Small firms cross their fingers for a rate cut

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We've got the past five days in this economy.

That's where we'll start, of course, because it's Friday.

We'll talk small cab companies, and then we're going to talk smell from American public media.

This is Marketplace.

In Los Angeles, I'm Kai Riznahl.

It is Friday.

Today, this one is the 12th of September.

Good as always to have you along, everybody.

There has, of course, been lots of news this week of the non-economic variety.

We, though, are going to stay in our lane because that is what we do best, and also because there has been lots of news this week of the very economic variety.

Sudip Reddy is the Washington Bureau Chief at MSNBC.

Jordan Holman is at the New York Times.

Hey, you too.

Hey, Kai.

Hey, Kai.

Sudip, I'm going to start with you.

We're going to start with inflation.

Both the CPI and the PPI came out this week.

Producer prices, wholesale inflation, not so bad.

CPI though, consumers paying an ever-increasing amount more.

Stagflation, stickiness.

What's the word that comes to mind for you?

Concerning because we

thought

that

for many months, we thought maybe the tariff effect wasn't that bad.

Maybe people weren't going to see as much damage through inflation.

Maybe all of this would work itself out.

And the CPI was just a giant red flag to all of those theories.

It's just a month of data.

Maybe it corrects itself over time.

But we have a really

curious dynamic here where inflation is going up.

These tariffs are acting like a consumption tax on the economy as well.

And so if people, particularly at the lower income end of the economy, aren't able to buy stuff because it's more expensive, consumer spending is going to take a hit.

And that's going to naturally slow inflation over time.

And so that's the dynamic that we're all trying to dissect in real time as we see the tariffs and we see the Fed react to it.

And the bond market is obviously reacting to it, seeing a weaker economy ahead.

And that, I think,

was the big tell of the week with bond investors seeing like, uh-oh, there could be trouble here.

Right, right.

10-year down below four at 1.3.99 something.

Jordan Holman, about that consumption tax and consumers,

inflation is a thing.

Tariffs are still very much a thing.

You keep your eye on the consumer pulse.

What are you seeing out there?

Yeah, I mean, I would just echo everything Steve said, especially when you look at the categories of things going up, it's things we're buying often, coffee, fruits and vegetables, shoes, and everyone from those industries have been flagging that they would have to raise prices i think another important data point to throw in here is looking at the imports those surged during the month of august as people were trying to get ahead or people being companies trying to get ahead of bringing stuff to the u.s and so i think now what we will probably start seeing is okay the stuff is here the company's got them in at you know, a favorable price, but they're going to pass that on to us.

And we already saw with consumer sentiment out today, but people aren't feeling good about that.

And so that just creates a bad cycle that companies really want to avoid.

The subtext here in this conversation, you two,

is quite grim.

Let me just point out.

All right, Sadip, I did a whole riff yesterday on the Fed now being stuck between a rock and a hard place, right?

They have this inflation happening.

They have a slowing labor market.

They meet next week.

What do you suppose the dynamic is going to be in that room?

It's going to be a lot of cross-current because you have what will not be spoken of in that room is the politics of the moment.

We won't even have the transcripts of that room for five years, but

the dynamic is

voices around the table that actually have substantial differences in what they think the tariff effect will be and what that will mean.

Just on the core economics of it, they are looking at a job market that has been a lot worse than

they anticipated earlier in the year.

The revisions that we got, the benchmark revisions that we got were showing that the job market was slowing a long time ago.

And obviously the monthly revisions we've gotten in recent months are concerning.

And so they have to look at that and say, this is an indication that the labor market

could be faltering at a pace that is worrisome.

Whether that's due to tariffs, it doesn't really matter.

If the labor market's softening, then inflation will by force come down over time.

And they're going to have to dissect that right now when they don't have

the quality of information that they want because they can't wait.

The lag for monetary policy means they have to start making some decisions right now in how they cut rates.

The catch, of course, Jordan, as you were talking about a little bit ago, is that companies now are increasingly saying, I'm sorry, we have to start passing some of these costs on.

And we're seeing that in consumer prices going up.

Absolutely.

And this is something that they have been calculating, recalculating as the tariff rate change.

What I'm hearing from most retailers in this sense is that they're trying to do a third, a third, a third.

They will take on some of the prices.

They're passed on some of the prices to manufacturers and then on to us consumers.

But they also have to be very smart about what else they're offering.

us as consumers.

So a lot of companies are thinking about we got to do better service in the store or we have to flow more money into marketing so our brand is really strong.

So even though you know we're seeing higher prices, the companies are also trying to lessen the blow in some ways.

Right.

Okay, Sadib, time for my favorite game, which I don't think you participated in in a good long while.

What is Jay Powell thinking in five words or less?

Ready, go.

Don't create new problems.

Don't create new problems.

You got one more, man.

You got one more.

I'm going to keep it to four.

Don't create more.

while jordan holman same question to you

oh

what if i just made a new question for myself since i'm always thinking

can i play that answer answer the question you want to answer not the question that's asked go ahead great for okay for ceos what are they thinking oh yeah that's good yeah that's see there you go you could host this program see look at me okay great okay what will holiday season be?

All right, all right, wait.

So actually, now that you've asked that question, I need you, we have 45 seconds left.

What will holiday season be?

Because things are weakening, prices are going up, and consumers are squidgy out there, man.

What's it going to be?

Yeah, I mean, I was talking to the CEO of REI earlier this week who was saying it's still hard to forecast the business and that the holiday season is a big question, specifically in relation to what consumers will do.

And every retailer is thinking about that right now, trying to parse all this data that we just talked about.

They're trying to see how that's going to land on consumers.

So, still a question.

Wow.

All right.

I don't even know how many shopping days until the holidays.

Jordan Holman at the New York Times, Siddeep Ready.

He runs things at MSNBC.

Thanks, you too.

Thanks, Kai.

Thanks, Kai.

Wall Street to end the week.

Mixed-ish up for the past five days.

If you happen to be keeping track, that is the major indices, of course.

We're going to have a bit more to come on stocks in just a second.

Details, numbers, when we get there.

even if you don't follow the markets closely, you might be aware that the new highs we've been seeing are thanks mostly to big companies, big tech in particular, and most particularly of all, what are called the Magnificent Seven.

That's Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla in alphabetical order.

The story for smaller, publicly traded companies, small caps is the lingo, it's different.

And a good way to compare is by matching up the SP 500, that's big companies, with the Russell 2000, that's an index of small caps.

They moved pretty much together until 2019 or so, but then the SP 500 took off at close to double the pace of the Russell 2000.

Now, though, as Marketplace's Henry Epp explains, investors are thinking that might change if the Fed starts cutting interest rates.

Small cap companies have had a rough go of it for the same reasons that many small businesses, public or not, have struggled.

Sandy Breger is with Esperant Wealth Management.

They've had to deal with higher inflation, higher wages, and higher interest rates, which have really been difficult for them.

Especially higher interest rates, because they tend to rely on debt more than bigger companies since they don't have as much income as bigger companies and they usually aren't big enough to borrow via the bond market says stephen blitz at global data ts lombard these small firms are basically tied into having to borrow capital from banks usually they're getting short-term loans with interest rates that are tied closely to those set by the federal reserve so a fed rate cut would mean lower borrowing costs for small cap companies which could improve their profits some investors are already assuming all of that's going to happen.

So small company stocks have been climbing, says Jill Hall at Bank of America Global Research.

And I think if we're in an environment where the profits rebound for small caps finally looks sustainable, that's what could prolong the rally.

But sustainable profits aren't a guarantee because compared to multinational giants, smaller U.S.

companies are heavily tied to the fortunes of the U.S.

economy, says Matt Orton at Raymond James Investment Management.

They're more dependent on, say, U.S.

consumers and other larger U.S.

businesses as their actual customers.

And the U.S.

economy is kind of wobbly right now.

We are getting some weaker data coming through from the jobs market.

Sentiment remains weak.

In the long term, Orton says the most successful small caps might be in the same industries as successful big corporations, defense and AI.

I'm Henrietta for Marketplace.

One of the things we learned this week from that twofer that we got on inflation, the producer price index in the CPI, and Jordan talked about this a little bit, is that some companies are slowly, to be sure, starting to pass along more of President Trump's tariff costs to consumers.

So we call Jackie Roach to hear what she's doing.

She's a wedding and events florist in New Orleans.

We have not changed our prices yet.

The actual florals have not increased as much as some of the wholesalers were predicting.

There's definitely a slight increase.

Vases, candle holders, the actual candles, floral mechanics like wire, chicken wire, floral tape, all of that has increased.

I've noticed that while we are getting more inquiries, people are slightly less flexible in their budgeting.

Either the ranges have gotten smaller or there is just like a very strict, hard budget line.

We're trying to find ways where they can repurpose different things.

repurpose pieces of their altar to centerpieces, repurposing their bridesmaids' bouquets as like welcome arrangements so that they can have that fairy tale wedding that they want and kind of stay somewhat within their budget.

I'm feeling more confident in the stability of the tariffs at this point, and it seems like our customers are also feeling pretty stable.

So we want to book those clients now while things are stable.

Jackie Roach, Cry Baby Floral, New Orleans, Louisiana.

Coming up.

People really crave olfactory evidence that the products that they're using every day work.

Smells are in fact, gang, getting smellier.

But first, let's do the numbers.

Dow Industrial is down 273 today.

That's 6 tenths percent, 45,834 for the blue chips.

The NASDAQ added 98 points, a little bit more than 4 tenths percent, 22,141.

SP 500 basically flat, 65, and 84.

The Russell 2000 we heard about before Henry Epps piece on small caps gave back 8 tenths percent today, should you be curious.

For the five days gone by, the Dow picked up almost 1%, the NASDAQ up 2%, SP 500 added one and six tenths of one percent Adobe slipped a third of one percent despite reporting strong demand for its design software and raising its revenue and profit forecast for the year furniture retailer RH

you may remember it as restoration hardware gave back four and six tenths percent today after cutting its revenue forecast for the rest of the year because of

I got all day you make your guesses Yes, tariffs.

Bonds down, yield on the 10-year T-Note rose 4.06%.

Sudip talked about this just a little bit.

Bond yields sliding on expectations of slower growth.

You're listening to Marketplace.

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This is Marketplace.

I'm Kai Rizdahl.

Forget the big coastal cities and their environs.

Suburban Texas has been one of the big drivers of new residential construction in this country.

But things are slowing.

Single-family housing permits in the greater Houston area are down 8% since this time last year, data courtesy of the National Association of Home Builders.

Yes, interest rates, the cost of money, that's mortgage and construction loan rates, it's still pretty high.

But as Marketplace's Elizabeth Troval tells us now from suburban Houston, there are lots of other obstacles to building than just interest rates.

I'm on a residential street in a well-off community called Itascaceda.

Far from the traffic-filled highways of Houston, it's quiet.

A bald eagle flies overhead.

We have a really tight-knit sense of community here.

We know all of our neighbors.

They know all of us.

They've seen our kids grow up.

47-year-old Jackie Chandler loves it so much here.

She's building a new home, again,

for her husband and two kids.

They built a house on this same street not even a decade ago, but they wanted something new that's a little smaller.

We are in the very early stages of construction.

We have had the top layer scraped of the lot, and then what you see here now is what's called the pad.

But the pad, covered in dozens of loads of compacted dirt, is still not tall enough.

It is still 25 loads too short.

Construction has barely started and we're already two weeks behind from where we thought.

Upstairs in the garage apartment that was already on this property, Chandler tells me she wasn't prepared for how much had changed when it comes to building a new house.

When we started getting estimates back, it was really eye-opening to us that

because there was a lot of uncertainty about tariffs and now you're seeing, you know, enforcement of immigration, ICE, and all of this stuff happening, there was a lot of uncertainty about cost.

She and her dad, who both work in construction, were surprised.

Well, we thought maybe

the budget would be $15,000 for a line item.

It was coming in at $28,000.

She says tradespeople would hold off on quoting her for jobs with prices and labor being so unstable.

Instead, they'd say, after you get your framing up, call us back and we'll give you an estimate.

And you can't do that when you're trying to plan to build a house, right?

You need to build your budget and you need to get everybody lined up.

They had to take out a new construction loan.

And all in all, it's costing them more to build a smaller home on the same street.

We're $100 a square foot there.

This house is probably $200 a square foot.

And after the home is built, Chandler isn't sure sure how long they'll stay here because during this process, the family has been considering a drastic option, moving to Mexico.

They visited some properties back in May with their real estate agent who recorded some videos.

It's the pool, pool, and this is the bar with a waterfall coming over.

The thinking is Mexico is cheaper and it's where her dad is from.

Maybe she could retire early there or work remotely.

Plus, the challenges in building a house reflect a policy environment that makes her question if the U.S.

is still for her, even if they are building their dream home.

I make no secret about not supporting really anything that is happening with the current administration.

We should have some type of strategy or somewhere we could just go if things just got

crazy.

An international move had been more of a pipe dream before, but with increased housing costs, economic and political uncertainty, and immigration crackdowns on our mind, the calculation has changed.

In Houston, I'm Elizabeth Troval for Marketplace.

Scent is, as we all know, powerful.

Just smelling something can be incredibly evocative.

It can also be big business, and corporate America knows that as they tinker with the smell of products that we use every day.

Think laundry detergent or dish soap?

Madison Derbyshire wrote about it from Bloomberg the other day.

Madison, it's so good to have you on.

Thanks so much for having me.

I would like you to begin, please, by telling me about Dawn dish soap.

Well, this story goes back generations, Kai, but essentially, I have been a longtime user of Dawn dish soap.

It's what my parents used when I got my own apartment.

It's the brand that I chose to buy.

It's a pretty mild scent.

And then one day I ran out and I bought.

what was on the shelf where I'd always been and I got home and it had changed.

The scent was totally different.

It was so much stronger.

I looked at the bottle and it said new clean scent, which I was mystified because, like, Dawn's a soap.

And so I thought it would always smell clean.

But I had this very visceral reaction to the change.

And I couldn't, I really wanted to understand why.

I felt like something that I had been in this long-term committed consumer relationship with had changed and nobody had like asked my permission.

But I was also trying to understand just like why so so many of the consumer brands that I was using in the last few years had increased the amount of scent in their products.

Okay, so a couple of things.

Number one, we should say you did call Procter Gamble, a purveyor of Dawn, and they said consumer testing, and they otherwise didn't want to talk about it, right?

Yeah, Procter Gamble was, they did not want to talk about this issue.

They are a famously private company.

Okay, the other thing I want to talk about here, though, is that companies know that consumers don't like it when they change change stuff on us,

and yet they keep doing it.

Why?

Part of it is just to sell more products, right?

But as somebody who's very sensitive to scent,

I fundamentally struggle with this.

But there are people who love fragrance in their products.

The companies that make the fragrance that go into our household products are doing incredibly well.

Perfume is one of the fastest-growing shelf space items at Sephora.

It's just something people love the way that scent makes them feel.

And also these fragrances in, you know, name your product, they're getting stronger too, right?

We're like in some kind of weird, you know, scent arms race.

Yeah, so the scents are getting stronger in part because people really crave what we call olfactory evidence that the products that they're using every day work.

Let's use the example of laundry.

If I wash my clothes with tide, for me, tide is what clean clothes smell like.

And if I don't smell it on my clothes, like my brain doesn't really process that my clothes are clean.

And so there's been a lot of demand from consumers for clothes that smell more like the product that you wash your clothes with for longer.

So a number of the laundry brands have increased the amount of scent that they put in their laundry detergent.

But one of the issues with that is you eventually become blind to it.

Like it's the reason it's very difficult for you to smell your own perfume or the smell of your own house.

Okay.

Yeah, go ahead.

Well, sorry,

you pushed the button here because laundry detergent kind of got me, and that's why we're doing this interview.

We talked about it in a morning meeting, and I was like, yes, I want to do this interview.

Here's the deal.

We have used forever in my house like clean and free laundry detergent.

I don't know what the brand name is, but it's been clean and free.

No scent.

The other day, and I don't know if she's going to hear this or not, so I might hear about it later.

My wife, by mistake, bought the like floral scent.

You know?

And so now the laundry smells all florally.

And I'm like, what did we do here?

You know?

I totally understand.

I had a similar experience, but mine was with the laundry detergent that I have loved for decades.

So what are we supposed to do with this, right?

Because consumers are captive now to companies going farther, faster, stronger with scents and fragrances.

Well, one of the interesting things I found in reporting this story is that the companies are actually capturing a lot of the customers that they are alienating by adding fragrance because a lot of them have, as you just said, these clean and free products that don't have scent.

So people just kind of defect into the free and clear products, which are one of the fastest growing market segments.

But that is an area where people are going.

Let's bring this home with

you and Dawn and how you solved your problem.

Well, I solved my problem in an impractical way, which is I ran around my neighborhood like a crazy person trying to find legacy bottles of the old Dawn.

And I was successful.

I went to a hardware store that I think shifts very little Dawn, and I bought them out of some old dust-covered bottles for a 300% markup.

But eventually, I will run out of this product, and people really hate change.

I will tell you what.

Madison Derbyshire at Bloomberg Weekend,

amazing piece.

Thank you so much for taking the time.

Thank you so much for having me.

This final note on the way out today, we alluded to it up at the top of the program, Jordan and Sudip and I.

The University of Michigan's report on consumer sentiment was out today.

We are a tad less confident than we were last time.

We heard from Ann Arbor.

Increment moves, of course, are not this positive, but here's the kicker.

We are all still thinking inflation is going to be 4.9%

this time next year.

4.9%.

Right now, 2.9%,

as we talked about.

Fed meets Tuesday and Wednesday.

Over to you, J-PAL.

Our theme music was composed by B.J.

Lederman.

Marketplace executive producer is Nancy Fargalli.

Joanne Griffith is the chief content officer around here.

Neil Scarborough is vice president and general manager.

I'm Kai Risnahl.

We will see you on Monday, everybody.

Have yourselves a great weekend, all right?

This is APM.

The Trump administration is is making deep cuts to education research.

The cancellation notices started coming.

When the contract is cut, the study just dies.

It's all happening just as schools are trying to make use of research to improve reading instruction.

There would not have been a science of reading without the federal funding.

It wouldn't have happened.

I'm Emily Hanford on our new episode of Soul to Story: What the Trump Cuts Mean for the Science of Reading.

Go to your podcast app and follow Soul to Story.