Tariffs. Consumer sentiment. Cape Ratio. Pick The Indicator of The Year!

Speaker 1 NPR

Speaker 1 This is the indicator from Planet Money. I'm Darien Woods.

Speaker 1 It's the end of the year. We've given thanks, stockings have been stuffed, and we're spending meaningful time with loved ones.

Speaker 1 In fact, today I sit down with my Planet Money family and do what families do best around the holiday season. Engage in brutal, soul-breaking arguments in a fashion most public.
That's right.

Speaker 1 It's time for another

Speaker 1 family feud. Today I'm competing head-to-head with my Planet Money colleagues, Kenny Malone.

Speaker 2 Bring it, you egg. Is that what they say in New Zealand? Something like that?

Speaker 1 That's right. And Greg Rosowski.

Speaker 2 Can we all just get along? No.

Speaker 1 Not for the next nine minutes.

Speaker 2 And in case you aren't up to speed, here are the rules.

Speaker 1 Each of us has a spiel for our indicator of the year. We will each have 60 seconds or less to make our case or else.
And in the end, you, dear listener, will vote on who had the indicator of 2025.

Speaker 2 Coming up on the show, we have Kenny Malone, rightfully explaining why consumer sentiment for the third straight year is obviously the indicator of the year. And I'm Greg Rosowski.

Speaker 2 I'm championing the idea that tariffs were were the story of 2025.

Speaker 1 And we'll have me, Darren Woods, seeing terrifying signs in the stock market. That's after the break.

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Speaker 1 All right, family feud. Kenny Malone, you are up first.

Speaker 2 All right, I got my script here. Okay.

Speaker 2 It's the economy stupid. That's the famous formula for why people vote the way they do.
I am here to say no. It's what people feel about the economy.

Speaker 2 You know what? I'm accidentally reading off of my script from two years ago when I also did consumer sentiment and it won Indicator of the Year.

Speaker 2 Because you may remember back then, we're all freaking out because we laid out Kenya. We were so, so scared.
Okay, anyway, this is the right sentence. Is this the same script? Right here.

Speaker 2 Now, in pre-pandemic times, the University of Michigan's Consumer Sentiment Index was hovering around 100, meaning people felt okay about the economy.

Speaker 2 But for the past year, it's been down around the 70. Nope, you know what? This is Adrian Ma's script from last year when he also won for consumer sentiment.
It's 50s. It's been in the 50s this year.

Speaker 2 Historic lows. Here it is.
Here's the right script. 2025 was the year we began to full on drown in bad feelings about the economy.

Speaker 2 We're sick to our economic stomachs about the the future of prices and inflation and jobs and housing.

Speaker 2 Consumer sentiment is the canary in the coal mine, and it's been chirping louder and louder over the last three years. Or I guess chirping less and less is how canaries work in the coal mine.

Speaker 2 Anyway, consumer sentiment for your consideration.

Speaker 1 You might have made a good argument behind all that buzzing, but it took you a while to get there.

Speaker 2 Yeah, I know. There was a big wind-up.
Well, I kept getting interrupted by my colleague, so

Speaker 2 I figured I might just go through. I feel like my individual consumer sentiment was tepid after that display of played out material.

Speaker 1 Some good head fakes

Speaker 2 in a row. I'm just saying, consider consumer sentiment.

Speaker 1 I love the head fakes. Now let's go to Greg.

Speaker 2 What is the later the year? So, my economic story of the year, it centers on the most beautiful word in the English language. That is, at least according to President Donald Trump, tariffs.

Speaker 2 You guys ready? Wait, is this part of your argument? This isn't fair. You got extra time.
Wait, no, no, this is not extra time.

Speaker 2 This is the wind-up. This is like, you know.
Okay. This is putting the ball on the T.
I don't golf. Is that the time?

Speaker 2 I don't know. All right.
Go.

Speaker 2 Okay, so the tariff story was huge this year.

Speaker 2 Remember Liberation Day and Trump imposing like super high tariffs on countries around the world, including like a territory whose population was largely penguins? You guys remember that?

Speaker 2 Then like the stock market freaked out and then like President Trump paused tariffs and there were like negotiations and the back and forth and the up and down and the drama.

Speaker 2 Costco just filed a freaking lawsuit against the Trump administration over them. This is the economic story that keeps on giving.
And this story, it's historic.

Speaker 2 We're talking like a paradigm shift for the economy. In 2024, the average effective tariff rate that U.S.
consumers faced was 2.5%.

Speaker 2 That number is now 16.8%.

Speaker 2 That's the highest tariffs have been since 1935.

Speaker 2 And this story, it's not over.

Speaker 2 There are still big questions questions over what these tariffs are going to do to the economy and whether Trump imposing tariffs without congressional approval was even constitutional.

Speaker 2 The Supreme Court is expected to rule on this issue soon. Talk about a year-end cliffhanger.
You're right, but that's more drawing than white lotus.

Speaker 2 That's a good kicker. Now,

Speaker 2 one thing I have been thinking about the Costco lawsuit is, do you think that they take the lawsuit and package it into like a box that was like previously used for oversized olive oil containers and that's how they deliver it.

Speaker 2 I don't care how they deliver it as long as hot dogs are still $1.50. Okay, Darian, our final contender for indicator of the year.
Darian's putting on a coat? A cape. What?

Speaker 2 What is a cape? Darian's dressed as Dracula? What is this? Are you a count?

Speaker 1 Yes, I am Count Dracula. I've got my cape on.
It's keeping my shoulders warm.

Speaker 2 And

Speaker 1 this relates to my indicator.

Speaker 2 Okay, again, everyone's getting a little pre-clock time, so I want a little generosity on my post. I haven't said anything.
Well, you have to do

Speaker 2 it. I did no wind up.
I'm talking about my outfit. All right, here we go.
All right, here we go. In three, two,

Speaker 2 one.

Speaker 1 My indicator of the year is the CAPE ratio.

Speaker 1 This is the cyclically adjusted price to earnings ratio. It measures how expensive share prices are relative to how much money they actually earn.

Speaker 1 The higher the CAPE ratio, the more expensive stocks are. And this indicator is the highest it's ever been, apart from just before the dot-com crash.
And that is as frightening as any horror story.

Speaker 1 Because when stocks are this expensive, they tend to underperform over time. And this indicator touches so many economic stories of 2025.

Speaker 1 The AI boom, the fears of a bubble, its data center construction sucking the blood out of investment in industries like manufacturing.

Speaker 1 Also, the K-shaped economy, where the rich, who tend to own a lot of stocks, are getting richer and the poor are struggling.

Speaker 1 For an indicator that captures a blood-curdling year, the Cape Ratio has no peer.

Speaker 2 I just love that, like, your mind goes to Dracula when you go to Cape. Why not? Like, Superman, Batman.
It's true. Is the Cape draining the economy of something?

Speaker 2 Is that the implication?

Speaker 1 The optimist would see Superman, these AI tech companies, saving the world. The pessimist might see Dracula sucking the blood out of the rest of the world.

Speaker 2 I will say, I do understand how Cape Ratio shows the rich getting richer, but you also mentioned that it shows

Speaker 2 low-income people doing poorly. How does that work?

Speaker 1 This is a bit of a stretch, I admit.

Speaker 1 Ultimately, everyday people are the ones who have to buy things so that companies can get earnings. And at the moment, earnings are not growing fast enough to keep stocks looking cheap.

Speaker 2 So we're not buying enough chat GPT subscriptions or something.

Speaker 3 Exactly.

Speaker 1 Don't make Sam Altman cry.

Speaker 2 How many do I need to buy, yes?

Speaker 1 You're going to prop up the AI economy with multiple subscriptions.

Speaker 2 Darian, you can't put on that cape and not give us a little, not give us a little Dracula. Can you give us a little...
Yeah, where's the impression?

Speaker 2 Just a little impression. You can do what we do in the shadows,

Speaker 2 the Kiwi Dracula movie.

Speaker 1 Yeah, no,

Speaker 1 that's a great movie.

Speaker 2 All right. You're going to nail this.
Come on.

Speaker 1 My indicator of the year is the cape ratio. Yes!

Speaker 1 Yes.

Speaker 1 I'm making my pitch for the indicator of the year. That's pretty good.
The cape ratio.

Speaker 2 Okay, you know what? You may have just won my vote, honestly. That's really good.

Speaker 2 Fantastic.

Speaker 2 All right. So, listen, those are your three options, listeners.
We have consumer sentiment, we have tariffs, and we have... Say it again, Darian.

Speaker 1 The cape ratio.

Speaker 2 Yeah, so good. You could email your votes to indicator at npr.org or leave us a comment on our Planet Money Instagram.
I mean, Darian,

Speaker 2 I feel like you should take the credits, yeah?

Speaker 1 This episode was produced by Edo Ferrers with engineering by Croissy Lee. It was fact-checked by Cior Juarez with editing by Giulio Ricci.

Speaker 1 Keikon Canon is a show's erta, and the indicator is a production of NPR.

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