Muse

Planning for the future? State Farm can help, because they know life's biggest moments often come with big responsibilities. Whether you're starting a family or buying your first home, State Farm Life Insurance can help protect those you love. With flexible coverage options that fit your budget, plus the ability to update your life insurance policy as needs change, you can live more confidently as life changes. Get started with State Farm. Like a good neighbor, State Farm is there.

When you partner with CDW, you get more from your devices with solutions that take modern work to the next level. CDW experts are delivering powerful productivity with Lenovo AI PCs, helping users block out distractions, access virtual support anytime, anywhere, and share content seamlessly between devices. Make amazing happen. Learn more at cdw.com slash Lenovo.

In which the program is about the economy yet to come. From American public media, this is Marketplace. In Los Angeles, I'm Kyle Rizdahl. It is Wednesday today, the 22nd of July. Good as always to have you along, everybody. Our tour through the macro economy begins today with two numbers. The first is 30. That's in years, and it is specifically the 30-year treasury, the federal government's long bond that pays you back principal and interest in, just like it sounds, 30 years. The second number is 5. That's in percent, and it's the yield, the interest rate, that the 30-year carries today. It has carried, in fact, 5% or higher for 27 days, the longest it's been that high since 2007. You'll not be surprised to hear we didn't pick those numbers out of thin air as a place to start today because, as Marketplace's Sabri Beneshore explains, most of the time when something like this happens, the bond market is trying real hard to tell us something.

I don't know if this has ever happened to you, but one time my old Jim was like, hey, how would you like to prepay your membership for two years in advance? And I was like, no, why would I do that? And they were like, well, we'll give you a really good discount. And I was like, well, it better be one heck of a discount because like, what if you shut down? So I didn't do it. And lo and behold, the gym went bankrupt a year later. 30 year bonds are like my shady old gym, not the shadiness or the bankruptcy, but the fact that they ask you to lock up your money for a long time.

You tie yourself up for 30 years, you're locked in.

Stephen Leipley is global co-head of bond ETFs at BlackRock.

And so you're going to potentially demand a premium to take that risk.

So much can go wrong in 30 years, and investors want to get paid more for that risk. And recently, they've been wanting to get paid extra more. Yields have been rising, and that's a signal that markets are becoming uncomfortable. Ian Shepardson is chairman of Pantheon Macroeconomics. First is the intractability of the huge budget deficit that the U.S. has been running for some time. Government debt held by the public hit 100 percent of GDP in March, and people are starting to wonder if they will get paid back in 30 years. There's no plausible, credible plan to reduce that anytime soon. Now, whilst investors have been worrying about the U.S. government, they have also discovered they have alternatives, again, Stephen Lightley at BlackRock.

All of a sudden, you have this very large issuance boom in AI that's necessary to build out the infrastructure. This is all happening at the exact same time.

Tech companies are offering high-paying, long-term bonds of their own that are competing with the governments. Leslie Falconeo is head of fixed income strategy at UBS Wealth Management.

Pension funds, insurance companies, asset liabilities, managers, you know, they love these yields that we're seeing.

So long-term investors have worries, they have options, and they are out here yelling that they want higher yields. Now, 30-year yields don't influence mortgages or car loans the way 10-year yields do. But the thing about the long term is that after a while, it becomes the now and so may higher rates. In New York, I'm Sabri Beneshaw for Marketplace.

Wall Street today, or maybe market-based capitalism more broadly today, bond yields were up, as we've discussed. Oil was up, geopolitics being what it is. Stocks? Nope. We'll have the details when we do the numbers.

Thank you.

There was a data point out from China's main statistical agency last week that is raising some eyebrows. Growth in the world's second biggest economy is slowing 4.3 percent in the second quarter. That is down from 5 percent in Q1. Yes, Chinese data, so grain of salt. And but when you dig down a little bit, there are some reasons to be worried, both for China and for the rest of us. We have called Adam Pozen to talk things over. He's the president of the Peterson Institute for International Economics. Adam, it's good to have you back on the program. Thanks, Guy. Glad to be with you. So in a nutshell, in layman's terms, bearing in mind that GDP report out of Beijing last week, what is going on over there that it is slowing?

I mean, it's the second biggest economy in the world. It's a big deal.

it's a big deal and it's not just slowing it's slowing after being slow for quite some time they've got a bunch of domestic consumption that's very weak and is getting weaker and they've got a small business sector and private sector outside of tech that's not investing you take away the housing boom that they had a few years ago it's not much of an engine for

the world's second biggest economy yeah so the housing boom we've actually talked about before on the program. They had a big housing and a property crash, and there was a big overhang. Talk to me, though, about that thing you said, domestic consumption, which in plain English is consumers not consuming over there. Why does that matter? Why is that important?

Consumption makes a smaller part of the Chinese economy, Kai, than in the U.S., but it still makes up 40, 50 percent. And some people would say it's totally down to the real estate bubble, that all these people had invested in houses or condos or unbuilt condo houses that are now worthless. But generally, historically, household balance sheets are not the only thing that drives that. So what I've argued for a few years now, and I think this bears out, is that people in China are fundamentally scared that their property can go away, that their jobs can go away. And particularly if you look at the youth unemployment, I mean, China's measured youth unemployment is 18%. But that's after they stopped collecting the data for a few months to try to make it look less bad. Many people think the youth unemployment is higher than that.

The future looks pretty grim. And so people are saving a lot more. Got it. And you mentioned small businesses, too. Talk to me about them.

Well, part of the miracle in the 80s, 90s, into the 2000s in China was this enormous growth of small business. And those people essentially borrow from other members of their family to make investments. And there's very little separation between what's household consumption and what's a small business. So when they go down, they tend to go down together, and that's what we're seeing. And so they keep pumping money into the state-owned enterprises. They keep pumping money into the tech firms. But there's this whole vast share of the Chinese economy that's flat or shrinking.

You mentioned the miracle that was the Chinese economy in the 80s and 90s. A huge part of that, obviously, was growth in manufacturing and has been more recently growth in technology, right? They're making more EVs than almost anybody in the world. And they're exporting enormous amounts of stuff. Is that not enough to stimulate and drive the Chinese economy then?

The simple answer is no.

Even with this enormous manufacturing sector, even with cramming exports down the throats of the rest of the world, they're not seeing the rise in living standards and real incomes because they're competing on doing cheap stuff you're you can produce an awful lot of evs and what you're essentially doing is grafting one transistor onto one battery onto a metal box it's it's not it's not like you know hand finishing autos in the ford assembly plants

100 years ago it's not high labor right um my my usual uh attempt at making this relevant to to the everyday consumer is to to point to some person in like a tumwa iowa and why they should care but let me broaden that right because as i said at the beginning and and as you you have pointed out many times on this program china is an enormously important part of the global economy but if i'm in a tumwa iowa or small town france or you know out someplace in in uh africa why do I care that the Chinese economy is slowing after a period of slow growth? I think you care for two or three reasons. The first reason is, even if the export boom is not enough to save the Chinese economy on its own, it is enough to do a lot of damage and cause displacement of workers in the French or the German or the American car sector. It is enough to do a lot of displacement of workers in soybeans and other things that the U.S. exports. If you have a weaker Chinese economy, they're just buying less stuff. The second thing is a Chinese economy that's weaker and that's saving so much more ends up putting a downward pressure on prices throughout the world. And some parts of that are good, right? It means more purchasing power. But this deflationary pressure brings down the value of other things in the world, and it leads to various forms of unfair competition.

Let me bring it home with this. Is there a way, you know, President Xi and his minions have the great luxury of nominally a command economy. Can they stimulate, can they make this get better simply by force of macroeconomic will?

no um it partly depends on why you think the economy is so flat if it's due to the overhang of the dead property sector they can put in some stimulus and partially offset it but until they clean that up it won't work even more so if you're from my point of view and it's the people just don't trust the future, they don't trust the security of their property, then they're not

going to respond to the stimulus at all. Adam Posen is the president of the Peterson Institute for International Economics. Adam, thanks a bunch. I appreciate your expertise. Thank you for having me. I'll tell you what, American Telephone and Telegraph is having a moment. AT&T announced second quarter earnings today. Expectations were beat. $31.5 billion in revenue, 100,000 more new phone subscribers than analysts had been guessing, and a record 646,000 new people using its internet services. Marketplace's Kaylee Wells is on that one.

The 140-year-old company's had a couple wins at once, says Cameron Chow. He's Senior Director Analyst with Gartner. The first, they've added lots of people. AT&T bought Lumen's fiber internet business last year.

That integration allowed them to add immediately a million subscribers and over 4 million locations to their footprint.

And the second, says Chow, they've had fewer people leave.

because the churn rate is much lower than your typical telco industry.

That's thanks to a strategy called bundling. That's when the company offers deals to get clients to sign up for their phone and internet services.

It's really about cross-selling within their install base.

Dan Ives is partner and senior managing director at the banking and research firm Yorkville Ives.

We're seeing the consolidated landscape play out. and the bundling is one of the biggest Swiss Army knife opportunities that they have.

Because it makes life simpler for customers, and it makes it more difficult to leave. So yeah, it's been a good quarter, but Craig Moffitt says AT&T's doing about as well as it was 15 years ago, and 30 years ago. He's co-founder and senior analyst at Moffitt Nathanson.

Over the long term, AT&T hasn't shown that it can actually invest at above the cost of capital.

Internet service has obviously exploded since the mid-90s. Cell phones have evolved into little supercomputers today. And yet...

The telcos really haven't enjoyed much of that economic growth. They are the network builders, and the wealth is being created by the companies that ride on the networks.

The hope, Moffat says, is that bundling will earn AT&T a bigger slice of that growth. But it can only do that in a fraction of the country right now. And adding more service areas is expensive. I'm Kaylee Wells for Marketplace.

coming up i don't like boats water scares me better get your sea legs quick too but first let's do the numbers now industrials down six points we'll call that even finished at 52 218 The Nasdaq subtracted 146 points.

six-tenths percent, 25,690. The S&P 500 down 10 points, just over a tenth percent, 74 and 98. Kelly was just telling us about AT&T's very good quarter. Ticker symbol T dial-ups three and six-tenths of one percent. Today, rival Verizon brightened just shy of one and two-tenths percent. T-Mobile found about a tenth of one percent. Oil, six-week highs, gang. Brent crude two and nine-tenths higher. West Texas Intermediate added one and a half percent. Oil companies, they just rose in lockstep as that happens. As it goes, as it happens, I don't know. ExxonMobil increased one and eight tenths percent. Chevron ascended one percent on the day. Bonds fell. Yield on the 10-year T-notes. This is the 10-year now. 4.66 percent. You're listening to Marketplace.

Ever notice how life's best stories don't happen in your living room? They happen on the open road, out on the water, or parked under the stars. At Progressive, they get that you want to focus on the experience, not worry about the what-ifs. That's why they offer quality insurance designed for your ride, whether that's a boat, RV, or motorcycle. Adventure with confidence. Visit Progressive.com and see how easy it is to protect your favorite way to get away. Progressive Casualty Insurance Company and Affiliates. Not available in D.C. Prices vary based on how you buy.

This message is brought to you by the Capital One Venture X card. Venture X offers the premium benefits you expect, like a $300 annual Capital One travel credit for less than you expect. Elevate your earn with unlimited double miles on every purchase, bringing you one step closer to your next dream destination. Plus, enjoy access to over 1,000 airport lounges worldwide. The Capital One Venture X card. What's in your wallet? Terms apply. Lounge access is subject to change. See CapitalOne.com for details.

This is Marketplace. I'm Kai Rizdahl. The thing about doing a tariff story, as we are about to do, is that there is a swirl of numbers and acronyms you have to get up to speed on to know what's going on. For example, there are Section 122 tariffs, the ones the Trump administration put in place after his tariff palooza of last April was struck down by the Supreme Court. They expire on Friday. There are Section 301 tariffs on Brazil that the president announced last week. And a couple of days ago, there were those 50 percent tariffs on Canadian imports imposed under Section 338 of the Smoot-Hawley Act. Yes, that Smoot-Hawley. So we have done what we usually do when we want to understand what the tariff economy is like deep in the heart of it. We've called Gretchen Blau. She's a customs brokerage manager at Logistics Plus in Erie, Pennsylvania. Gretchen, good to talk to you. Good to be here. I am going to ask what lawyers I think would probably call a leading question, but my recitation a minute ago of all the coming and going and to-ing and fro-ing of tariff policy, I suppose you'd say, sounds like chaos to me. We're back in it. What does it sound like to you?

That's a pretty good description.

So how does that manifest in your day-to-day? I mean, are your clients and customers calling you and saying, what is happening?

Well, yeah. We have a lot of requests for tariff quotes to get the entire landed cost of a shipment. And as it stands, the 25% on Brazil imports started today. It's kind of overlapping with the 122 tariffs, which expire on Friday. We've heard through different sources that it could be 10% for countries where a deal was negotiated, 12.5% where a deal was not negotiated. And then we've also heard 20% across the board. And now we have 50% tariffs coming up with Canada. That one was a total and complete surprise. So it has been chaos.

This is a serious question. Where do you go to get the definitive truth? Because this is a bottom line issue for your clients and your customers.

It kind of depends because sometimes the proclamations and the executive orders issued by the White House, they will have the commodity classification of where things apply. Sometimes they don't and we have to wait for a CSMS message, which is issued by Customs.

Okay, wait. CSMS, is that some fancy federal thing that gives you information?

Yeah, it's a subscription we have with Customs and Border Protection to give us updates. but we really have to wait until we get something directly from customs to see what's going on. And a lot of times that's not quite quick enough for the importers we work with. So it leads to a lot of questions.

Yeah, I bet it does. When you have conversations with your colleagues in the logistics business, not only across this country, but all over the world, I imagine you have professional contacts.

What do they say to you?

Well, as an example, we have an office in Northern Ireland, and they send a lot of farm equipment and tractors and whatnot and high lifts and that type of thing to the U.S. And where before the steel portion or the aluminum portion, whatever metal portion was one tariff, and then the rest of it was a different tariff. Now there's a whole thing where if it's over 15% of the metal, it would be classified as the metal and the 232 tariffs would apply. But in some cases, some of them are 50% and some of them are 25%. So I got told by our manager there that I was talking nonsense when I explained this to him. I mean we have a good relationship. He wasn't being insulting at all. But, yeah, he just – he said, how do I explain that to my customer? And I said, I don't know. I'm sorry. And then, you know, that's an English speaking office. Oh, yeah, of course. And we deal with, you know, Italian agents and we have offices in Spain and Germany and whatnot. And it's really hard. There's a lot lost in translation, even when you're speaking the English language, let alone when it's really getting translated.

Yes, there is. Have you ever seen anything like this in your life?

No, absolutely not. There's not a strong enough word. Unprecedented is just too weak a word for this.

And you're not able to give your clients any, look, here's what's coming down the pike, right? It's just every morning you wake up and you check the news and you're like, oh, here you go again.

Exactly. Because we've been telling everyone, well, the 122 tariffs are expiring. We don't know what to tell you will be happening next week. Yeah. Gretchen Blau, Logistics Plus in Erie,

Pennsylvania. Gretchen, thanks very much. I really appreciate your time. Thank you. this has been in case maybe you hadn't noticed a quiet week in economic data And the Federal Reserve is in its quiet period before its meeting next week. So that means we've got some breathing room to go back to a speech that Federal Reserve Governor Christopher Waller gave last week at the New York Association for Business Economics. A speech entitled Monetary Policy at a Crossroads, by the way. But a speech in which there was one word repeated 10 times.

Inflation expectations today seem well anchored. Inflation expectations are anchoring inflation expectations.

not inflation expectations, but anchored. Now, you being a normal person might understand it in relation to boats. I don't like boats. Water scares me. I am not a sailor. People say, hey, let's go on a cruise. Nope. Yeah, same. But their aquaphobia aside, we call those people for their economic expertise. John Veach is dean of the School of Business Management at Notre Dame de Namor University. Julie Smith is a professor of economics at Lafayette College. And Karen McDaniel is an economics professor at Arizona State. Anchors on boats help keep you generally

in one spot if waves and winds spin you around. The drift is anchored by that heavy piece of metal

resting on the ocean floor. It's what central bankers mean when they say inflation expectations

are anchored that we are going to explain today. What we're talking about is that people's beliefs about inflation might move around a little bit, but they're never going to go that far away from

the Fed's 2 percent inflation target. We haven't been at that target, I will remind you, in more than five years. The latest reading of core PCE, the measure the Fed watches most closely, was 3.4 percent. Here's Karen McDaniel at ASU. The actual rate of inflation is important,

But even more important is what we expect the inflation rate to be in the future.

And that's where this whole anchoring thing comes in, as you know, because we say it all the time, where consumers think inflation is headed matters a lot for the Fed's ability to control it. If you believe, for instance, that refrigerator prices are going up, you'll be more likely to buy a new refrigerator now, thus increasing demand and pushing prices higher. And also, probably you would ask for a raise to be able to afford things like new refrigerators. It is a dangerous cycle. But if you expect inflation to eventually go back down to 2 percent, that makes the Fed job easier.

It doesn't mean that inflation or expected inflation can't move a little bit.

does mean is that inflation is going to return to where it is supposed to be. So that's what it

means to have inflation expectations anchored. Now, just to torture the nautical metaphor, we start with a little bit more. What you might well ask is the heavy thing at the end of the rope that is doing the anchoring. Credibility, trust, understanding. Just the belief that the Fed will act to bring down inflation can help stabilize prices. Fed Chairman Kevin Warsh has been trying to emphasize that commitment in his public statements so far, because right now the winds of this economy, like those tariffs that Gretchen Blau and I were talking about and the war in Iran

and all of that AI spending, have created some stormy seas. The waves of uncertainty hitting consumers are basically causing the boat to move. And in the short term, we, that is we consumers,

do expect prices to rise. The New York Fed's survey of consumer expectations last month clocked our inflation expectations over the next year at 3.7 percent. But if you look further out,

they're not that out of line with the Fed reaching the 2 percent inflation target. So markets are telling us that inflation expectations appear to be anchored.

And part of Chairman Walsh's job over the next months and maybe years is to make sure they stay that way.

Before he was appointed, the credibility of the Fed was really in question with a Trump appointee. I think that since he's come in, he's actually shown actions that build credibility.

He has talked, for instance, about having, and this is a quote, no tolerance for persistent inflation. And he has tried to assure people he will act independently of the White House.

Whether that lasts is an open question.

It is, at least right now, the most important question surrounding the worst Fed, because without credibility, without trust that the Fed is going to fight inflation when it has to, well, anchors away, right? Thanks again to John Veach at Notre Dame de Namor, Karen McDaniel at ASU, and Julie Smith at Lafayette College. This final note on the way out today, which I will preface by saying, Did you see last night that an open AI, agentic AI system hacked into a different company's systems all by itself? Everything's fine, right? Anyway, elsewhere in our robot overlord future, Google reported profits after the bell today. Alphabet, technically. The first of the big publicly traded AI companies to do so. Of note, its capital expenditures, the vast bulk of which are on data center buildouts. And remember, this is a three-month number. CapEx was almost $45 billion. Definitely not a bubble. Definitely. Our media production team includes Brian Allison, John Fokey, Montana Johnson, Drew Jostad, Gary O'Keefe, and Charlton Thorpe. Alex Simpson is the manager of media production. And I'm Kai Rizdahl. We will see you tomorrow, everybody. Oh, yeah, this is 8 p.m.

Have you ever daydreamed about leaving your office job and starting a life off the grid? I'm Rima Hades, host of This is Uncomfortable. And this week on the show, I talk with one woman whose homesteading dream became a reality and then a nightmare.

You're one disaster away from losing everything. And for us, that disaster happened really early on and we could never get on top of it. It was just this continuous cycle of poverty.

Be sure to listen to This is Uncomfortable on your favorite podcast app.