The AI inflation roller coaster

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Let's see how we do, huh? From American public media. This is Marketplace.

In Los Angeles, I'm Kyle Rizzdahl. It is Friday today. Finally, this one is the 26th of June. Good as always to have you along, everybody. The economy this week was a little bit data and a little bit vibes. So we're going to do both. And we're going to do it with Catherine Rampal from MS now. Also, Greg Ipp at the Wall Street Journal.

Hey, you two. Hey, Kai. Greg Ip, you get to go first. And we're going to start with data. The big ones, of course, this week, PCE came in at 4.1%. Not great. GDP came in at 2.1%. Acceptable. You get the first whack at making sense of it.

Go. Okay, let's start with that inflation number. Now, that 4.1% inflation number looks pretty bad, but we know that it was somewhat inflated by the price of gasoline. But we also know that the price of gasoline has come down in the last few weeks. So it's probable that inflation will be lower in coming months. But not that much lower. It's still running around 3% based on this particular measure, which is a little too high for the Federal Reserve. So you have a new Fed chairman, Kevin War.

She's had one meeting where they kept rate steady. And now there's a lot of chit-chat that, hey, they may actually have to raise rates, which would be quite ironic since President Trump appoints for us, hoping he would cut rates. That would be one word for it. Ironic, yes. I think Trump might have a different word for it. That said, I think it's everybody needs to sort of like take a deep breath.

We have a few more months, I think, before we have a real picture of what the underlying inflation trend is. I think some of the tariff effects are fading. Some of the stuff going on inflation looks a little weird. maybe it's related to the demand for memory chips and computers. So I don't think there's any rush to raise rates. And at the same time, as you say, with the economy growing around 2% a year, which is quite decent and no sign that the job market is collapsing, I don't see a great need to cut rates either. Catherine Rempel, I would like to introduce you to a little friend of mine called core inflation. It is still well above where the Federal Reserve wants it to be.

Austin Gouldsby said on this program, the president of the Chicago Fed said on this program on Monday. that, you know, inflation is trickling into and becoming sticky in services. So it's not just oil and gas, right? Yeah, it's not just oil and gas. Oil and gas are the biggest drivers of the headline numbers. But yes, core inflation is when you strip out energy and food. And even with those things excluded, the core, the rest of the index, essentially, the core inflation rate is still above the Fed's target, has been above the Fed's target

it for what, like five years now, something like that? And before that, it was below it. So, you know, I mean, come on. Yeah. Well, before that, the Fed suggested that, you know, that they were not so worried about it being consistently below it. And they wanted to work their way through greater expectations, I should say, I guess, for full employment, you know, that they could be willing to go easy in terms of monetary

Who none of us in this room need to name. Okay, Greg, we now turn to the, we now turn to the vibes portion of this conversation. And let's pick up on Kevin Warsh's mood and the general sort of feeling out there that money's about to get more expensive. AI is spending money hand over fist. We're going to talk about that in a little while with Stephanie Hughes. What's your sense of the vibes? So this is a good week to talk about vibes because there were two very important vibes in the markets, but they kind of cut in opposite directions. The first vibe goes to artificial intelligence, AI. Now, we all know there's been this AI boom. It's been going on for years is one of the reasons the stock market's been so strong. But this week we saw us growing signs

of nervousness and maybe it's too strong. People were saying, oh my gosh, look, Open AI is going to delay their IPO. SpaceX's stock prices down. And they're issuing all these new bonds to borrow more money. And Apple is raising prices because memory chips are so expensive. And so some of the air is coming out of that AI boom or bubble if you want. But wait, sorry to interrupt. Do you really think so? Because if you look at Mike, not that this is a stock picking show, but if you look at Micron Technologies the other day, they blew the doors off their earnings. Well, they did, but that wasn't enough to pull the whole stock market up. Now, if I were a stock market guru, which I'm not, I might say that when the earnings are good and the stock prices don't react well, that's kind of a bad sign.

But what I think for the purposes of our show and our listeners, what matters is, does this tell us that the AI boom itself is about to run aground? And we just don't have any evidence of that. We don't see signs of the demand for AI slackening or the investment in AI infrastructure going down, and that would be good for the economy. Now, the other vibe very quickly is the price of oil coming down a lot because of, you know, calm, you know, such as it is in the straight-of-hormuz. And that should before long lead to much lower gasoline, which is already below $4 a gallon. So that's kind of pushing in a positive direction. Although that's said, Kai, I have to say I'm surprised that when gasoline went as high as it did, it didn't really shatter the mood of the economy that much. So maybe I shouldn't be so optimistic about what happens when it comes down.

Well, hold on, because maybe you should. I don't know. But, Catherine, this one goes to you, and it goes to consumer sentiment, which came in today up a little bit, but it's still low. Consumers are cranky, but they're still spending. I mean, the vibe, my read of the vibe is people are really cranky and they're pulling money out of savings and accumulating credit card debt, but they are still still. spending and driving this economy? Yeah, I basically agree with that. I would say that the vibes of the economy are extremely negative, just in the sense of consumer sentiment being abysmal. I mean, being lower than it was during the deepest depths of the great financial crisis and the

Great Recession and all of that. Worse, I don't actually don't know if it's worse than it was during the pandemic in the most recent imprint, but it certainly has been. So, you know, on paper, the fundamentals of the economy would not seem to justify that level of sourness in terms of attitudes about the economy or how people say that they are experiencing the economy. But people are clearly frustrated. You know, some of this is that we should take it with a grain of salt. People are answering these questions with a little bit of a partisan lens and how they look at things. And that's been a problem for interpreting consumer sentiment data for a while. but people seem real mad

kind of regardless of how good or bad the economy is which makes me wonder how mad will they be if the economy actually does go into a recession? I should say when the economy eventually goes to the recession, hopefully no time soon.

Just a question of proximity. Catherine Rappell, you can get her at the Bullwark also MS now, Greg Epp at the Wall Street Journal. Thanks you too. Thanks very much, Guy. Have a nice weekend. Wall Street today. Traders ended things to the downside.

Details numbers. You know the drill.

I know it seems like forever ago, but we did a story on Monday, as I alluded to a minute ago, about AI and its inflationary undertones. Data Center spending, chip demand, and you can connect the dots as well as I can. And sure enough, yesterday, Microsoft and Apple said prices for Xboxes and some MacBooks and iPads are going up. Here's the Apple statement. The rapid expansion of AI data centers has created an extraordinary surge in demand for memory and storage. We have never seen Apple said a component price increase this much this quickly.

Small comfort, I know, if you're in the market for a new Gizmo now. But as Marketplace's Stephanie Hughes reports, expectations are that AI is going to be. boost productivity and thus actually ease inflation eventually. Say you're a lawyer and you handle about five cases at once. I don't know. I'm not a lawyer, so I don't know the exact numbers. Alan Debtmeister's an economist with the bank UBS. But he's imagining a time when AI will let you, the lawyer, become more productive and handle, say, 10 cases at a time. So what do you do? You probably lower your price a little bit.

Pushing down inflation. Debtmeister says, that lower prices mean more people can afford to hire you, and you're making more money because you've doubled your workload. So in this case, everybody wins. This kind of rosy scenario depends on workers using artificial intelligence. And the adoption of these tools in the workplace has been gradual, says Gil Luria, with the investment firm D.A. Davidson. Part of it is that if somebody used an AI tool to try to do work two years ago, they probably didn't get a great result. And so some people got discouraged and they may not be trying anymore.

It's also not clear exactly how productive AI will make us or when. Tech historian Margaret O'Meara at the University of Washington says we can learn from the advent of the digital age in the last century. Sort of similar to now, there was a lot of heralding the Internet as this extraordinary and transformative technology. And by the end of the 1990s, it wasn't quite delivering on all those promises. But the Internet has turned out to be kind of. kind of a big deal. And the same could be true for artificial intelligence. It could make a whole lot of things cheaper, but it might take a minute or two. I'm Stephanie Hughes for Marketplace. Hey, so here's a thought. What if Ryan?

Rising health care costs weren't, you know, inevitable. Well, there's a labor union on the East Coast. It counts nearly 200,000 dormant and cleaners and food service workers in its membership that is showing it is possible to offer good health care and save money at the same time. Alex Olgin has the details. The $40, Alfrida Simpkins, used to shell out for every doctor's visit she now spends on her grandkids. They like to go to the arcade. The 68-year-old grandmother is a Katie Porter at a Long Island apartment building. She keeps the lobby and hallways clean and takes out the trash.

At least I could take that and we could spend a day and we have memories and that's priceless. Simkin saves 40 bucks per visit. Her union, 32BJ, expects to save $46 million this year alone. Claire Brockbank, who runs 32BJ's health fund, says the savings come from a simple idea, take back control from the insurer. We have to change the dynamics of health care, fundamentally. There are two ways to lower health care costs. Send patients to less expensive. intensive hospitals and negotiate better prices. Brock Bank says the union's insurer stood in the way of both. So the union went directly to Northwell Health, a 28 hospital system across New York and Connecticut,

and negotiated its own deal. Brock Bank says the union is now paying about half as much as before. Members can still get care elsewhere, but Brock Bank is trying to make Northwell the obvious choice. We give them economic incentives, but we do give them choice. And so we remove the co-pays for all the Northwell dogs as an added incentive. For the Northwell Health System, the appeal is less administrative rigmarole and more predictable payments. Nick Steffinez runs the arm of Northwell that works directly with employers. He says Northwell spends a lot of money just to get insurers to pay for surgeries and visits.

It's expensive. The health system has thousands of employees whose job all day, every day, is to work to get the health system paid for the care that they've already delivered. Northwell has these arrangements with 70 companies covering about 300,000 patients. So they still deal with traditional insurers for the vast majority of their patients. But Stephanesey is bullish that these direct contracts will continue to grow. We're not yet anywhere close to a majority. We will be one day.

I am confident that we are on the trajectory. Other big hospitals like Henry Ford in Michigan and several in Indiana have done similar deals. Elizabeth Mitchell leaves the purchaser business group on health, which represents large employers. She says those that have been doing these direct contracts for years see savings between 10 and 30 percent. And I think you're going to see more and more of this because employers cannot continually absorb double-digit increases year after year, and they're not looking to push more cost sharing onto their employees. Mitchell says these arrangements typically only work for large companies with people all in the same city. And she warns they can be a big lift to set up. 32BJ's Brockbank says that's why she's sharing exactly how the union did it.

We do believe that a rising tide lifts all boats. I don't think I've ever felt so strongly that we're in this sea change as I do right now. The question is, will union members find the lower-priced care at Northwell enticing enough to switch doctors? I'm Alex Olgan for Marketplace.

Coming up. Analog cameras and vinyl records. What's old is new again, but first, sure, why not? Let's do the numbers. Dow Industrial's down 44 points today. About a 10th percent, 51,876. The NASDAQ slipped 60 points, about a quarter percent, 25,000, 297. The S&P 500 dipped three points, basically flat there, ended things at 73 and 54.

For the week, the five days going by, the Dow's 6 tenth percent to the good. The NASDAQ went the other way, down four and six tenths percent. S&P 500 decreased 2 percent on the nose. Apple, which plummeted yesterday after announcing those product price increases, gained back. Three and a tenth of one percent. Today, Chipmaker, Micron, which, as I said, had a huge. huge rally earlier this week after the earnings report gave back. Six and seven-tenths percent of it today. Microsoft closed at a 52-week low yesterday by and the buy. Increased five and seven-tenths of one percent.

Bonds up, yield on the tenure T-note. That's down 4.37 percent. You're listening to Marketplace. One of the biggest growth hacks is realizing you don't have to do it all yourself. Upwork makes it easy to bring in the right freelancer when you need them so you can stay focused on what you do. best. Upwork is a one-stop platform to find, hire, and pay expert freelancers across 125 categories, including web and software development, data and analytics, marketing, business operations, and more. You can browse profiles, review past work, and get helped scoping the role so you can hire with confidence and get started quickly. Thousands of growing businesses already trust Upwork to hire flexible, high-quality, freelance talent for everything from one-off

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So you have a garage sale. Happens every weekend all over the country. But as Ava White reports now from Alaska Public Media, garage sales up there are a bit different, made more so by the high and rising cost of living. It's a Saturday morning in June, and Grace Peterson is kneeling on a tarp, digging through a mountain of clothes in a backyard on the city's west side.

We love to do the Saturday mornings and just stop by and check out garage cells. Peterson is stuffing fuzzy overalls and buttoned up shirts into a brown paper bag. At this sale, shoppers can fill it for as much as it'll hold for $10. Her bag is overflowing. Garage sale signs are directing shoppers to a tucked-away neighborhood with nearly a dozen homes with items for sale, littered on lawns and driveways. Power tools, hunting and fishing gear, a kid selling pink lemonade in small red plastic cups.

Peterson says she doesn't normally set money aside for clothes shopping because she can't afford to. My husband and I make a combined salary more than my parents ever did when I was growing up. And I felt like my parents were so much more comfortable and struggled way less than we do. If Peterson were to buy this bag of clothes new, she expects it set her back a couple hundred dollars. Peterson calls herself a big thrifter and says she's always looking for ways to get more bang for her buck. But it's not easy. I'd say at least 50% off means a good deal, right? But it's crazy how easy it is to just spend.

Like even at places like this or thrift stores, you like feel the hit if you go crazy there too. In cities around the country every summer, homeowners declutter and earn some extra cash while shoppers swarm in hunting for deals on the stuff that catches their eyes. Each August, one massive sale stretches from Alabama to Michigan along U.S. Route 127. Josh Randall, a spokesperson for what's called the 127-yard sale, says this event brings an economic burst to rural communities across more than 600 miles. The whole idea was to kind of draw people off of some of the big routes to go through the areas to get that traffic and just to have people experience what they might not usually ever see. And so even to this day, this almost the entire route is still very rural. Back in Anchorage, Alaska, Elgin Dobbins is dealing change for a pet feeder he just sold for $5. 10.

There's 20. Have a great day. You too. Enjoy. Daubbins is selling knickknacks and household items along with more than. and 30 other residents at Mountain City Church. Everything he's selling was donated by community members, and he donates all proceeds to charity.

We usually take whatever they offers. People say, well, how much? I said, how much you want to donate? So it's just something to get people in, and everything we make is gravy because everything is donated. Dobbin says the annual sale brings in a lot of traffic, especially on somewhat sunny days like today. Alaska's short summer creates a highly concentrated window of garage sales.

Samantha Rupert lists roughly 30 of them in and around Anchorage on a spreadsheet she created. She threw her own neighborhood-wide sale in early June and says dozens of her neighbors joined in. She says doing it this way draws more shoppers. So if people know that there's going to be multiple homes, they're more likely to take the time out of their day if they know that it's not just a one and done. Rupert says she made about $1,800 during the two-day sale. Along with earning the money, she also met some of her neighbors for the first time. I could tell that they really craved connection and wanted to connect and know who I was. And I wanted to know who they were too because I've seen them drive by for years and years right around the cul-de-sac.

And I just never, we never talked before. So now whenever they drive by, it's a little bit different. Rupert plans to arrange another neighborhood-wide garage sale next summer and says neighbors are already lining up to be both buyers and sellers. In Anchorage, Alaska, I'm Ava White for Marketplace.

I'll caveat the setup for this next item by saying please consult your own financial advisor. But one investment you might consider making, if you like to follow trends, could be in a match company, a matchbook company technically, because sales of retro style matchbooks are up 75. percent in each of the last three years. It seems they've become collectibles. Matthew Cronzberg wrote about it in Bloomberg the other day. Welcome to the program. Good to have you on. Thanks for having me. So who is it that is collecting all of these matchbooks? It is largely Gen Z and Millennials, which is very different than what I remember growing up

when it was my grandparents that collected them. Yes, exactly. They also, by the way, grandparents probably had ashtrays on the kitchen counter and all around the house. This does not necessarily correlate to a rise in smoking among Gen Z, right? No, that was our first thought. Yeah. And as we looked into it, we realized there is not really a jump in smoking. In fact, it's the opposite among adults. So what's the deal?

Why are these folks collecting all these matchbooks? Part of it is it's the same thing that is driving these younger children. generations to use analog cameras and vinyl records. They are trying to find ways of existing that are not connected to the digital world all the time. And so matches are just a physical memento from an evening out that feels more tangible than just a bunch of pictures on their phone's camera roll. Which I get, and which makes a lot of sense. It also has to be said, and there are some great pictures of matchbooks in this article. There's some savvy marketing going on here, too.

Oh, yeah. And they are, it's the interesting thing to me is that restaurants and bars have been investing both a great deal of time and thought and money into creating these really beautiful keepsakes for their customers. I learned a new word in this piece, by the way, philuminists. Am I getting that right? I sure hope so. I've not been able to pronounce it correctly once. So are you a collector? I've always had some around, but it's been so long since I had seen any place offering them,

and I never really had a need for them. So I never thought to collect them until I started seeing these really beautiful examples, like what they had at Wild Cherry in the West Village. And these matches, so the matchbook itself is glossy black, and it has a little window cut into the front where you can actually see the match stems. And on the stems themselves are printed symbols like you would see on a slot machine. And so, you know, as you pull out a match to use it, the lineup changes. The funny thing, of course, is that they are so nice that lighting them on fire is the last thing you would want to do. Of course.

Of course. It does occur to me, though, that the nicer they are, the more expensive they are, and you can't just keep giving them away because, look, restaurant margins are small and, you know, $10 on a gross of matchbooks isn't going to break you, but it adds up. It definitely does. And the range can be extreme. You know, the little ones that you see on the counter at a convenience store, those can be just a few cents each. But ones like at Wild Cherry, and this depends.

a great deal on how many you order and how elaborate they get. Yeah. But they can come in at a dollar or more, you know, up to close to two dollars. Oh, yeah. For one of them, which is why, you know, they tend to be a little bit careful about handing them out. Yeah. I get that. Matthew Cronzberg, Bloomberg, Matchbooks.

Great story. Thanks a lot, Matt. I appreciate it. Thanks for having me.

This final note on the way out today, maybe you heard this earlier this week, but it is worth a quick mention ahead of the opening bell on Monday. Alphabet is going to replace Verizon in the Dow Jay Jones Industrial Average. The definition of the word industrial there, obviously changing as the economy does too. Our theme music was composed by B.J. Leiderman Marketplace's executive producer is Nancy Pargali. Joanne Griffith is the Chief Content Officer. Neil Scarborough is the Vice President and General Manager. And I'm Kyle Rizda. I'll have ourselves a great weekend, everybody. We'll see you back here on Monday, all right?

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