The oil-natural gas conundrum

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How about just a general survey of the state of this economy today?

You got a minute for that?

From American Public Media, this is Marketplace.

In Los Angeles, I'm Kyle Risdall.

It is Tuesday, today, August the 5th.

Good as always to have you along, everybody.

We are going to begin today with commodities, petroleum-based commodities in particular, of which the United States is the world's biggest producer, crude oil and natural gas both, the pair of them essential to this and to the global economy.

But their fortunes seem to be diverging, which I will highlight by quoting their prices today.

A barrel of both the U.S.

and global benchmarks, West Texas and Brent crude, down about 1.6% today.

Natural gas, on the other hand, denominated by the buy in millions of BTUs, should you be curious, up 2.6%.

Of course, price quotes do not effective analysis make, so here's Marketplace's Elizabeth Troval to do that.

The U.S.

has gotten great at fracking oil, but the world is producing more oil than it needs.

There's a big debate out there in oil circles on whether or not the U.S.

is

about to start declining in oil production.

That's the the Dallas Fed's Garrett Golding.

When you look at rig counts, when you look at the amount of frat crews that are out there in the shale basins, when you look at oil prices, at all points at the U.S.

starting to plateau.

But as crude oil fundamentals are weakening, a totally different story is playing out for U.S.

natural gas, which is finding new markets in Europe and Asia, says RBN Energy's David Brazil.

So the last two months have been absolutely wild in terms of big new natural gas demand centers from LNG making final investment decisions.

But here's where the rubber meets the road.

While demand for natural gas continues to grow.

At the same time, you're seeing lower natural gas production because crude oil is anticipated to drop with

dropping rig counts.

Natural gas is produced as a byproduct of crude oil drilling, especially in the Permian basin.

You go in for the oil and a certain amount of gas comes up.

It's called associated gas.

Roe LeBlanc is with SP Global Commodity Insights.

As we move forward though, and we get to this next tranche of LNG plants, it becomes interesting.

If oil growth is slow or non-existent, okay, you will lose the massive growth that you were getting from associated gas.

Which could mean amping up production of natural gas in other places besides the Permian.

But it also has to be close enough to the Gulf Coast because that's where LNG export terminals are being built.

And so that means you have places like the Haynesville.

A natural gas producing area in East Texas and Louisiana.

But we don't think it can do the job by itself.

He says we could see natural gas prices spike enough that we may even see companies developing brand new resources too.

I'm Elizabeth Troval for Marketplace.

Wall Street on this Tuesday.

Traders took their profits from the rally yesterday and just went home.

We will have the details when we do the numbers.

All y'all probably know because we say it a lot that spending by or on behalf of consumers makes up something like 70% of this economy.

That's the consumption side of things.

The production side of things can be broken down broadly now into two buckets.

Goods, making things, and services, haircuts and restaurants and all of that.

And services and a neat bit of economic symmetry is about 70% of what we do.

All of which I mention because we learned today from the Institute for Supply Management, their monthly services survey, that activity there in services, that is in 70% of the economy, practically flatlined in July.

Laura Veldkamp is a professor of economics and finance at Columbia University's Business School.

Welcome back to the program.

Thank you.

Happy to be here.

The thing with services, of course, is that they are less vulnerable to tariff effects.

But clearly, if you read some of the comments in this morning's ISM

report,

People in services are worried.

They're seeing things like tariffs are affecting prices.

Uncertainty is bad.

I mean,

it's not great out there in services land.

Absolutely.

This report suggests that services are really stagnating.

And we're starting to see the effects of tariffs and tariff uncertainty.

If you're a restaurant, sure, a lot of what you provide is the services, is the wait staff and the dishwashers and so forth.

But you also need, say, tomatoes to make your salsa, and you need some meat that you might get from overseas.

And you need some fruit, even in the winter when it's maybe not grown locally.

And all of that stuff is both getting more expensive, and they're facing a lot of uncertainty about what the price will be in the near future.

Here's the thing I've been trying to wrap my brain around, though, since the 2nd of April and the tariff palooza that we had that day.

We, which is to say economists, analysts, business and economic journalists, pretty much everybody, has been waiting for tariffs to really start to bite.

And I'm puzzled by the slow roll.

It's definitely picking up, but I'm very puzzled by that slow roll.

I think a lot of businesses stockpiled materials before the tariffs took effect.

And so I think firms were burning through that inventory for quite a while, and they're starting to run out.

And now they're left having to buy things anew at higher prices.

So as we go forward now with that role starting to pick up, as I said, what do you anticipate the next, you know, from like now till Christmas?

What do you think things are going to be like?

I think we're going to start to see the increase in prices that was brought on by tariffs percolating through the economy, and we'll see prices start to rise more and more.

Are you concerned about economic growth?

Absolutely.

I mean, anytime we make things more expensive and we're not getting something better and we're having to pay more money for it, this is really bad for growth.

That's what we as economists would call a negative supply shock.

All right, so let's roll it all into one.

We've got ISM this morning.

We had the jobs report on Friday.

We've got your concerns about growth.

Your gut feeling right now about this economy?

Well, there are two parts of the economy.

There's a big part of the economy, which is a share of the stock market that is booming, that has to do with big data and AI and data centers and all this new technology that's really bolstering the economy and keeping it afloat.

The vast majority of the increase in market prices has come from these high-tech firms.

And then you have the more traditional firms, the Walmarts and Targets, and smaller firms, and mom-and-pop restaurants, and so forth.

And they're not seeing great gains from any of this change in technology.

They're struggling, and then they're having to face higher prices from more expensive inputs that are hit by tariffs.

And so I think it will be a story of have and have-nots.

Do you suppose it's possible?

And look, we're absolutely acknowledging that small businesses and big businesses too, but also consumers every day in this economy are feeling the squeeze of these higher prices.

Do you suppose we,

the third person big we, have been lulled into a false sense of security by the rising markets and the absence of catastrophe is too strong, but fallen off the table, you know?

Yeah, absolutely.

I think early on, people panicked with these high tariffs.

We certainly saw it in stock market prices.

And then we didn't see any big catastrophe take place immediately.

And, you know, everybody thought, well, you know, it's all going to be okay.

And we even had a name for this, the taco trade, right?

Yeah, he'll put on big tariffs, but then he'll back off of it.

It's all going to be just fine.

And, you know, maybe we didn't see an immediate big catastrophe, but now little by little, we're starting to see the pain set in.

We're starting to see the downside effects of, you know, poor economic planning.

Yeah, it's that slow roll.

Laura Velkamp at Columbia University, the Business School there.

Professor Velkamp, thanks for your time, Em.

I appreciate it.

My pleasure.

If you stop for even a second to think about it, you realize the global supply chain is an incomprehensibly complicated beast.

Trillions of dollars of goods and services moving around the planet every day.

So, knowing where a single box or a single crate of something is at any given time, or even a whole shipping container, is challenging.

It's not impossible, but it's challenging.

You roll in a critical national security imperative, geopolitical concerns, the most valuable company in the world and China, and you wind up with the Trump administration considering a requirement to put location trackers on high-end artificial intelligence chips to prevent those very expensive, very powerful NVIDIA chips from being smuggled into Chinese hands.

Now, would that work?

Here's Marketplace's Matt Levin.

NVIDIA may be the company that designs the high-end AI chips the U.S.

says are too powerful to sell to China, but they're typically not the company that assembles them into an AI server and then sells those servers to, say, a Malaysian AI startup.

Jacob Felgois is at Georgetown Center for Security and Emerging Technology.

You might have server companies selling to someone who they think is a legitimate buyer who is actually located in China.

And so then the server ends up in Hong Kong or in Shenzhen.

No one knows for sure how prevalent AI chip smuggling is.

The Financial Times reported last month at least a billion dollars worth of banned NVIDIA chips were circulating on China's black market.

Felgoy says having NVIDIA build location trackers into the chips themselves or the software they operate on could be an effective deterrent.

It may make smugglers less likely to want to go down this route.

NVIDIA declined an interview request.

The company has downplayed smuggling, saying that trying to build big data centers on stolen chips is just not technically or economically feasible.

UCLA engineering and law professor John Villa Sanor says if the goal is to preserve American AI supremacy, requiring location tracking could backfire.

The fact of having location tracking means there's sort of a level of surveillance that I think many potential purchasers of these chips would be rightly uncomfortable with.

The location tracking proposal is part of a broader debate over whether AI export controls are really effective in the first place.

And to the extent that people, folks, for example, in China, have a harder time getting strong, good AI solutions from the U.S., that increases the incentives to really invest locally.

Or create new innovations like the Chinese AI model DeepSeek, which requires less powerful AI chips in the first place.

I'm Matt Levin for Marketplace.

Coming up.

I wish that 20-year-old me knew that something like this even existed.

Oh, the places you'll go.

First, though, let's do the numbers.

Now Industrial is off 61 points today, about a 10th percentile, 44,111.

The NASDAQ down 137 points, that is 6 tenths percent, 20,916.

The SP 500 subtracted 30 points, about a half percent, 62 and 99.

I'm going to use a phrase here that was in a company earnings call today.

You guessed the company, all right?

Here it is.

The impact of tariffs.

So many possibilities, right?

Today, Caterpillar, which was talking about why the cost of making big machinery is climbing.

Caterpillar profit down 18% in its last quarter compared to the same period a year ago.

More on Caterpillar and tariffs a little bit later.

Shares, though, because capitalism peaked out of small gain about a tenth of 1%.

Pfizer lifted more than 5% today after beating expectations for its last quarter and raising its full year forecast.

Possible clouds on the horizon though.

New pharma tariffs are promised.

Pressure from the Oval Office to cut drug costs is being applied.

You're listening to MarketPlays.

At Capella University, learning the right skills could make a difference.

That's why our business programs teach you relevant skills you can take from the course room to the workplace.

A different future is closer than you think with Capella University.

Learn more at capella.edu.

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This is Marketplace.

I'm Kai Rizdahl.

There is a very good chance that if what you're wearing now has a zipper on it, it came from the Japanese company YKK, the biggest zipper maker on the planet.

While they are what put the company on the map, they're not the only thing YKK does.

And in a lot of ways, that company's business model is a reflection of global trade and how it has changed over the decades.

So, what do you suppose happens now in this high-tariff environment in which we find ourselves?

Well, that leads me to a story I said the other day in Bloomberg Business Week with the headline, Can YKK's Zipper Empire Hold?

Joshua Hunt had the byline.

Joshua, welcome to the program.

Good to be here.

Do me a favor and position YKK sort of in the global supply chain, if you will.

They are, of course, the world's biggest, I guess they call them fasteners, right?

Or zippers manufacturer.

Yeah, in Japan, the word is fasteners, and that refers to anything from the sort of zipper that you might find on a pair of jeans to the type of fasteners that none of us ever see because they're holding together bits of upholstery inside of a car seat.

Basically, YKK is a company that is just in the business of keeping things together.

You know, it occurs to me, actually,

there's a metaphor here in that the gist of this piece is how this company is trying to

handle sort of the variations and the fluctuations, the whipsaws, as one of your sources calls it, in the global supply chain.

It's literally trying to hold things together.

It's a very on-the-nose metaphor, but that's it.

That really is it.

I mean,

I'll take an on-the-nose metaphor.

And YKK is a company I've been fascinated with for years and years and years.

One of the many things that's really remarkable is that it's really rolled with the punches in terms of the various shapes that globalization has taken.

I mean, 30, 40 years into the story of the company, the founder was setting up all these sort of outposts all around the world, which now amount to 112 separate branches in 70 different countries that are all under the umbrella of this one.

And yet,

as I mentioned a second ago, I think it's the former CEO of YKK America said, even us, even this company that's been doing this for generations, can't keep up with the whipsaws of global trade right now.

Yeah.

His broader point there was that that's just sort of not how trade works.

One person at YKK

told me that they know more about most of the

supply chains of their customers than their customers do.

You know, very often there are new

regulations, for example.

Very often they'll go to YKK and say, Tell us about our supply chain.

We know a few steps.

You know, we can get sort of a few steps down the line, but

you guys need to guide us through the rest of this.

You know, that's really interesting, actually, because the executives that you quote in this piece seem optimistic about the company's ability to endure.

And look, they've been around for decades and decades, and

maybe they're right.

But I do wonder what they make of the United States, probably their biggest market, not being entirely reliable anymore.

I mean, YKK is going to endure as long as people need things held together.

But if their customers aren't doing well, then that's going to hurt them.

If people have to pay a lot more money for Sheehan products in the U.S.

and they decide not to buy them as much, well, that matters if you're relying on

bulk sales of products that don't have a very high margin.

Joshua Hunt, you can find his most recent piece in Bloomberg Business Week.

It's about YKK, the zipper company, the faster company, perhaps.

Joshua, thanks a lot.

Appreciate your time.

Thanks so much.

I promise you we didn't plan it this way in our news meeting this morning, but that conversation I had with Laura Veltkamp about the big picture realities of a slowing services sector in this economy, it's going to play out in real life in this next story.

Yum Brands, the parent company of Pizza Hut, KFC, and Taco Bell, reported quarterly results this morning.

International sales were the key to the company's second quarter profits, but U.S.

same-store sales were down at both Pizza Hut and KFC.

Growth slowed at Taco Bell, which is its most resilient chain.

And as Marketplace's Savannah Peters reports, it's a similar story elsewhere in the quick service restaurant sector.

Americans do a whole lot of eating out and ordering in.

So a slowdown in spending on those categories can be an early sign we're pinching pennies, says Alex Susskind, who studies the food industry at Cornell.

When consumers get nervous, eating out in restaurants is is one of those things that disappears pretty quickly.

And struggles at fast food chains can signal that middle and lower income consumers in particular are feeling squeezed.

Ben Colley with the trade magazine QSR says just a few years ago, COVID stimulus and fast wage growth helped those same income groups roll with fast food price hikes.

There was a discussion in the industry of like, okay, when is it going to be the time where consumers have had enough?

People started to lose their appetites over those prices about a year and a half ago.

And that's when you saw the influx of all these value messages.

McDonald's $5 meal deal, Taco Bell's Super Cheap Cravings menu.

These are bids to win back consumers who are having more meals at home.

And when they do hit the drive-through, says Lynn Dornblaser with the marketing firm Mintel, what they're looking for is

limited-time offers, coupons, meal deals, ways to optimize what they're getting.

Even the relative resilience of Yum Brand's crown jewel, the Taco Bell brand, tells a story of a consumer searching for value, says Sarah Senator with Bank of America.

The build, if you will, for a Mexican menu item tends to be a little bit less protein than, for example, a burger.

It's a lot easier to keep a lid on crunch wrap and cheesy bean burrito prices.

Senator says fast foods race to the bottom when it comes to menu pricing.

Could be a canary singing very quietly right now.

And warning us that consumers making the least money could be facing extra financial pressure.

I'm Savannah Peters for Marketplace.

The thing about President Trump firing the head of the Bureau of Labor Statistics because he was upset about a lousy jobs report isn't just that he fired her because he was upset about a lousy jobs report.

It's because, in addition to a boatload of other critical information besides who is and isn't employed in this economy, inflation being among the most prominent, the BLS tracks a ton of other labor force statistics in particular, including the kinds of jobs people are working broken down by sex, race, and ethnicity, relevant because knowing who's working what jobs can help identify gaps and also progress in the labor force if you're interested in that kind of thing.

The particular data point of interest to us today is women in construction.

Of the 8.5 million Americans who work in construction and related trades, that's carpenters and electricians and the like, only 4.3% of them are women, which sounds low, but thanks to the BLS keeping track, we see that that 4.3%

is up from a mere 3/10% three-tenths percent a decade ago.

That's the setup for today's installment of our series, My Economy.

I'm Catherine Christie.

I own She Fix That LLC based in Morris County, New Jersey.

I started off my business in 2019

and I went full-time as a handy person

pretty much right around COVID.

Honestly, I had been, I was posted about in one of those Facebook mom mom groups and

those moms, man, they blew me up.

I couldn't book fast enough, keep up

the learning curve with like, you know, allowing myself time to, I don't know, be sick.

It was, it was amazing.

And it was all born of like just being a tinkerer as a kid and like fiddling around with the VCR before my mom threw it out.

And then, I don't know, it was just that eureka moment of like, I am meant to work with my hands.

My focus mostly on carpentry now rather than handy person stuff.

I would say about 90% of the people who reach out to me just cold, whether it's Google through Instagram, it's a lot of single moms.

It's a lot of divorced women, people living or women living by themselves that don't necessarily feel comfortable having a strange man come into their house.

I have definitely seen costs go up over the last, let's say, three months or so as a result of tariffs.

I've seen the sheets that I get go up by about $3

at least per sheet.

I had a client back before tariffs even came in.

And I was like, I'm going to quote you right now, but I'm just telling you, and I do not mean this in any kind of a pressurey way of like, look now, or the cost is going to go up.

But like the sooner we get this underway and I can get a deposit, go and buy the materials, even if I'm folding them for a period of time, that's going to save us money because costs are going up, period.

I wish that 20-year-old me knew that.

something like this even existed, which is why I love when my clients will bring their little girls into the room.

One of my clients that I'm working for right now, she was like trade school to her daughter, you know, like trade school, because also AI can't take the trades and people in the trades are retiring.

I also feel like, okay, well, I'm 40 and I feel this sort of like duty in a weird way to like keep the trades going, but also to show like little girls, like, girl, you can do this too.

Catherine Christie, owner of She Fixed That in Morris County, New Jersey.

This series absolutely does not work without you.

So let us know what you're doing, what your economy is like.

Marketplace.org/slash myeconomy is where you can do that.

This final note on the way out out today, which might actually, now that I think about it, become a recurring feature.

There are, as you know, 30 companies in the Dow Jones Industrial Average.

We went and checked today, and as of this morning, 22 have reported quarterly profits this cycle.

Of those, eight mentioned they expect a hit from tariffs this year, most prominently Apple a billion dollars, Procter ⁇ Gamble a billion dollars, Nike a billion dollars just today, Caterpillar, as much as a billion and a half.

Two reduced their estimated tariff costs for the year.

That would be 3M and Johnson Johnson.

More to come in this tariff economy, for sure.

Jordan Manjies, O'Neil Maharaj, Janet Wynne, Olga Oxman, Virginia K.

Smith, and Tony Wagner are the digital team.

Francesca Levy is the executive director of digital.

And I'm Kai Risdahl.

We will see you tomorrow, everybody.

This is APM.

At Capella University, learning the right skills could make a difference.

That's why our business programs teach you relevant skills you can take from the course room to the workplace.

A different future is closer than you think with Capella University.

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