Inflation trumps wage gains

In the battle between inflation and our paychecks, guess who's winning from American public media? This is Marketplace. In New York, I'm Sabri Benachor in Forkai, Rizdal. It is Friday. September 11th. Good to have you along. So the big news, the big economic news this morning is that inflation got worse in August. We went from prices increasing by just a tenth of a percent in July to four tenths percent increase in August. And even if you take gas and food out of the picture prices, still increased more quickly in August. And now the Federal Reserve has to figure out what it's gonna do about it. So let's get into that and the week's other news with Sudep Reddy who's at MS now and Kate Davidson, who's at Bloomberg, hello, hi, hi, hello. So I want to just read you with this comment from an inflation analyst. I follow Omar Sharif. He says, for the Fed, it is time to put up or shut up. You cannot give a speech like you did at Jackson Hole and not support a rate hike at the next meeting. You have to back up those words or end up as the boy who cried, wolf, Kate, thoughts. Yeah. We put that one high up in our story for sure about the implications for the Fed. I think it's, right, it's pretty succinct. I mean, so what did we hear from Kevin Worshen, Jackson Hole? He gave a much more, I guess, decisive speech, traders, investors were really looking for him to go a little bit further and not just saying, yeah, we're going to rein in inflation. We're going to get it under control, but really to make clear that they're willing to raise rates. So he did that. He essentially said that the Fed would have work to do if it couldn't be confident that underlying inflation was moving toward the Fed's goal of 2%. And he also said at sufficient speed. So in other words, they're not going to wait around a long time. They want to see it improving quickly. And so you certainly did not see that in any of the inflation data this week. The Fed is going to meet for two days next week and they have a decision to make. So I think we heard from a lot of economists today and certainly the market reaction seemed to agree that it will be difficult to justify holding rates steady next week based on what we've heard from Worshen others that if inflation doesn't get better, they have to raise rates. Mm-hmm. If a lot of the inflation that we are seeing is either directly from gas and diesel prices or indirectly in the sectors that use gas or diesel or fuel, what can raising interest rates do about that kind of inflation, Sudeep? You know, we're in this very strange moment where inflation has obviously elevated. It's been elevated for many years. It is becoming a credibility problem for the Fed and their credibility problem in markets. There are plenty of investors in the bond market who are wondering whether the Fed is ever going to take action against inflation. So there's a credibility issue at stake here and I think one reason we saw some surprising market reaction right out of the CPI report this morning, even though we knew it was going to lead to a Fed rate hike was at least there is some certainty here. The bond traders are just like us. They want to know what's going to happen next. They want to feel comforted that somebody actually has their hands firmly on the steering wheel. There's something to be said there. Obviously the fact that so much of this is coming due to energy is the core of the argument on the other side that's certainly what Scott Besson, the Treasury Secretary is making and what lots of people in the Trump administration want to make that just like, wait this out, don't overreact, you're going to constrain demand across the economy. But there's no sign that higher interest rates are actually really holding back the economy at large. Obviously, certain sectors will get hit by it. You mentioned bond yields. They have been rising, which translation into plain English as investors are a little more anxious, whether it's about inflation or government's borrowing too much. And we care because bond yields affect the cost of borrowing for the government and for everybody else. How concerned are you about the bond market? Well, I can take that one to breathe. I mean, I think that there certainly is a lot of angst. I mean, as journalists who follow this, we're keeping a very close eye on it. A big part of the conversation now is whether the 10-year yield, which does affect and filter through to a lot of consumer borrowing costs, could that hit 5%. It's not that 5% in and of itself is significant, but it's an important psychological threshold that I think would just add to the worries here. We think about what can be done about this, what can the government do about it? Scott Besson, the Treasury Secretary has been trying to intervene and keep a lid on things, but he really has limited influence over the kinds of things that are driving up yields right now, which are really, as some of the things you mentioned, inflation and the government's growing debt load. So we've heard him talk about this idea that they're going to release some kind of fiscal consolidation plan, and I think the hope was that by talking about that, signaling that he would offer some reassurance to investors. But then we heard his boss, Donald Trump, come out this week and say, actually, if you vote for Republicans in the midterm election, we'll send $5,000 checks to everybody. So I mean, this is a plan that would cost well over a trillion dollars. Investors are not really buying it. They're kind of seeing through this, and I think that they are not convinced that there is some big plan in the works to reign in debt costs. So until you can really address those underlying factors, yields are going to be continued to be a problem. And then, of course, the Warren Iran as well, pushing up oil prices or putting pressure on that. Yeah. Okay. I have a question about the buying back bonds thing that the Treasury has been doing. The Treasury's buying back bonds to try and maybe bring down yields, aka interest rates. Meanwhile, the Fed is poised to maybe raise them. Is it just me or is that not crazy that one part of the government is trying to lower rates while the other is trying to maybe raise them? I think what we're going to see here is really just a lot of a debate within markets about whether Treasury can accomplish anything in what it's doing. The idea of a Treasury buy back in such a huge market like this when you've got $40,000 in debt and $2 trillion in deficits, raises a lot of questions. And the staying power here raises lots of questions as well. The Fed is obviously the big player in all of this. And when the Fed decides that it wants to do something, then markets will pay attention. And until that happens, and unless that happens, you're going to see probably a little bit of noise there moving in the direction of some type of intervention, but it's hard for anybody in the markets to take it all that seriously until the Fed really gets involved and makes its intentions known. So that's the one to watch, and we'll be able to watch it next week. So deep-ready at MS now, and Kate Davidson at Bloomberg, thank you guys so much. Hope you have a great weekend. Thanks a lot. Thank you. Wall Street today, pretty chipper. We'll have the details when we do the numbers. [Music] So, inflation. It's high and we don't like it. The only way for a regular person to stay ahead of it is unfortunately to make more money. And surprise, the labor department says wage gains did not keep up with inflation over the past 12 months. So if you take inflation into account, the average Americans' real hourly earnings actually went down by three tenths of a percent over the past year. On the bright side, we are still spending, because we have two, which is good for the economy. So at least there's that. Marketplaces, Nancy Marshall, Gensere reports on how consumers are managing to do this. Real hourly pay has been on a downward trend for a while. Rian Williams is chief economist at Groundwork Collaborative of Progressive Think Tank. So you have real hourly pay that's either been flat or falling at this point about five straight months now from April through now. Some consumers are trying to make up for that by showing up more at work. The labor department says the average work week increased six tenths percent in the 12 months leading up to August. Williams says if the extra hours on the job aren't enough, workers have to dip into their savings to get by. He says at the beginning of last year, the savings rate was around five percent. We're now at three percent. More and more twenty-somethings are trying to save by living with mom and dad says Sarah Eastep an economist at the Center for American Progress. That number reached nearly fifty percent this year. Eastep is also worried about apps that offer cash advances, kind of like payday loans and the possible fees and fines on these apps. And it's not really clear. up front, whether or not, if you're late on the payment, how that's going to affect you. He steps as consumers of all ages are borrowing more to get by using by now pay later or credit cards. Aditya Bave heads US economics at B of A Global Research. He's been watching credit card payments that are 90 days late or more. This number has been generally trending up since late 2022, so for about four years now. But Bobbi thinks delinquencies have reached their peak and will now stay steady or even fall. He thinks consumers will be okay. They're incredibly resilient, he says. Still, he has his eye on gas prices. If they edge up toward $5 a gallon, he'll be more concerned. I'm Nancy Marshall-Gennzer for Marketplace. So, on the one hand, like Nancy was just talking about, we are all out here just trying to break even between our pay and inflation. But some Americans are trying to break even with each other. And I am talking about the wage gap between men and women. It has been widening since 2023, we'll get the latest numbers on that next week. As Marketplace's Justin Ho reports, the widening wage gap is making the economy less productive than it could be. The big problem with the gender wage gap, it discourages some women from even being in the labor force. The fine women looking out to the Marketplace to find a job, I already know that I'm starting from a lower level. Nicole Servi is in a commerce with Wells Fargo. She says anyone who wants to enter the workforce has to know they'll earn enough money to make it worth working, enough to pay for childcare or elder care. And because we have this gender pay gap already in existence, for a lot of women, if they go out to the market and find a job, they're not even going to earn enough to cover some of those unpaid responsibilities that they have. So, some women decide that getting a job just isn't worth it. That means there is a lot of untapped potential out there. Servi says from the perspective of an employer that's untapped productivity, skilled workers who could be boosting output, but aren't. And so, if you, let's say, can't get a really skilled engineer to help push the frontier, let's say, of something that you're building, then that's just going to slow down your output production in the longer run. The gender pay gap also has an outsized impact on those care industries I mentioned a few seconds ago. And one thing we know about the care workforce, it is predominantly female. That's Chloe Gibbs, a senior economist at the W.E. Upton Institute for Employment Research. She says care work, surprise, surprise, also tends to be underpaid. And as a result, the care industry sees a lot of churn as workers find better paying jobs, or drop out of the workforce. And that undermines the stability of the care provided because you have this sort of constant turnover that is particularly pronounced, and we would expect that in a low wage industry. Some is, care work is infrastructure that supports the entire economy because it allows people to go to work and be productive. So when the care industry is unstable because it can't find workers, that kind of undermines everyone else's ability to work, parents ability to work who have young children, they really rely on the stability of their child care arrangements. And when parents can't find that stability, mothers are more likely than fathers to drop out of the labor force. Essentially that is lost value from the skills and the talents that that worker would bring to the labor market. The gender pay gap also has an impact on workers' kids. Essentially it lowers investments in children, and therefore long run productivity grows. That's Stephanie Següino, an economics professor at the University of Vermont. She says women tend to spend a much higher percentage of their income on their kids. But when women earn less than men, children get fewer resources. It could be enrichment activities for their health care, for stable housing, all things that affect children's cognitive development, their creativity, and their innovativeness in the long run. That means underpaying women, Següino says limits economic growth for generations. I'm Justin Howe for Marketplace. We can't just find a thousand acres of farmland. Well, you'd think they'd be easy to spot, right? But first, let's do the numbers. The Dow Jones Industrial Average shot up 509 points, which is 1% to finish at 52,573. The NASDAQ lifted 1%, the S&P 500 rose 9/10 of a percent. With average diesel prices passing $6 a gallon, let's check in with some companies involved with electric freight vehicles. Swedish Company N Ride, which provides autonomous electric trucks and services for human-driven electric trucks, slowed down, 8.5% highly on holdings, which makes electrified power trains sped up 2 and 1/10 of a percent. Bonds fell. The yield on the 10-year T-note rose to 4.97 percent, almost five. You're listening to Marketplace. This is Marketplace. I'm so rebenicure. About 42% of Americans are retiring earlier than they thought they would. This is according to insurer Allianz. Now, most of that is for not great reasons, health or a layoff, but for one in five of those early retirees, it is because they feel financially stable enough to just not have to work anymore. All of which sets up today's installment of our series, Clocked Out. My name is Skip Franklin. I live in Western Michigan, just south of Grand Rapids, and I retired in 2013 at age 37. I graduated from college in '98 and went right to work. I was a computer science math graduate, and if you don't know anything about the economy at that time, that was right about the time Y2K was a big deal, and like everybody was getting on the internet. I immediately had a job. I was getting paid a lot of money for the time. I basically did nothing but work. So at the end of that time, I basically kind of looked at it and said, you know, there's a lot more to life than this. You know, I've made good money up to this point. I don't have to work right now if I don't want to. So I decided now was a good time to take a break. And having taken that break a few years past, and I'm like, you know, I don't kind of like this and just decided not to go back. That first year, I didn't do a whole lot of anything. So it took me a good year of just kind of laying around and doing nothing to realize that, okay, maybe I want to do a little something. I started working with just various volunteer things, just one or one off type things. And then a couple of years later, it was 2016, I believe, when I found the Refugee Education Center in West Michigan. So I became their IT guy for a while, where I did all their computers and printers and stuff. Eventually, they got big enough that they needed a real IT guy, and so they hired someone, which is great worth me because that means I don't have to do it. And now I just help out with the tutoring and that kind of stuff. I've made a lot of life choices that don't involve spending a lot of money. So I live in a small place, I don't have fancy cars, I'm not married, I don't have kids. So that's why I was able to invest and get to the point where I'm fairly comfortable. I mean, I live on probably around $20,000 a year, and that doesn't really impact my investments that much. My primary identity at this point is church and friends and family. Well, I should say church and volunteer work. I mean, those two things kind of go together for me. I don't feel like a drift without a job, you know. I've heard people say they're like, oh, well, if I retired, I don't know what I do with myself. I have a hard time believing anybody who says, oh, if I didn't have my job, I wouldn't feel right. Well, that means you're not looking hard enough. There's something else out there for you. Skip Franklin, live in the dream, retired, south of Grand Rapids, Michigan. If you have quit your 925, maybe to take a break, doesn't have to be retirement, or to do something else, you can tell us about it, marketplace.org/clockedout. The U.S. has a housing shortage. We know that the country needs millions more homes by some estimates. And yet, the pace of home building has been slowing down. Take your pick of reasons, high mortgage rates, labor shortages, general anxiety. The number of new homes breaking ground so far this year is down about 2% compared to the same period last year, according to Census Bureau. Every region of the country has seen a slow down, except one, the Northeast. There, housing starts are up 12 percent Market Places Henry Ep reports. Eventually, there will be 32 homes nestled into the new dogwood circle development in Milton Vermont. But right now it's a work in progress, seven homes are finished, the owners are already living in them, three more are under construction, workers are screwing in drywall. The rest of the lots are still patches of dirt, but that'll change soon, says developer Colin Frisbee of Sterling Homes, standing in the basement of one of the under construction units. We're going to begin digging tomorrow a duplex next door to this. The new neighborhood is a short walk to the town's rack field and library and by New England standards it's a fairly dense development, 32 units on six acres. In the more homes we can fit on a piece of land, the more we're able to divide out all those costs, the land costs, the infrastructure costs, the development costs, the permitting cost. The lowering prices for buyers, still the cheapest home here, half a duplex, will set you back $480,000. That's actually a good bit below the median sale price in Vermont. And units are selling, Frisbee says, but despite a persistent housing shortage in the state, his business is kind of just chugging along. It's a reasonable rational market at the moment and that's a good thing. Markets tend to ebb and flow, we're closer to an ebb. But staying afloat, thanks in part to the region's demographics, says Robert Dietz, chief economist with the National Association of Homebuilders. Who has been infected from the run-up in not just home prices, but stock prices? Well, it's older households. And there are a lot of those in the Northeast, he says. And so it's those households that have seen an increase in their net worth that have relatively greater spending power for the housing market. Which is pushing up demand for new homes. And that's helping the Northeast look a bit better than the rest of the country, says Paul Willan, an economist at the Federal Reserve Bank of Boston. You're basically seeing us doing okay relative to where we were a few years ago, whereas I think in other parts of the country, they'd seen a big fall off. Coming out of the pandemic, homebuilding boomed across the south and west. But as borrowing rates for builders and buyers rose, that boom came to a halt. Meanwhile, says Willan, we didn't see that construction boom in New England and in the Northeast. So in a sense, I guess you could say we're playing catch-up. That catch-up is slow going for a few reasons, borrowing rates for one, and particularly high construction costs in the Northeast, Willan, says. Plus, compared to other regions, there's just not as much space up here. We can't just find a thousand acres of farmland and just go in and dig sewer lines and build hundreds of new homes. And even smaller developments like Dogwood Circle face another headwind that developers say make building in the Northeast especially hard, state and local permitting processes. Developer Colin Frisbee says it took two and a half years to get permits for his new neighborhood. And that was a lightning speed compared to some other projects he has in the works. The conservative approach to how some of these regulations are being interpreted make it much more difficult to provide that housing that is more affordable to more people. Frisbee sites, for example, local rules around setbacks that make it harder to build that the density required to keep prices in check. For Julie Maslak, the increased density at Dogwood Circle came with trade-offs. She bought one of the new homes here after living for years on a large rural lot in a nearby town. There's not nearly as much space to garden, and for now she's surrounded by construction, but I also thought about things as I age, you know, like, okay, what if I can't drive? I could walk to the library, I could walk to the right fields, I could walk to Trials, Dogpart, get my food, all of that. And she's planning to spruce up her new yard. I put in flowers, I'm going to put in a fence, and then I'll build a little paradise in the backyard. And watches the rest of the neighborhood builds up around her. In Milton, Vermont, I'm Henry Atte for Marketplace. This final note on the way out today, I was going to say something about how Campbell's McCormick and other food makers are warning there are sharp price hikes coming, but you know what I have jad just about enough of inflation for today. So instead, libraries. Ohio, Utah, and Washington lead the country in the number of public library checkouts per person. In 2024, almost double the national average, this is via Axios, US public library checkouts are recovering from a pandemic era drop in part thanks to a boom in digital borrowing. Our theme music was composed by B.J. Leaderman, Marketplace's executive producer is Nancy Fargali. Joanne Griffith is the chief content officer, Neil Scarborough is the vice president and general manager. And I'm Sabrina Venashore, have a great weekend, we'll be back on Monday. [Music] This is APM.