Chapter 1: What do consumers expect regarding future inflation?
Don't look back. The economy might be gaining on you. From American Public Media, this is Marketplace. In Los Angeles, I'm Kyle Rizdahl. It is Wednesday today, the 27th day of May. Good as always.
Chapter 2: How does the Iran war impact the U.S. economy?
Have you along, everybody. You know, sometimes in this economy, as in life, you can figure out where you're going by figuring out where you've been. So we begin today. by looking back, back to the first quarter of the year and an update on Q1 gross domestic product that we are going to get tomorrow morning.
The first look that we got from the Bureau of Economic Analysis, this was last month, came in at an annualized growth rate of 2% January through March. Tomorrow's revision will fill in some more of that data for March, especially as you recall the first full months of the president's war with Iran.
Marketplace's Henriette gets us going with economic growth at the beginning of the year and what it might tell us about the economy today.
These revisions are going to give us a better sense of whether the Iran war has hurt the fairly positive momentum in the U.S. economy. The revised data could have both positive and negative effects on each of the components that make up GDP. Let's start with net exports. The U.S.
now sends a lot of oil and gas overseas. So the spike in prices might drive that number up and raise GDP, says Ishwar Prasad at Cornell.
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Chapter 3: What are the factors driving inflation expectations?
Even if the volumes of U.S. exports, especially energy exports, stayed the same, just the increase in prices could have given a bit of a boost to exports. On the flip side, the first quarter was also when President Trump's tariffs were struck down by the Supreme Court, which may have led to more imports. That would pull GDP down. The next component of GDP is business investment.
In the last few quarters, that's basically meant investment in AI data centers. Tomorrow's revision will give us a sense of whether companies have been stocking up to build those data centers, says Joanne Feeney at Advisors Capital Management.
If inventory growth was faster than expected because of the preparation to build those data centers, then that would contribute to faster GDP growth than we thought a month or so ago.
Then there's government spending. We know that helped drive up GDP in the first quarter as the government shutdown ended and the Mideast War began.
Chapter 4: How can inflation expectations become a self-fulfilling prophecy?
And finally, there's consumer spending. So far, it doesn't look terrible, says Stephen Blitz, chief economist at Global Data TS Lombard, but it did slow down a bit.
just enough to be sort of a dampener on growth. All this adds up to a sort of unsteady expansion, Blitz says, an economy that's wobbling, not into a recession, but onto a slower path.
I'm Henry App for Marketplace.
Also on the data calendar tomorrow is the April Personal Consumption Expenditures Price Index, PCE for short. Best guesses are that the headline number that is with food and energy is going to come in right around 3.8% year on year. That's up from 3.5% in March, headed very much in the wrong direction, away from the Federal Reserve's ever more elusive inflation target of 2%.
And the thing is, and here we get to the where this economy is going part of this story, what people think inflation is going to do, inflation expectations in the lingo, they are up sharply, too, for consumers and businesses and investors. Marketplace's Mitchell Hartman has that one.
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Chapter 5: What challenges are farmers facing in the current economy?
Inflation expectations are inflating. The University of Michigan reports that consumers expect prices to rise 4.8% over the next year. Back in February, it was just 3.4%. Here's why this is a problem.
Inflation expectations can become a self-fulfilling prophecy.
Joanne Xu directs the University of Michigan surveys.
If you expect inflation to be much higher in the future, you might front load your purchases now. And if enough people do that nationwide, that would put in itself some upward pressure on prices.
Another way this can happen is what economists call a wage price spiral. Prices are shooting up. You see no end in sight.
You might try to find a higher paying job or negotiate a raise. And then employers are going to take those increased labor costs and pass them right back to consumers.
You can also measure inflation expectations by asking businesses. The Philadelphia Fed's latest survey finds local firms expect a sharp spike in U.S.
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Chapter 6: What is the significance of the wool demand surge?
inflation over the next year to 4.2 percent. But they say they'll raise their own prices on average just 2.8 percent. Philly Fed economist Paul Flora is pretty sure they're lowballing.
They're going to want to say that we're holding prices firm, we're not going to raise them, but our competitors might. And the reality is, if their competitors do, then they're probably going to follow.
One more place to look for inflation expectations, says economist Mark Zandi at Moody's Analytics, the bond market, where investors are also signaling they expect inflation to move higher.
You know, there's different ways of measuring inflation expectations. And I will say that all of them are pointing in the wrong direction.
If the trend continues, he says the Fed will have to hike interest rates to tamp them back down. I'm Mitchell Hartman for Marketplace.
Wall Street today, kind of a wash for equities, actually. Oil took a digger. And hey, look, the yield on the 30-year Treasury is still right at 5%. We'll have the details when we do the numbers. Inflation expectations are perhaps, as Mitchell was saying, keeping us frugal.
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Chapter 7: How is the wool industry adapting to environmental concerns?
But there are some areas in which buyers are willing to shell out a bit more. According to a 2022 survey from Wharton, consumers across generations, that baby boomers to Gen Z, will look past a higher price tag if it means buying a more sustainable product. That said, it kind of doesn't matter how much people are willing to pay if the supply ain't there. Wool is our commodity of choice today.
Stepan Sveshnikov wrote about it for Off-Range. He's also a PhD candidate in history at Yale. Stepan, welcome to the program. Good to have you on. Good to be with you. I'm just going to read you the first line of this piece, which you know, of course, since you wrote it. But then we're going to talk about it because it contains multitudes here. The U.S.
wool industry, you write, is staging a comeback. So where are all the sheep? First of all, talk to me about wool and this comeback, because clearly I missed that.
Chapter 8: What does the future hold for the agriculture economy?
Yeah, well, I'm not surprised you've missed it, but there's a group of people who's interested in wool, Kai, and I think that that group is growing. Wool answers three concerns that are prominent, and I think you've heard about these concerns. One is a health concern about microplastics, right? The microplastics in our clothes, partly, right?
And so there's a growing body of research that's showing that that might be affecting us in ways we don't like. Now, if you're talking about wool socks or wool underwear, they even make wool bikinis now, right? So those aren't going to have any microplastics in them. So the second concern is environmental, and I'm talking about oil, which has been in the news.
Those plastic clothes, they're made from polyester, and polyester is made from crude oil. So we're talking about a group of people who are concerned about the environment, and wool is a lot more sustainable than oil. Mm-hmm. And the third thing is ethical. So in the news recently, there's been some talk about polyester recycling.
So, you know, when you recycle old clothes, they go off to places like India and the dust from those recycling operations is making people sick. So I think wool actually is able to answer those concerns. And as there are more people who are worried about these things, they're starting to buy wool products.
Okay, here comes the second part then of your first question. Where are all the sheep? You actually said there's not enough sheep in the world to meet all of our demand now.
There's not enough sheep in the world, not even in big wool producing countries like Australia. And in the US, the situation is especially bad. But surprisingly, the farmers and industry people I talked to were optimistic. So they felt like we've hit rock bottom, but there's room to start bringing some sheep back.
The catch, of course, is that, and look, I don't know much about sheep procreation, but I imagine it takes, I don't know, a couple of years for a sheep to get to the point where it can be sheared and wool can get into the supply chain.
That's the problem. Yeah. So Krista Rochford, who's the wool marketing program manager at the American Sheep Industry Association, she told me it's not like you can rebuild the American herd overnight. You can't just come up with breeding stock.
So this is demand spiking, which, of course, this is great for farmers because the price for wool goes up, but then they're not going to be able to double their herd size overnight.
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