GDP growth comes at expense of consumer savings

Yeah, we've got data today, both macro and micro, from American public media. This is Marketplace. In Los Angeles, I'm Comed, Rizdal. It is Thursday today, the 29th day of October good, as it always is to have you along, everybody. If you woke up this morning, saying to yourself, as one does, gee, I wonder what economic growth is like, or what's the latest update on inflation? Well, today is your lucky day. First of all, the economy is growing like really growing. In the third quarter, that is July through September, gross domestic product grew at an annualized rate of 3.4%, that's more than a full percentage point, actually, better than in Q2. Second, though, and, however, prices grew as well. The personal consumption expenditure's price index, PCE in the vernacular, was up 3.6% in September. As always, with high profile data like that, there is a lot going on, but growing prices, even in a growing economy, well, that ain't great. Marketplace's rebenisher starts us off. Okay, the economy growing at 3.4% is pretty good. The big takeaway is the US economy had a pretty strong summer overall. Douglas Porter's chief economist with BMO Financial Group, and guess what? Our hot e-con summer wasn't just AI. I mean, a lot of it was AI. That's certainly a big part of the story. There's no two ways about it, but not all of it. Consumer spending was relatively robust as well. Even with the energy price shock, the consumer has a whole held in there and made us to grow a little bit faster than average. So how exactly have we been doing that? Like, where's this money coming from? Well, some of it is coming from not saving. If you look at the savings rate, it came down to 3.8% in September. That's down from about 5% a year ago. Lydia Busur is a senior economist at EY Parthenon. And actually, when September rolled around, consumers did get tired. If you look at real consumer spending and you adjust for higher prices, you essentially had flat spending in September versus August. So we saw a loss of momentum. So yeah, we spent a little more, but it was almost all just to cover inflation, which got worse. Popped up to 3.6%. It's kind of a bummer, right? Jonathan Pingle is chief U.S. economist at UBS. So what this points to is a consumer that is a little weaker, a little more strained, heading into the fourth quarter, which could slow down the economy's growth a little. I think the good news is that if we do get past these energy price, gas price increases at some point, inflation will start to improve on the back of that. And there's something else, propping up consumers, at least some of them. Elevated levels of wealth in the economy, much of which has been due to the wealth created in the stock market by all of this AI-related investment. People who feel richer, spend richer, but that also means, Pingle says, if AI stumbles, we all stumble. In New York, I'm so pre-benicured for marketplace. Also and while I have you, if after getting your economic questions answered, you were also curious upon waking this morning about happenings in other central banks. Again, today's your lucky day. The European Central Bank kept its Med Park rate steady this morning. The big ECB news, though, is that Christine Lagarde is going to step down as president early if you're saying, yes, fine, ECB doesn't really affect me, I would only ask that you remember our item on the French debt crisis from the other day. Anyway, Wall Street, today as you'll hear in a couple of minutes, today was not repeat, not a day you wanted to be in technology stocks. We will have the details when we do the numbers. There was a labor market update today that's worth a mention. First time claims for unemployment benefits came in today at yet another near 60 year low. It's a month, maybe five weeks in a row of historically low job losses. But numbers, as you know, only go so far in describing what is going on in an economy. We've gotten Tarrerson Claire on the phone to talk about that for just a little bit. She chairs the economics department at George Washington University. Fests and Claire, welcome back to the program. It's good to have you on. Great to know. My executive producer and I were talking this morning. She said to me, if I went outside and stopped 10 people on the street and told them about the data about GDP is growing, job market while, you know, weird is reasonably strong. They would look at me like I had three heads. And I guess that's the question I throw to you. What is going on? It is a wild time in the labor market because on the one hand, as you point out, from many vantage points, the data look good. The claims the data this morning continue to be remarkably low. The unemployment rate remains historically low, layoffs, despite the news about layoffs, also really low. But then if you look at people trying to find a new job, or thinking about changing jobs in order to get the higher wage, those numbers aren't looking so good, and that's probably what people are feeling. Do you suppose this lasts? I mean, it does seem we've been saying low higher, low fire for a very long time. And I guess I wonder what you think the, you know, short-medium term issue is? Yeah, well, I mean, honestly, in many ways, I am somewhat heartened by its persistence because for a while there, I thought that with the layoffs being low, but higher is also being low, that the next step might be the shoe drops and layoffs go up. But we haven't seen that. And so it's kind of the better scenario there, but we'd really like to see an even better economy where firms feel comfortable hiring and people are changing jobs and getting raises and things like that. Right. So the labor market, man, you know, nominally fine, but man, really in perceived reality. I want you to answer this next question without using the word inflation. Other than the labor market, why are people so cranky out there? Oh, without saying the word inflation? Without using the word inflation or rising prices. Oh, well, what about affordability or purchasing power? Okay. All right. You can do that. Because, I mean, if you think about it, if people are looking at their wages and it's just not keeping up, it's not allowing them to have the lifestyle that they are used to having, that they were expecting to have at this stage in their lives. That's both a inflation story, but also a wages story. You use the word you realize that, right? I know. I know. That's fine. We'll let you go. Thank you. That actually brings me to Chairman Warsh yesterday and the Federal Reserve deciding not to do anything with interest rates. Well, at the same time, saying nudge nudge, wink wink, you know, we're looking at December. And I guess my question is, why are they waiting? Clearly they know inflation is elevated. He said it. What's the deal? Well, there's a couple of reasons. First of all, we're really close to the midterms and the Fed is trying to not rock the boat there. And on the other hand, they did raise rates last time. And so there's a sense in which they can let that kind of take hold a little bit before they give another dose of interest rate hikes, because those are painful, too. And so they don't want to do more than they have to. Let's bring it back to the labor market on the way out here. He seemed, and central bankers, when they have been speaking, seem to be saying, you know, the labor market's okay, generally, and we really have to worry more about that inflation. You all right? Wouldn't that? I think so, because I don't think that the Fed has the ability to affect some of these underlying issues in the labor market. They're really targeting those top line numbers, which look pretty good. Teres and Claire. She chairs the economics department at George Washington University in Washington, D.C. Teres and Claire, thanks for your time. I might appreciate it. Thanks, Guy. Alphabet's ticker symbol, the parent company of Google and YouTube and the Android operating system in the Chrome browser is still years after the name change, still Google G O O G. And Google had a pretty rough day today shares, created almost 12 and a half percent. It's worst day since it went public 22 years ago, give or take half a trillion dollars from its market capitalization, just gone. The proximate cause was its third quarter earnings report, which I will summarize here as lived by the AI, died by the AI. Think about when you'd look up something on the internet in 2022. Googleing was the go-to verb. Their brand name was associated with the action of search. Michael Smith and Information Technology and Public Policy Professor at Carnegie Mellon University. It says Google monopolized internet search, but in the age of chatbots, that's not true anymore. Instead of, I'm competing with Bing and a bunch of other sites that you've never heard of before, I'm now competing against OpenAI and Anthropic and Meta and everybody else who actually have competitive products. Google's other problem, chatbots charge subscriptions. Google is free because it relies on ads. That revenue has been the primary revenue source, right? And that depends on people coming and spending time and clicking on things. Chirag Shah is a professor at University of Washington's Information School. He says, as Google users rely more on AI overviews, they're not clicking on ads. Right. Now, what I see is Google cannibalizing its own product, but they have to. Because if they don't, somebody else will. That cannibalizing is what Shah calls a transition period. Babson College professor Tom Davenport focuses on artificial intelligence and he says the double digit stock price plummet is an overreaction because he thinks Google's revenue dip is temporary. They've always been pretty good about figuring out how to monetize these capabilities. And he says Google still got a revenue stream from good old fashioned searching, even if it's not growing like it used to. Google's in a much better position than Anthropic or Open AI are from just having this huge source of revenue from search this quarter. 63 billion, in fact, Davenport says that's 63 billion that Anthropic and Open AI don't have to weather any overspending on data centers. I'm Kayleigh Wells for Marketplace. Coming up, having pre-picked apples available out in the orchard? I don't know, man, pre-picked apples in an orchard? First though, let's do the numbers. Now industrial's off, 132 points on the day, a quarter percent, 52,342, the NASDAQ plunge 365 points, that's 1.4% 26,184, the S&P 500 dropped 23 points, that is 3,10% 77 and 20. Kayleigh Wells will tell us about Google. Here's some other text docs, Microsoft reported earnings yesterday as well, lost 2,10% today. Cloud Computing Provider Core Weave, which has Microsoft as a leading customer, shaved off 5%, Cloud competitor Nibius, which also, by the way, has a multi-billion dollar deal with Microsoft, declined 5 and 7/10 to 1% on the day the phrase you are looking for here is circular economy. Caterpillar, which these days is known almost as much for its production of data center generators, as for its heavy construction equipment, posted earnings that beat expectations. The company did not, however, raise its full-year financial guidance. Caterpillar decreased 9 and 1/4%. Bond prices, thanks for asking. They rose the yield on the 10-year T-note fell 4.94%, you're listening to Marketplace. This is Marketplace. I'm Kay Rizdal. Talking as we were about gross domestic product earlier in the program, hours the biggest economy in the world, we turn now to number 2. Beijing told us last week that the Chinese economy in the third quarter grew 4.5% on an annualized basis. A grain of salt here is, of course, appropriate, but the second largest economy in the world does seem on the surface anyway to be doing all right. And yet, China does still identify itself as a developing economy. Yelling Tan studies, among other things, the Chinese political economy. She is a professor of public policy at the University of Oxford. Welcome to the program. Thanks so much, Kay. It's great to be on. Could we just have a brief discourse here at the top about developing versus developed economies. What in your mind is the difference? So Kay, the interesting thing about the way you phrase the question is that it's really hard to answer. There isn't a universally accepted definition of what makes a country developed. But if we want to dig a little bit deeper, I think we can consider it in the following ways, right? Most people when they think about developed versus developing, the first thing they'll think of is your income, right? If we just look at income, China looks very close to that threshold of what might be considered a developed country if we use world bank numbers. But if we're talking about development, we could argue that there's a more holistic definition. And if we look at the United Nations, right, the United Nations, Human Development Index, considers development across multiple dimensions. It looks at income, but it also looks at life expectancy and it looks at education. Last year, the United Nations Human Development Index ranked China at 78, right? So according to that ranking, China sits at a "high human development level" but below the top category of very high human development. So it's such a tricky question and really depends on what you mean and which dimension you're looking at. Okay, fair enough. It does seem a little colloquially. It seems a little vibes-based. Does that make sense? Yeah. Okay. All right. That's fair enough. Okay. So, Xi Jinping, the president of China, says that China will always be part of first of all the global South and second of all the developing world. Given what you've just told me about where China actually sits statistically in some of these measures, do you agree that they're in the developing world? So this is a really interesting question about how China sees itself and its identity on the international stage. It goes all the way back to Mao Zedong and Maoist foreign policy, right? Back in 1974, Mao made this observation about the first world, the second world, and the third world, except for Japan, according to Mao. The rest of Asia would belong into this third world category and so would the African subcontinent and so would Latin America. And so what Xi Jinping is describing more recently, he is essentially part of a long running foreign policy of China and long running self-identification by China of where it sits internationally. And I think it will come under this insistent that by China, that it belongs in the developing world, will come under challenge by scholars but also across different issue areas. We see other developing countries kind of sticking their hand up and saying, "Well, we don't think that China you're in the same club as us." Right. Right. Right. So I think this definition is definitely under strain at the moment in spite of these historical roots. So let me get you back up to the top and the conversation we had about developing versus developing. It sort of seems like they are squishy at best and don't actually describe what's going on, specifically China, where you can go to Shanghai and it's the most modern dynamic city you've ever seen, but you go 200 miles inland and it's a completely different environment. So how should we think about describing the various levels of economic development as they apply to the international economic system? Absolutely. And I think this internal diversity is part of why China is insisting that it's still developing country because it has a lot of internal problems, a lot of domestic challenges that it still needs to address, right? And regional inequality between Shanghai and some of these rural villages that you pointed out is absolutely one of those. China still has about 17% of its own population living below that poverty line for upper middle income countries. So it still has poverty challenges to address. And all of these domestic challenges, I think, are very important to bear in mind. Yeah. And 17% of 1.3 billion is a couple of a hundred million people, right? I mean, it's not nothing. That's exactly right. Yeah. That's right. I think China is a professor of public policy in Oxford, we got her over there in Oxford. Professor, thanks very much for your time, and I appreciate it. Thanks so much, Kay. The United States says the U.S. Department of Agriculture is the world's second largest producer of apples. Behind China should you be curious. And this time of year in much of the country means apple picking both commercial and pick your own. This year, though, orchards in more than a dozen States across the mid-Atlantic in the Midwest don't have a whole lot of apples to pick. Marketplaces cement the fields reports. October is prime apple picking season in Pennsylvania, and the trees at Solberry orchards should be covered in apples. But we're walking along the edge of the orchard here, looking at the beautiful colors of the fall trees, and to our right we have empty apple trees. That's Brian Smith, who started Solberry back in the 1980s. What kind of apple should we be seeing on this? These are a sustainable wine sap. These were all planted back in '85, so they're 41 years old. This is the first time in those 41 years that Smith has had almost no fruit on any of his trees, across 90 acres. Back in April there was a string of 80 to 90 degree days, followed by a freeze. We've lost virtually all the apple crop, and the peach crop, I think, across 10 acres we saw actually two peaches. Losing all the apples in particular was a huge hit. Most of our income comes from our apple crop. Pick your own apples is a big part of our season right there. But it's not just apple picking. They also sell apples at their market and to other stores, and use them to make all sorts of other things. Apple sauce, apple cider, cider donuts, we're going to pick an apple, can you pick one more? Walking around, you can see a few apples here and there on the trees, but most branches are empty. The thing is who helps manage the orchard and says that can be disappointing for people. Even though we've tried to put it out on our website, on social media, there are still a number of people who come and they are very unaware. And unhappy, they can't pick apples off trees. We just want to go and pick up our own apples. But most people are understanding, and museum Smith have come up with some different experiences for people who visit this year. When we realized we didn't have an apple crop, we decided well, we should probably do some other things. They planted a pumpkin patch, started working with the local library to host story time for kids, and. We've still tried to offer an apple picking experience by having pre-picked apples available out in the orchard. To do that, they're buying apples from orchards in upstate New York, and putting massive crates of them out among the trees for people to pick. Katie Wheelan likes to go apple picking every fall, with her daughter, who's almost five. She didn't know before they arrived that they wouldn't find apples on the trees. We just learned half an hour ago, so we are searching for the bins. You've still decided to stay? We did. I mean, it's a beautiful day. It's an apple, so yeah, not hard to stay and just pick what we can, right? Can we go look for some more? Joy Greenock and her friends Rose Navasquez, Melissa Greenberg and Era Freyling didn't know what the deal was either. We were expecting apples from the tree, and how did you feel when you learned? A little. This is a point egg, but hey, it is what it is, right? Yeah, we still need to enjoy. We got a good weather, there's nothing we can ask. That is Brian Smith's main goal for this year, to keep his customers as happy as possible. Having to buy apples from other orchards doesn't leave much room to actually make money unless they raise prices, which he doesn't want to do. By the time this year is done, I don't know if there will be any profit at all. But it's worth it to not lose customers, they've spent years cultivating, he says. In the last few years, have been profitable enough that they should be able to make it through one bad one. I think, you know, to be a grower, you're optimistic, and you're always looking forward to the next year. The seasons keep rolling around, and, you know, we'll still be here, and, you know, the apple trees will still be here. And with a little luck, he says they'll have fruit to pick next year. In New Hope, Pennsylvania, I'm Samantha Fields from Marketplace. This final note on the way out today proved perhaps that there is a marketplace angle on everything. Ticker Symbol C-A-K-E, up 7% day cake, C-A-K-E, anybody? Anybody? The Cheesecake Factory, yes, there is the ridiculous news cycle about it, but also it reported earnings on Tuesday, revenue topped a billion dollars up a little bit more than 10%. Andy Corbin, Micah Ellison, Maria Hollenhorst, Sarah Leason, Sean McKennery, and Sophia Trenzio are the marketplace daily production team. Will Story is the supervising senior producer, and I'm Kai Rizdal. We will say to him, everybody.