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Chapter 1: Why do gas prices differ between California and Texas?
Well, here's where we are. A check on the nuts and bolts of this economy. Oil and gas because the news. And bicycles in Los Angeles. From American Public Media, this is Marketplace. In Los Angeles, I'm Kyle Rizdahl. It is Tuesday today, the 26th of May. Good as it always is to have you along, everybody. The big economic data of the week comes Thursday.
The Personal Consumption Expenditures Price Index, courtesy of the Commerce Department. The Federal Reserve's preferred measure of inflation, as you know, unless and until Chair Walsh decides otherwise. The 12 regional Federal Reserve banks put out reports, too, you know, which today comes from the Chicago Fed with its National Activity Index. National activity, it seems, is mixed.
Manufacturing looks not bad.
Chapter 2: What factors contribute to higher gas prices in California?
Personal consumption, though, not great. Marketplace's Justin Ho gets us going with what the heck the Chicago Fed's National Activity Index is and how the heck to read it. The Chicago Fed's National Activity Index sums up a bunch of indicators covering different slices of the economy, including manufacturing activity, which picked up in April.
That's not surprising to us.
Nancy Vandenhouten is lead economist at Oxford Economics. She says there are a number of factors that are boosting manufacturing right now. One of them is last year's big tax and spending law.
Another big factor is the AI build-out, which has created demand for lots of inputs such as computers and electronics.
Manufacturing is also being propped up by businesses boosting their inventory levels. Van den Houten says a lot of businesses' inventories are too low right now.
If inventories get too low, you're going to see some increases in manufacturing output to restore inventories on the part of businesses.
On the negative side of the ledger, the Chicago Fed index also found that consumer spending has been slowing down. Menzi Chen is an economics professor at the University of Wisconsin. He says consumer spending had been boosted by last year's tax cuts, but then consumers got slapped by the side effects of the Mideast War.
So higher gasoline prices for sure, sort of the uncertainty associated with the war. What that's done is that it's offset what we would have gotten from the tax cuts.
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Chapter 3: How do California's regulations affect fuel costs?
The Chicago Fed index also found that employment slowed in April. Peter Orozum at the University of Iowa says that's not necessarily a bad sign yet, considering that the labor market overall is in pretty good shape. Put another way? There's plenty of consumer demand to justify the number of jobs that are currently in the U.S. economy.
But that also means the health of the labor market depends on consumer demand. So signals that the consumer demand might be weakening is a little bit concerning. Especially since consumer demand has been keeping the U.S. economy strong over the last couple of years. I'm Justin Ho for Marketplace. Wall Street on this Tuesday that feels like a Monday. Stop me if you've heard this one before.
Tech stocks, baby. We'll have the details when we do the numbers.
Thank you.
Chapter 4: What is the impact of refinery shutdowns on gas prices?
I'll tell you what, for all else that ails this economy, and it is not a short list, as you know, this is a good time to be a wholesale club. BJ's reported last week that quarterly revenue was up nearly 10% from a year ago. Sam's Club beat expectations, helped by strong gas sales. This week, Thursday, we'll get the biggest of them all, Costco.
It of the more than 80 million paid memberships worldwide, a number that keeps on growing. Thanks in part, as Daniel Ackerman is about to explain, to the higher income customers who are still driving so very much of consumer spending right now. Michael Baker is a retail analyst with D.A. Davidson and a member of both Costco and BJ's.
I do try to spread it out a little bit and go to both, both for personal and professional reasons. Though if he finds himself heading out to shop while hungry... Huge fan of the $1.50 hot dog at Costco, so that's a draw for lunch every so often. Baker says the wholesale clubs, especially Costco, have long appealed to higher income consumers.
Because to get those bulk deals, you need to be able to spend in bulk.
You do end up walking out of the clubs having spent a lot of your budget.
Recently, more and more higher income customers are opting to do that, says Brian Eshelman of Alex Partners. It's been an ongoing trend, but I think it has been kind of heightened of late because of everything that's going on in the economy writ large.
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Chapter 5: How does the local economy influence gas prices in Texas?
Put another way, says Neil Saunders of Global Data. Inflation has been a recruiting sergeant for the wholesale clubs.
Costco has seen its market share grow enormously over the past five years or so, partly because they are attracting more affluent consumers into their mix.
To compete with the growing wholesalers, Saunders says retail brands like Walmart are also trying to appeal to those higher income shoppers. They are making the experience a bit more bougie. They've got some higher end brands, more interesting products. Because at the end of the day, Saunders says, It doesn't matter whether you have a lot of money or a little money. Most Americans love a bargain.
And he says that is what the wholesale clubs offer, at least for shoppers who can afford an 80-pound wheel of Parmesan. That's a real Costco product, by the way. I'm Daniel Ackerman for Marketplace.
Thank you.
There's plain old inflation, too much money chasing too few goods. You're all familiar with that, I'll assume. There's shrinkflation, companies trying to get one over on consumers by putting less in a package but keeping prices steady.
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Chapter 6: What role do imports play in California's fuel pricing?
Now meet climateflation. And don't take it from me, take it from science and data. Emma Court wrote about it the other day from Bloomberg. Emma, welcome to the program. It's good to have you on. Thanks so much for having me. Take me back, would you, as you start this piece to the summer of 2022 in Europe, the weather and then and then the climate flation that happened.
Your listeners may remember there was a really bad heat wave that year. And it led to kind of all kinds of issues sort of throughout the European food supply. So, you know, we saw olive harvests getting damaged in Spain. We saw chickens getting really hot in the heat and chicken production sort of taking a hit in the UK. And they...
Estimated for European food prices, it raised those prices by about 0.7%. And then for overall inflation, it was about a 0.3% increase. Now, there's a lot going on that year.
Chapter 7: How is electric vehicle adoption changing fuel consumption patterns?
There were a lot of other sources of inflation. People may remember Russia invasion of Ukraine, lots of other sources of inflation. But this was kind of a pretty substantive effect to see from just a single summer heat wave.
Can we talk actually more about that messiness? Because climate deniers will certainly look at this article and listen to this interview and say, no, no, no, you can't actually do it. And the fact is now that economists are really working diligently and in some cases can actually make those connections.
Yeah, it's a really important field of study and it's emerging because central banks are concerned about what the implications of climate change have for sort of their core mandate of price stability, right? They want to keep prices stable and it is a challenging thing to do because there are so many different sort of inputs into prices.
And there's a lot of differences, especially when you look at a global level, when you're trying to really get your arms around this problem, how do you kind of tease out some of the differences between countries, right? Each country has its own kind of CPI basket. And in some countries, food is a much bigger portion of that basket. For instance, you have things like recessions.
There's a lot of things that can influence these numbers.
Right.
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Chapter 8: What are the future implications for gas prices in California and Texas?
The other thing, since you mentioned central banks, the other thing central banks worry a lot about is keeping inflation expectations anchored. And as you point out in this piece, people who are more attuned to climate change may be anticipating higher prices because of climate change. And as we know, inflation expectations can actually affect what prices do.
Yeah, I'm really glad you raised this because, you know, as one, you know, economist at a central bank I spoke to pointed out, you know, it almost may not matter if you have extreme weather events, you know, prices rise, but then they, you know, the inflation cools down, things kind of settle down. It may not almost matter if people think climate change is going to cause problems.
price inflation, and then they start acting like that and they start asking for raises at work and things like that. And then you get kind of the effect of climate inflation, even if initially the initial event was not super substantive.
And also, not for nothing, as inflation goes up, so too do interest rates because central banks around the world try to control it. And so we all wind up paying more for money as it is.
We're talking about central banks being worried about this. What are the tools they have at their disposal? Interest rates, right? And when you start raising interest rates as a tool, then do you start harming the economic activity as well? If the economy is suffering already, you don't want to add on top of that and make things worse.
So there are some limits to what central banks may even be able to do with their existing tools. There's also a lot of other tools that not just central banks can think about. For instance, policymakers can think about what are ways to protect society more from climate change. And then there's adaptation.
We know people are able to adjust to climate change and find ways to protect crops from the most extreme weather, let's say. but we don't know the total extent of how much adaptation is possible. We don't know, you know, can we protect ourselves from all of the climate inflation by making all, you know, taking all possible steps available to us.
And the answer is we just don't know, right? We just don't know.
We just don't know.
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