Lower those expectations

On the program today, first of all, the economic nuts and bolts, then democracy and this economy, and finally, we'll go to a candy store. From American public media, this is Marketflights. In Los Angeles, I'm Kaye Riznal. It is Tuesday. Today, this one is the 27th of October. Good as it always is, to have you along, everybody. We begin today with a quick calendar update. The Federal Reserve wraps up its two-day meeting on interest rates tomorrow. Then on Thursday, we'll get a fresh read on inflation, the personal consumption expenditures price indexed by name, and also on that same morning, our first look at economic growth in the third quarter that's gross domestic product July through September. One key part of that GDP figure is business investment, spending on among other things equipment, which in practice means big, heavy, expensive equipment. So it's a good thing, then, that this morning, we got from the Commerce Department September data on orders for durable goods. And once you strip out defense and aircraft orders, because they bounce around a lot, what are called core durable goods orders rose a half percent from August. And in fact, they've been rising for 10 of the past 12 months. And before you say anything, yes, a lot of that is being driven by AI, but not all of it. Marketplace Adjustment Host starts us off. There were a few categories in today's Durable Goods report where you can draw a direct link to AI spending, orders of computers and electronics, which both rose. But there were other types of orders that picked up that are a lot more broad. I've been struck by the strength on the machinery category. That's Megan Schoenberger, Senior Economist at KPMG. Machinery orders were up more than 16 percent from the same time a year ago. And that's not just AI, because machinery is feeding into all types of manufacturing and other types of production. And demand for manufactured goods has been strong across several industries. Transportation equipment, plastics, miscellaneous manufacturing, things like that are all also expanding. That could be because consumer demand in general has been resilient. And because some industries are benefiting from government efforts to support the manufacturing sector. Scott Paul, President of the Alliance for American Manufacturing, says that's not because of any one particular policy. But it's rather, I think, the private sector looking at what the past couple of administrations have done and determining that investing here is the wise thing to do as long as consumers keep on spending. Businesses might also be buying new equipment because they've been putting off those purchases after years of uncertainty. I don't think things have necessarily settled. I think there's a lot of uncertainty out there still, but there comes a point where you just need to update your equipment. That's Shannon Grine, an economist with Wells Fargo. She says some things are a little more certain, including the interest rate you might get to finance a piece of equipment. Maybe we're waiting for rates to move lower, and now it's pretty clear that they're not. And if businesses know rates are going to keep rising, buying something today might make more sense. I'm Justin Howe for Marketplace. On Wall Street today, I'll tell you what, anthropic files for a trillion and a half may be a two trillion dollar IPO and just like that, all technology and AI sins are forgotten. We will have the details when we do the numbers. Sometimes you get a couple of data points about this economy and you're kind of left scratching your head. So it was today with real estate sales have newly built single family homes. This is from the Census Bureau this morning. They fell last month down more than 5% from the same time a year ago. The median price of those new homes fell as well, often only 4% year on year builders, obviously cutting prices to try to get buyers in the proverbial door. So okay, that prices of existing homes, meanwhile, continued to rise. This is August data. It came from the latest case Schiller home price index also out this morning. Nationally, home prices were up about 2%. So what? Oh, what does it all mean? Marketplace to Samantha Fields has our story. For so long, it was a great time to sell. If you put your house on the market, there was a good chance you'd get multiple offers over asking. But these days, the buyers just aren't there. We're seeing a near record number of price cuts on homes. Jake Cremol at Realtor.com says 1 in 5 sellers cut their asking price in September. And I expect to be somewhere around that same range in October as well. Especially now that mortgage rates are over 7%. Many people who'd like to buy a house, especially their first or just holding off. Ali Wolf at Zonda says this is frustrating for people who are looking to sell. But for most, it's not dire. Right now, there's people I think that feel financially strapped, but you don't have people that are losing their job and can't pay their mortgage. At least not in large numbers, like during the Great Recession. Today, Wolf says most homeowners are financially stable. Unlike the mid-2000s, where people shouldn't have bought homes, we have people that had good credit scores, that had good down payments that bought homes, and then the value of their home has gone up. So they may be at a point where they want to sell. But Chris Herbert at Harvard's Joint Center for Housing Studies says most don't have to. People are sitting on a lot of equity, are psychologically anchored to the price. The houses were at a couple of years ago. And so they're just not willing to accept a lower price. Or at least not significantly lower. Herbert says anyone who does need to sell right now, because they got a new job, or they're having a kid or retiring, might want to adjust their expectations. They're not going to sell their home the first week, it goes on the market. When they may have to, you know, be willing to move on the price a bit. But he says they will find a buyer if they're patient. I'm Samantha Fields from Marketplace. We've got indexes galore on this program. Stock indexes, inflation indexes, wage indexes, you name it, we got an index for it. What we don't have though, or haven't had until now, is a capitalism index. So it was with some interest that we discovered at the global capitalism index from the University of Virginia. It essentially puts a number on how capitalist a capitalist economy actually is. How freely goods flow, how strong property rights are, how competitive a market might be. You get the gist. The democracy and capitalism lab at the University of Virginia is behind that index. Scott Miller is the director. First Miller, thanks for coming on the program. Thank you so much for having me. All right, so let's dig in. The United States, to my surprise, actually, is not number one on this list, Switzerland is. Help me out with that one. Yeah. I mean, to me, I will be very honest with you. My assumption going into this, I thought that the United States would rank out of the top 10. Really? Just kind of looking, yeah, yeah, that was my assumption. And the real reason is just because this index is the combination of eight specific mainline elements of capitalism. The United States does many of those quite well, but there are some that it does significantly less well against kind of the popular conception. Although we should point out, you know, it was number one and then started slipping, right? In recent years, make me a value judgment there, would you? Yeah. So, I mean, I think that the other thing to say is that this may seem as kind of contradictory to a lot of the listeners, but the actual of the eight core elements of capitalism that the United States ratings lowest on is our property rights and private ownership sub-index, element of capitalism, right? So we have several different main categories that go into that. I won't bore you with all the details. But there are some elements that the United States doesn't do as well on. And I do think that that will progress in the coming years. So for example, everybody knows about the tariff debate. Those of only intensified over the last year or two. And we do have one kind of element of capitalism that is the free flow of goods in capital. But I would bet a good amount of money that the U.S. is going to slide on that one considerably in next year's version or the year after. And that might drag down the aggregate score as well. I wanted to dig into a thing that I have said before on this program about how important democracy is to the institutions of this economy. And you talk about that in your findings, how important democratic government is to smooth and effective function in capitalism. And I guess what's your takeaway there? Yeah, I mean, this is the core of this entire project for us. I'm a business school professor, I do work with private firms, and I would go out and I'd be having these conversations with executives, and they would say they would all tell me, look, democracy is really important to me, it's really important to my employees, don't get, don't get me wrong on this. But my job as an executive, this is them speaking, is I need to maximize value for my shareholders. That's the important thing. And what I would say to them is, look, you need to understand that your ability to deliver shareholder value is incumbent upon you having a free and well operating democratic system in which you can do business. And what they sent to me was great, that's interesting, show me the evidence, and I had done a little bits and pieces, but I couldn't give a comprehensive systematic answer. So I said, all right, done, mission set. And what we found, unequivocally, is that if your democracy declines, your capitalism will decline as well, and that's vital. So you get to take this and you get to show it to all those business people, and you say, I did the work. If I'm a regular person in a Tomo Iowa, what am I using this for? Yeah, absolutely. What I would say is, just this relationship between democracy and capitalism matters for everyday people, whether they are public employees, my wife is a public school teacher, whether it be public pensions, or your 401(k)s, or anything like that are connected to the overall performance both of the stock market and the American economy, and there is unequivocal evidence that those things are intimately connected to the health of the democratic system. So what I would say is to the everyday citizen is whether it's your investments, your retirement, your grocery prices, this all matters to you, even if it is abstract in certain ways. Scott Miller is the director of the Democracy and Capitalism Lab at the University of Virginia, also he's at the Darden School of Business there. Professor, thanks for your time, so I appreciate it. Absolutely. This was great. Thank you for having me. Hey, how you feeling? A bit better maybe than a month ago? I'm asking because the conference board released its October consumer confidence index this morning, and it turns out we are collectively feeling a bit more upbeat, but blip or no blip. Marketplace and Nancy Marshall Gensers has that one. The consumer confidence index this month ticked up to its highest level since June, but even the CEO of the conference board, Steve Odland, says this is just a blip with consumer confidence bouncing around since 2022. The bounce tends to be around how consumers are feeling about gas prices and food prices at that particular time when they complete the survey. An average gas prices did dip a bit in October. Odland says consumer confidence is still on a general downward trend, though. With a sharp generational divide, Odland says Gen Z and millennials are much more confident than Gen Xers and boomers. You see your food bill skyrocketing and gas prices skyrocketing? Well, your fixed income is not buying quite as much. Consumer sentiment also breaks down along party lines. It's improved much more for Republicans. Ted Rossman is with money management international. He says the October confidence blip could give Republican candidates a whiff of hope. But in general, I would say the economy is more of a weakness for Republicans right now. And consumers in this latest survey did say they'll spend less on services and durable goods over the next six months. Chip Lupo at Wallet Hub says, yeah, they've been saying that for a while. But again, still going to spend, but you're going to see less product for your dollar spent. He says holiday sales will increase this year, but mostly because consumers are paying higher prices, not because they're getting more stuff. I'm Nancy Marshall-Gencer for Marketplace. Coming up. The kids don't know what a dollar is, they don't know what a quarter is, they don't know what to do with it. Tell you what, you got to know your customers first, though. Let's do the numbers. Down duster is up less than 15 points, actually, right at 15 points, all right, it's less than a 10th percent, 52,377 in Azdak, up 308 points, 1 and 2, 10th percent, 26,477, yes, and P500 gained 45 points, about 6, 10th percent, 7, 7, 2, 2 there. Real estate, you say, sure, we can do real estate, real remax group, the entity that resulted from the combination of remax and the real brokerage, added 1 and a 10th percent on the day, Zillow dropped 1.6 percent, jet blue, sharing up the profit forecast, shares ascended just under 19 percent, bond prices, sure, we could do bond prices, prices fail, you'll down the 10-year T-note rose, 5.0 percent, you're listing the Marketplace. This is Marketplace, I'm Kai Ristall. You can't get much farther south in Texas than Brownsville, right on the Mexican border on the Gulf of Mexico. Over the years though, the local economy has lagged most of the rest of the state, lower hourly earnings, and higher unemployment, and then SpaceX came to town. Analysis by the Federal Reserve Bank of Dallas shows lower unemployment, higher wages, and uptake in a home and retail sales, although exactly how much of that SpaceX gets credit for is unclear, nonetheless Marketplace Elizabeth Trovall took a little road trip to check things out. A parent named Fram Frann greets me at SBI excursions. It's a water tour company right along the ocean on South Padre Island. We do parasailing, jet skiing, sunset cruises, dolphin watches, and we do banana boat rides as well. That's a brandy button. He's a big fan of SpaceX and has expanded his business to include boat rides to see the occasional launches, which happened roughly seven miles south of here. We've integrated that in, so we actually just go out and watch the launch from a vessel. He brings about 50 people out on a boat to watch when SpaceX launches rockets. Other boat companies are out there too. As far as like space junkies, oh they're insane, they're even more crazy than I am. They know more about it than the rocket scientists I think. His company has seen steady growth. That's not from the occasional SpaceX boat rides, though he does think they help. Definitely not bread and butter, but I mean any amount of bread or any amount of butter is good. I mean we have amazing fishing, amazing parasailing, great food, great people, but now we have rockets that are leaving from our backyard. About a 45 minute drive from there is downtown Brownsville, where some city walls and businesses have space themed murals and signs. Here I greet Hilbert Vosalinas, CEO of the Greater Brownsville Economic Development Corporation. He remembers the day about 15 years ago when his team visited SpaceX in California. We come back to the boardroom and then he comes Elon Musk and he starts walking us through the project as well and he started getting into the physics of launching the rocket. Why would it make sense launching from the South Texas? That's when Musk mentioned Boca Chica Beach. I was kind of taking a back, like wait a minute. Somebody outside of Brownsville, Texas knows Boca Chica Beach. Salinas understood Musk's vision at the time and had one of his own. Having Starbase, its own launch facility could redefine Brownsville. We could become the next-based city, how cool would that be? And that could be a change of brand for us, a change of perception. Because at the time, you know the insecurity on the Mexican side was really starting to ramp up, right? And we needed something to help us with a narrative. Villians in capital investment later, SpaceX says it employs more than 4,000 people. The majority are locals. SpaceX did not respond to a request for an interview for the story. But Salinas attributes Musk's big investment to creating more industrial interest in the region. I'd like to say big fish draws out a big fish. So there's a lot of momentum in this region right now. And that helped open the door for not one, but two LNG plants. And that industrial development is part of why Michelle is Pinoza is studying electrical construction at Texas State Technical College. Because of the growth and all the businesses coming to the valley, I know that it's a promising future and there's going to be electricians in demand in the future. She says her cousin, a recent graduate from the technical college, just got a job at SpaceX. - It was a big deal. Yes, I think she was shocked, so it was a big deal. And, you know, again, this just happened in recent, so I've seen it. I've seen it happen. - Another trade student, Adolfo Sandoval, has worked on a SpaceX project and is studying pipe fitting at STX metal trades. He's less enthusiastic about what SpaceX and other industrial growth means for the region. - Whether I like it or not, it's coming. It's up to the rich to decide us, commoners. As much as we think that we might call some shots or protest against it, it's gonna happen. - He says it's tough, because he's from here. - You know, we got beaches, there's animals. So, you know, I grew up around the ranch style kind of life. And, you know, we're ruining habitats and stuff like that. And, like I said, you can go against the grain, but you're still not gonna win. - Change is happening, he says, might as well make some money off of it. In Brownsville, Texas, I'm Elizabeth Troval for Marketplace. (upbeat music) - There's a lot that goes into opening of business. What you're gonna sell, who your consumer is, what that consumer might wanna buy, how much disposable income they have, and when you might be able to get them into your store. So, when your target audience just started sixth grade, your business model might need some tweaks. Here's today's installment of our series, My Economy. - My name is Margaret Reynolds. I am the owner and operator of the Dizzy Cow Candy Store in Chicago, Illinois. - I opened Dizzy Cow in 2015, so I wanted to do something fun for the kids in this neighborhood 'cause I'm across from two large schools and within a mile of like five schools. So, I had a bunch of antiques and I love candy. Not fine candy, I love the candy that seven year olds love. And so, I took all my antiques and I made this little old fashioned general store. The hours of my store are right after school, really because I was focusing on the kids' experience. My average sale, shockingly, is between like 50 cents and a dollar. The kids don't know what a dollar is. They don't know what a quarter is. They don't know what to do with it. I count the change back to them. And most of them look at me and they go, "What are you doing?" And I'm like, "I'm explaining to you how change works." And your candy plus the change you got back should equal the amount of money you gave me. And if they've got a handful of dollars, it's just like pennies. They just throw it at me and be like, "Here, I can have all this change." And they're really cute. Then they go, "Keep the change." (laughing) "Keep the change." I love it against me. It makes me laugh so hard. I'm like, "Oh, thanks, big spender." During the pandemic, the prices of candy pretty much doubled. They blamed it on the sugar and the lack of the supply chain. And then it never went back to normal. So it is getting harder and harder to make. I mean, some things I literally make three cents on, five cents on, ten cents on, five. And if something super expensive, it ends up being four or five dollars to buy a candy bar or something, I just won't buy it. I just don't have it because I don't. I want the kids to come in and be able to spend a dollar and get enough candy to make them sick. That's enough, right? Margaret Reynolds of the Dizzy Cow Candy Store. She is in Chicago. No matter where you are or what you do, your stories are what make this economy go around. This series, too, by the way. So let us know what's going on. Would you have Marketplace.org/myeconomy. This final note on the way out today in which General Motors kicks the New York Stock Exchange to the curb. The carmaker announced today it's going to move. It's listening to the NASDAQ effective the middle of next month because apparently everything is a technology company now. Jordan Mangy's Anil Maharas, Janet Wynn, Olga Oxman, and Virginia K Smith are the digital team. I'm Kai, Rizdal, we will see you tomorrow, everybody. This is APM.