymore. At the Hickman Mills School District in Kansas City, Missouri, Donna Hoover says she feels like school food programs like hers are set up to fail, and losing their free meals program would be devastating. Now you know what keeps a lunch lady up at night. But regardless of how expensive it is, Hoover says she tells her staff every day that they can't afford not to feed their students. At South Algin, Illinois, I'm Peter Medlin for Marketplace. This final note on the way out today, don't forget it's Jobs Week. We get the October Jobs report on Friday, and as a preview perhaps, we got some data about jobs in the private sector from payroll processor ADP today. In October, companies added 86,000 jobs, basically flat from the month before. The big gains were in transportation, trade, and utilities. The losses were in professional business services. And here's something interesting, salaries grew, especially for job changes, as the number of people quitting their jobs has gone up. Our media production team includes Brian Allyson, John Fokie, Montana Johnson, Drew Jostead, Gary O'Keefe, and Charlton Dorp. Alex Simpson is the manager of media production, and I'm Kristen Schwab. We'll see you back here tomorrow. This is APM.