Consumer sentiment takes a tumble

It is a data kind of day to day hours, China's, and then how we measure things. From American public media, this is Marketflights. In Los Angeles, I'm Kyle Rizdal. It is Monday, today, the 17th of August. Good as it always is. Have a long everybody. Well, here we are, deep into summer, Labor Day sales or practically around the corner, back to school shopping is either happening or done, depending on when school starts, wherever you are. This is true. I saw a Halloween display at my local hardware store this weekend and do not blink because retailers are going to start hitting us with Black Friday and then holiday sales and the day now, a passing familiarity with the way this economy works. We'll tell you that the common theme through all of the above is the American consumer. How we're feeling, how we're doing, what we're spending and what we can afford. As we learned last week, consumer sentiment fell in the early part of the month for the first time in three months. Retail sales, we told you this, they were down in July and oh, by the way, the average price of a gallon of regular glass gas rather is $4.06. That's almost a record for this lead in the year. So about those consumers and how they're doing, here's Marketplace's Mitchell Hartman. A lot of economic warning signs for flashing red after the sharp pullback in consumers retail spending in July, but points out Jeffrey Roach at LPL Financial. You know, this is one month report and you had pretty strong numbers throughout the year. However, Roach admits some categories of discretionary spending have started to weaken. Hotel occupancy rates, TSA throughput because travels, leading indicator for how consumers feel. The job market has also weakened and wage gains have started to fall behind overall inflation. Says Joanne Xu, director of the University of Michigan surveys. Only eight percent of consumers believe that their income growth is going to exceed inflation. That's really not very many people at all. What we're seeing is that consumers are expecting to be squeezed. They're not anticipating anything catastrophic. And what that means going forward is probably that consumer spending doesn't fall off a cliff, but it doesn't rebound to stronger levels from earlier this year either. Dana Peterson is chief economist at the conference board. Consumers, yes, they are spending, but they're starting to spend less and the things they are spending the most on are things that they need. And if they do spend on discretionary items, it's on the cheap. The conference board asks consumers about their plans to buy stuff over the next six months. So in terms of big ticket items, like cars and furniture, that sort of thing, most people are saying, "baby." And consumers are cutting their spending on discretionary services as the cost of more necessary ones, like medical care, insurance, and utilities, keeps rising. The streaming and internet is pretty high on the services that people continue to spend on, whereas movies are lower. They cost more to take a family out, a family of four, to the movies. It's like a hundred bucks at least. And she says that could be before you even hit the popcorn and candy counter. I'm Mitchell Hartman for Marketplace. Wall Street today unenthusiastic is a word one might use. We will have the details when we do the numbers. Okay. From one giant economy that's looking a little bit shaky, that would be us to the next. Data out today from the world's second largest economy that would be China shows things are slowing down there, especially when it comes to wait for it, wait for it, consumers. And they're spending Marketplace is pretty better sure has that one. Overall investment in the Chinese economy by one measure shrank by 6.7% in a year. We haven't seen anything like that outside of COVID. Logan Wright is a partner at Rodeum Group and author the upcoming book Broken China. Household consumption appears to be weakening pretty significantly, and that reflects the weakness in China's employments and income growth at this point. Both in income in China are very uneven, right, says they have been focused on advanced technologies, which are capital intensive. Great for robots, literally industrial robot production shot up 30% in a year, not as great for regular folks. Some of these economic problems are part of a long and painful hangover from China's housing bubble, which is still weighing on people. Jennifer Lee is senior economist at BMO Capital Markets. You know, just like here, right, if you, if you're home, which is your biggest asset, continues to lose value, you know, month after month after month, it's going to sort of continue to hurt your, your confidence, you know, it's like, you know, I do, I need really need to go out and spend more. Do I need to travel that much? The thing that inflated that housing bubble in the first place hasn't fully gone away. All the industrial capacity that blew up fueled by subsidies and cheap credit is still there. Life support, but still there, says, right, and it is still making stuff and looking for somewhere to sell it. But there's no domestic demand. So you end up exporting at very, very low prices. Chinese exports have exploded 24% in a year, despite tariffs. The reason that's a problem is China's a very, very large economy. Jay Shambhal is an economics professor at George Washington University. It's the largest manufacturing economy in the world. And if it is depending on the rest of the world for growth, that's something that starts to displace economic activity. And other places cheap goods can help consumers around the world, but can also wipe out competing industries around the world. So China's exporting more goods and with them problems in New York. I'm Sundry Venashore for Marketplace. One way you measure the health of any given economy is by its gross domestic product, GDP. GDP is not without its critics, though. Which is why Columnet in Bloomberg, opinion the other day caught my eye. The headline on the thing was, why GDP is the greatest of all time of economic statistics. Allison Schreger had the by-line. She is also a senior fellow at the Manhattan Institute. And Schreger, welcome to the program. Good to have you on. Thanks for having me. So what is it that you like about GDP? No statistic is perfect. A statistic is by definition an estimate. It leaves some things out. But it pretty much is a very good gauge of the health of an economy if it's growing, if it's becoming more productive. And because it includes so many things, it's probably the most incomplete, incomplete economic statistic we have. All right. I'm going to dig in a little bit, but I probably should have started with this question. Why do you feel the need to defend it? You know, it's getting, it's always been a lot of hate. And people have legitimate grates with it. It doesn't really account for inequality. It doesn't account for leisure. It doesn't account for a stay-at-home mom who does work very hard. But it's now also getting a lot more criticism from the right in JD Vance's book. He criticizes it for not accounting for the fact that strawberries are nicer in Japan. Okay, and it's not perfect. And I think just as we're trying new economic policies that might sort of lower growth, I think we're going to see a lot more hate on GDP. But we have these consistent statistics that tell us how we're doing across time, how we compare it to other countries, and that's going to be super important for accountability. Well, let's keep going with that accountability thing, and the idea that we are now trying different economic policies, one of which, as you point out in this piece, are tariffs and the president's decisions to double and triple and quadruple, frankly, down on tariffs, that will lower economic growth. And your point is that once those tariffs and those policies start to bite, GDP will be a mechanism by which voters can hold politicians accountable. Is that the deal? Yeah. I mean, to one extent, I mean, they say, I think they said it in Poland when they're doing their economic reforms, you can break a thermometer, but you still have the fever. I mean, people are going to notice if their quality of life is going down no matter what statistics we use. But this was an early indication about how our policies are doing, and with policies like terror for reduced trade in general, they not only show up immediately in terms of just less trade, which is, you know, net exports is a part of our GDP, but also productivity over the long run. There's also this idea that GDP doesn't necessarily, while it gives a very good macro picture, it doesn't tell you how any individual, personal or even group of people is doing, right? So it's sort of, there's a forest for the trees kind of thing here. Yeah, as I said, it's certainly not perfect. It doesn't sort of, wouldn't account for sort of, say, discrimination in an economy. Of course, arguably discrimination does lower GDP too. It doesn't account for inequality. You could have a very unequal economy, but if the top 1% is getting crazy rich, that would potentially have high GDP too. It's not meant to do everything, but it does a pretty darn good job for what it does do. - There is, of course, and you point this out in the piece. I guess the United Nations came up with some commission and came up with this new 30-point measuring thing with four different groups. You don't like that, too much data? What's the deal? - Yeah, I mean, this is the problem. Every economy, every culture puts values on different things, but what we need is something we can compare across all these different countries. They ended up with this dashboard of dozens of different metrics, and that also allows politicians to pick and choose to say, "Hey, well, growth is down, "but inequality is lower." We're less productive than other countries, but we have more leisure. So I think that sort of demonstrated the beauty of GDP, which is, it may be incomplete, but it is still no perfect. - One imagines that since we've been doing a version of GDP, which used to be called GNP, we've been doing it since like 1930, whatever. One imagines it's reasonably safe. - I think so. I think it is notable that it's getting hate on both sides now, but again, politicians also hate to be held accountable. - Alison Schreger, senior fellow at the Manhattan Institute, also a columnist at Bloomberg Company. Alison, thanks a lot for your time, I appreciate it. - Thanks for having me. (upbeat music) Expectations for most people probably, when they go to their mailboxes every day, their actual USPS mailboxes, they're probably pretty low. There's maybe a couple of random advertising flyers, retail catalogs, somehow still sometimes, a bill or two, sure, but also increasingly, mail addressed to unfamiliar businesses. A mistake sometimes, but other times, it's fraud. And in Colorado, it's a significant problem with a number of complaints about fake business registrations, growing every single year. Lee Patterson reports now on the mysterious business mail, turning up in Colorado's mailboxes. Jarrett Taylor lives on a quiet suburban street in Longmont, a small city north of Denver, with his wife and kids and three dogs. - How are you? - Very good, how are you? - Come on in. - This is also where several businesses are located, at least according to the US mail. - This is Vervtech LLC, J.J.R. Goods LLC, Dynamic Down LLC, and that's-- - More than a dozen letters from credit card companies and shipping companies offering their services to these new businesses. He sometimes opens this mail to check if any have credit cards with his name on them, then-- - Usually they just go straight into the recycling can. It's a little overwhelming at times. - Taylor first noticed the mail last summer. The businesses are registered with Colorado's Secretary of State by unknown people to his home address. - I can't exactly tell what they want other than either to harass us or try to get money out of us. - So far, Taylor hasn't lost any money, but he's still worried. There's no way to know how many seemingly fake businesses are registered to Colorado addresses. In one recent high profile example, a family in a small Colorado town discovered hundreds of businesses registered to their home. And another, thousands were located at a Denver office building. For the homeowners, this is a nuisance that can be part of a much bigger problem. Like fraudsters using business registration to appear legitimate when stealing money from people. - Fraudsters are finding all sorts of ways to trick people. A big one is they actually register a business and they can point people to their registered business. - That's how Colorado Attorney General Phil Weiser described the problem to a Denver TV station in May. He had just announced a slew of lawsuits, targeting fraudulent companies linked to everything from cryptocurrency to romance scams. The problem of business fraud took off during the COVID-19 pandemic. A couple of years later, Colorado formed a working group to address it. - They are created to victimize, they are created to steal, they are created to hide in the shadows. - Greg Warch is a special agent with the US Department of Homeland Security and was a working group member. Back then, during one of its meetings, he said that the people behind these shell companies aren't worried about getting caught. - And they can simply create a new shell for a buck here in Colorado under 30 seconds. - Since then, some security measures for business registration have been put in place. The price to register a business is now up to $50. Meanwhile, complaints about fraud are growing. More than 11,000 have been filed since the complaint system was created three years ago. - Honestly, we were expecting a lot fewer complaints to be filed. - Colorado Secretary of State, Jenna Griswold, oversees the complaint system. - So this program I think has been very much successful. - But going through the complaint process, doesn't always make the problem go away. Jared Taylor of Longmont has reported the fraud at his address to the Secretary of State's office. - They sent a piece of mail that says we've marked these business accounts as fraudulent and they can't be used anymore. - He's also frozen his credit and changed all of his passwords just in case. But the strange mail just keeps coming for those old businesses and new ones. - And that's kind of where we are. I just have to keep reporting them. - Taylor is trying to accept the situation, adding, this is just what life is now. In Denver, I'm Lee Patterson from Marketplace. (upbeat music) (upbeat music) - Coming up, 2025 was another exceptionally challenging year. - But this year is gonna be different, right? First though, let's do the numbers. - Down industrial's off 272, today about a half percent, 53,459. The NASDAQ down 84 points, 3/10%, 26,644. The S&P 500 down 40 points, about a half percent. 77 and 45. Mitchell was telling us about the state of the consumer economy. Well, here you go, Procter & Gamble, maker of bounty paper towels, tied detergent, panting hair products, decreased 1%. Competitor, Colgate, Palm Olive, which owns Fabulouso Cleaners, Hell's Pet Food and, and I thought this was independent, actually, Tom's of Main Toothbase declined one and nine tenths of 1% on the day, new brand. Makes Braco baby products, rubber-made storage totes, and Sharpie markers, lunch to three and two tenths of 1% on the day. Sabrina was telling us about China, the Chinese hotel conglomerate, H World Group Limited reported earnings today. They're based in Shanghai, one of the world's biggest hotel chains, 1.3 million rooms. Their depository receipts sword 11 and three tenths of 1% on the day. Bonds down, yield on the 10-year T-note Rose, 4.73% more on bonds coming up at the end of the program. See how I tease that? More on bonds, keeping you around. You're listening to Marketplace. This is Marketplace, I'm Kai Rizzo. The S&P 500 regular listeners to this program, I believe know, is a stock market index, specifically an index of 500 of the biggest companies in this economy. Just like it sounds, it's 500 companies, not 499, not 501. And as it happens, there's an opening two members of the S&P 500 emerging so it will come to pass tomorrow that Reddit will join the index. Marketplace to Samantha Fields explained how that all works. Reddit started two decades ago with a $100,000 investment. Today, it's worth more than 30 billion, which is one reason it's eligible to join the S&P 500. I think it's important to say that the S&P 500 is not mechanically the 500 largest companies in America. Greg Stoller at Boston University's question of business says there are four major criteria a company needs to meet to qualify for the index. First, it has to be worth more than $22.7 billion. Second qualification is it has to be liquid enough that investors can realistically buy and sell the shares. Third is it has to be established enough. Meaning it has to have been publicly traded for at least a year. And the biggest one of the four is it has to be profitable enough. Reddit checks all of those boxes. Eric Zitzowitz at Dartmouth College says getting selected to join is a pretty big deal for a company. A lot of stock investing is happening via index funds. And a lot of those funds track the S&P 500. So if a stock gets added to that index, they pretty much have to buy the stock in order to track the index. That's why companies tend to get a bump in their stock price when it's announced they're joining the S&P. Robin Greenwood at Harvard Business School says it's usually not huge, maybe 5, 10%. But-- Multiplying that times the billions of dollars of your stock price, that's real money. Beyond that initial bump, he says economists have tried to quantify the financial benefits of being included in the index. The jury's out a little bit on that question. But also-- He says joining the S&P 500 is not going to dramatically change a business's value long-term. I'm Samantha Fields from Marketplace. Crude oil is, as we have talked about, a number of times, the global commodity. And the President's War with Iran has squeezed both oil producers and oil users downstream of the well-had and of refineries. For this next story, though, we go elsewhere in the petrochemical world, and we are going to do it via the US Gulf Coast and the natural gas industry. And the increased profitability thanks to the President's War of a derivative product we all use pretty much every day. Marketplace's Elizabeth Trouville has that one. Plastic plants, petroleum pipelines, and a bustling seaport converge in this industrial corridor. Here in Pasadena, Texas, southeast of Houston, rail cars move petrochemical products like plastic pellets. There's this thing called the petrochemical crescent. Jesse Thompson is a Houston-based economist with a Dallas Fed who says that corridor runs from Corpus Christi into Louisiana, roughly 500 miles. Then there's just this massive slew of interconnected chemical facilities that make a huge portion of the basic chemicals and chemical compounds that are then processed further in the United States to make plastics of every stride. This part of the US became a major plastics producer in part because of cheap and abundant natural gas. Much of it piped down from the Permian Basin. Natural gas has ethane, which is used to make the plastic polyethylene. And that's like the bread and butter thing of Houston is those plastic pellets, and then they go on rail cars and they either are railed to a facility for processing or in the case of Houston more often just moved over to the port and loaded on a boat. The plastics industry has been shaken up by the onset of the war and not necessarily in a bad way. Just six months ago, Peter Vannecker, CEO of Houston-based plastics company, Lionel Bazelle, described a difficult market in earnings call. 2025 was another exceptionally challenging year. Then war broke out. Here's Vannecker again, just a couple weeks ago. The global disruption in the petrochemical markets from the conflict in the Middle East impacted production, it also led to essentially improved earnings. The company reported high margins from polyethylene. Polyethylene is a polymer. It is widely used globally in packaging applications. Harrison Jacobi is an analyst with ICIS. Your milk jugs, that's high density polyethylene, stretch and shrink film used for packaging applications. He says before the war, China had been ramping up its polyethylene production, leading to an over-supplied market. And lower oil prices also dragged down prices. Marge has got very narrow, very thin in Q4 because of those really lower oil prices. And again, that was the outlook up until, yeah, late February of this year when the US Iran conflict started. When the Strait of Hormuz closed, polyethylene prices soared and a lot of that plastic was held up in the Middle East, plus crude oil prices went up. Which is how a lot of producers make polyethylene. But in the US, we make polyethylene from natural gas. Jesse Teherina is with S&P Global Energy. Because of this phenomena called shale gas, the US producers are really blessed with some of the lowest feedstock costs in the world. US producers were able to buy their feedstock for cheap and sell high. And while prices have come down since the initial polyethylene price spike, they're still elevated. And without a permanent resolution to the conflict. We still expect the market to tighten up and for prices to increase from where they are. And that does boost economic activity in petrochemical hubs, like Houston, Jesse Thompson again. High utilization rates means there's more maintenance, there's more work to be done, there's more parts to replace, there's more logistics to handle. It's more activity, which ripples through the local economy. In Houston, I'm Elizabeth Trophal for Marketplace. This final note on the way out today in which, once again, we bring the bond market to your attention. I know this is a couple of times in the past week or so, but you are not going to want to sleep on the long end of the yield curve. The 30 year treasury, the yield on which hit today, 5.31%, the highest it's been since 2007. Pick your own adventure as to why ever increasing piles of government debt, all that AI borrowing that's happening, markets being a little concerned about the Fed or maybe all three. I'm here at Baway, Caitlin Ash, John Gordon, Noia Carr, Steve Mullison, Stephanie Seeker, are the Marketplace editing staff. Kelly Sovera is the news director, and I'm Kai Rizzole, we will see you tomorrow, everybody.