Marketplace - Are U.S. consumers finally running out of steam?

Episode Date: March 28, 2025

Consumers say they’re fed up with inflation, then they keep spending. But their behavior could be catching up with their anxiety, an economist told us. The clues are in data released today by the Commerce Department. Also in this episode: Can you live on just 13 gallons of water a day? One water-saving group thinks it’s possible. Plus, we look into how cities, farmers and compost brokers are tackling organic waste.

I hate to steal yesterday's theme, but I am not in charge of the economic calendar. So today we're doing Data Dump Round 2. From American Public Media, this is Marketplace. In New York, I'm Kristin Schwab in for Kyra's Doll. It's Friday the 28th of March. Thanks for tuning in. Today we got a lot of numbers, personal income, personal spending, consumer sentiment and inflation, numbers that give us a better picture of where the economy was in February. To help us decipher what it all means and what it says about where the economy

is heading, we have Rachel Siegel at the Washington Post and Jordan Holman at The New York Times. Hello, hello. Hi, Kristin. Hi there. Hi. So I want to start today with the biggie, which is inflation. The personal consumption expenditures index or PCE increased a bit in February, up three-tenths of a percent from the month before, which puts us at the big number of two and a half percent year over year. Rachel, I'm wondering, should the Fed be worried about this, or am I just primed to be extra sensitive to every little movement we see in an inflation reading now? Well, it's understandable that you would feel sensitive because we've been talking about

inflation and inflation not always behaving the way we want for a really long time. The Fed, though, is trying to take a longer view, right? They say that they don't respond to one report this month, one report the other month. Their focus is on the direction and on the signal. So last week at the Fed press conference, I asked Chair Powell about this. I said, how are you separating signal from things

that might be noise or distraction? And he said that that's actually going to be a particularly difficult job, even when it's been hard already because of tariffs, because of so much other uncertainty swirling around the economy. And pointing that trajectory is going to be really hard, but that's their focus, not necessarily one number that we got this morning. Well, yeah, let's stick with you and that Fed Presser from last week because you asked about tariff inflation versus regular inflation. I'm wondering what Powell said about how much we can distinguish between the two. And I'm also wondering if it matters.

It does matter. And it matters because, well, there are a lot of reasons that it matters, but it matters because it's starting to show up in the inflation reports that we're looking at. Powell specifically said that goods prices are starting to show a little bit of that heat. This is things that are manufactured in factories that companies are ordering, things that have tariffs on them or are likely to be subject to tariffs. And these are the kinds of things that we're already starting to heat up, already see starting to heat up. But what Powell also said is that those things can ripple through the economy and bring inflation up in other ways. So he gave the examples of washers versus dryers. During the first Trump administration, washers had tariffs on them, dryers did not.

Washers went up in price, but then manufacturers of dryers thought, well, hey, why don't we get in on that? And they raised prices too. So there's now one additional challenge for the Fed of pinpointing what is coming from tariff inflation, what might be some of the residual consequences of all that, and then ultimately what the Fed should do about it. Well, that's a good segue to Jordan. You talk to retailers every day. Are they already pricing in these tariffs or what are they saying about strategy here as everything flip-flops? Yeah, a lot of the strategies, initially, they are trying to negotiate with their suppliers to try to get the prices down with their suppliers before passing it on to consumers. I was talking to one investor in this space and they made the good point that the first few weeks

and months when it comes to the disruption and that tariffs and some other uncertainty happens is that you're not gonna touch the consumer facing thing that you really have to just kind of wait and see. So you're trying to do things behind the scenes. But a lot of people were mentioning that they have game planned all sorts of scenarios, which do include raising prices.

And they would be ready to do that if the time comes. Well, how long do you think it'll be until we see those prices raise? And I'm wondering, Jordan, because we saw more tariffs on automakers this week, we might get retaliatory tariffs expected next week. Where do you think we're going to see the most immediate or biggest price increases for consumers? And when might they come? I definitely feel like the auto prices will be felt quickly. That's basically everyone who I was

talking to this week said that. But when it comes to like the smaller appliances, those type of things, when it's time to reorder those parts on the part of the retailers, that is actually when those decisions around passing on the costs could happen, which, you know, that could happen in a few weeks, a few months, it would really just depend on the retailer. But that's usually what they try to emphasize is the last thing that they do. But given that tariffs are the reality now, they're kind of coming around to the idea that they would have to do it. Hmm. You know, all of this is making consumers feel pretty terrible, which is what we data

we got this week. Consumer confidence sunk to its lowest level in 12 years. We got the University of Michigan survey that echoed some of that sentiment today. You know, I've been covering consumers for a handful of years now, and we've kind of been near here before, not so long ago. Rachel, I'm wondering if this is a boy who cried wolf situation or if there's something different in the air this time? I think it's hard to know. I think this is one of the data points that fills in a broader dashboard when we're trying to understand how people are feeling, how people are thinking about the future.

But I think one telling piece of this, and we've talked about this for a while too, is that there's a difference between how people feel, how they describe their general sentiment, and what they do about it. Do they ultimately decide to pull back on spending? Do they get so worried that there's going to be a major hit to the job market or a turn in the stock market that they change their behavior? So I think that there can be really added weight to these sentiment numbers if we start to see that behavior piece kick in too. And there are ways in which we're starting to see that, right?

Businesses that are having to make decisions about their orders, about their staffing, depending on tariffs, depending on what they're seeing in the federal government, depending on whether they're considering laying off staff themselves. So I think the sentiment piece is a helpful data point, but it's often one that becomes even more telling when the other pieces fill themselves in.

Jordan, same question to you. What's your read on consumer sentiment right now? Yeah, for a long time, we've been talking about how lower income consumers are more stretched and having to be more discerning and what they're buying. I think I personally have been talking to people who are the higher end income and their fortunes are more tied to the stock market, which has been very volatile. And so it feels like I'm hearing from more hiring consumers saying, I kind of just want to wait and see, I might not want a job hop. And it's kind of putting people in suspense, which to Rachel's point, behavioral changes usually happen after that. Jordan Holman is at the New York Times, Rachel Siegel at the Washington Post. Thanks so much, everybody. Have a good weekend. Same to you, Kristen.

You too. Wall Street saw today's data and decided it did not like what it had to say. We'll have the details when we do the numbers. On to another key piece of economic data out this morning from the Commerce Department. American households' income is still growing. It was up 8 tenths of a percent in February, twice what analysts were expecting, which is good news. But there's a bit of a red flag buried in the report. Despite the income growth, consumer spending came in weaker than expected, and the personal savings rate is up. And I say red flag because both are signs that consumers could be hunkering down and

hanging on to their money. Marketplace's Savannah Peters has more. For the last few years, consumers have been telling pollsters how fed up we are with inflation. Then we keep right on buying stuff, says Stephen Brown, deputy chief at Capital Economics. You know, the link between consumer confidence and spending has broken down. But in today's data on income and spending, he sees clues about ways consumer behavior could be catching up with our anxious mood. Clues like a bump in spending on certain goods, think vehicles, appliances, and furniture, things that could be affected by tariffs.

And says Shannon Grine, an economist at Wells Fargo, there was a dip in spending on services. That's considered a weakness just because services consumption is typically very steady, even in the worst of times. It's steady because services in this context include housing and health care, which don't fluctuate much. This pullback is driven in part by slower spending on discretionary services, like traveling and going out to eat. It's no longer this whole YOLO revenge spending kind of thing. Forces that Ted Rossman, an analyst at Bankrate, says have helped buoy

economic growth in recent years, even through a pandemic, global conflicts and high inflation. It feels like something new is happening, that the story is starting to change. He says U.S. consumers might finally be running out of steam. And if prices keep rising, they might not come to the rescue this time. I'm Savannah Peters for Marketplace. The World Health Organization says each person needs a minimum of 13 gallons of water a day for drinking, bathing, washing dishes and clothes. The average American uses more than 80 gallons per day, and in many parts of the country, that is simply unsustainable.

Of course, it is not fun to give up long hot showers or lush green lawns, but there may be ways to reduce water consumption without sacrificing every delight. A coalition in Los Angeles called 50 Liter Home, which is made up of companies, water utilities, and nonprofits, it just released the results of a year-long pilot project. Marketplace's Kaylee Wells followed one of the families. This whole experiment started in November of 2023, bright and early on a Tuesday morning. At a single-family home in the LA suburb of Canoga Park, installers are parading in and out of the house, tossing old toilets, faucets, anything that uses water, and installing brand new fixtures.

Standing in the middle of the chaos, politely reminding everyone to remove their shoes at the door, are Jake Olson and Amy Ball, and their two-year-old daughter Scout, who's capturing the attention of all the grown-ups around her. Daddy, I want to eat my bakery. Olson applied to be part of the project after seeing an ad in the utility newsletter. His is one of 30 LA area households chosen for the project. Half stay the same. The other half get free, brand new water-efficient appliances, faucets, shower heads and toilets,

plus detergents and cleaning supplies optimized for low water use. Olsen's hoping he also gets a lower water bill. I was in an apartment for 17 years and didn't have a water bill. They paid the water. And then we got this house and we were watering grass and water bills would come. And I was like, how is this reality?

What is this life? I do not want this. We're three people. How are we using this much water? Yeah. What the 50-liter Home Coalition gets in exchange? Full access to their water usage data. Project manager Maureen Urbeznick is with the United States Green Building Council, California. We're doing behavioral analysis. We're looking at every end use. We're in their homes kind of on a regular basis. Now, since this project is all about seeing how little water a typical family can use

while behaving typically, Ball and Olson are under strict orders not to try harder to save water. They were already trying pretty hard. They replaced their lawn with drought tolerant plants. They try to only run the dishwasher when it's full. Then again, I tend to luxury in the shower. I'm not sure you do like showers like to turn up the heat really hot and just be in there. That's some of our only alone time right now. This shower is all I have. Although fact check here, luxuriating for

Amy Ball takes roughly 10 minutes. Jump forward a few months, countless toilet flushes and luxurious showers. Jake Olson hopped on a call to go over some preliminary results. And even though they'd already been conscientious water users, they were using 20% less. Knowing that even from this install to now we're trending significantly downward is really exciting, honestly. It's great to know that we're pretty much getting to the point where we're going to be as efficient as possible. By the end, the homes in the study used half as much water as the average home in Los Angeles. Olson did notice some differences in the appliances, but he says none of them were bad.

The shower head itself is actually two inches larger than the one that we had before. Honestly, that's one of my favorite things that got swapped out. Like the water pressure is the same, if not better. The families in the study did not hit that 50 liter or 13 gallon mark. After a year, they were using about 23 gallons per person.

Gregory Holliday is the director of the 50 literliter home coalition. Our name is definitely aspirational. There's a lot more savings to be had. We are just getting started, honestly. We didn't tell anybody about how to use these products. We didn't encourage them to try to save water. Holliday says this study isn't over yet.

In phase two, it will introduce recycling water to get that usage number down even more. In Los Angeles, I'm Kayley Wells for Marketplace. Coming up. It's kind of like a vitamin we put back in the ground that's alive. From trash to treasure. But first, let's do the numbers. The Dow Jones Industrial Average dropped 715 points, 1 in 7 tenths percent, to end at 41,583. The Nasdaq shed 481 points, 2 7 tenths percent, to finish at 17,322. And the S&P 500 was off 112 points, 2 percent, to land at 5580.

For the week, the Dow lost 1 percent, the Nasq subtracted 2.6%. The S&P 500 slipped 1.5%. Lululemon tumbled more than 14%. The athletic gear retailer issued disappointing guidance for the rest of this year. It says consumers are pulling back on spending because they're worried about inflation and a weakening economy. Bonds rose, the yield on the 10-year T-note fell to 4.25%. You're listening to Marketplace. Thanks for watching. smart takes delivered to your inbox. Sign up today at marketplace.org slash subscribe. This is Marketplace. I'm Kristin Schwab. Jordan Holman was telling us earlier about how big businesses are dealing with tariffs and weakening consumer sentiment. But small businesses often have a more intimate and immediate understanding of their local economies.

So we gave Annie Lang Hartman a call. She's the owner of Wild Luddy, a gift and stationary store in Leelanau County, Michigan, and one of our retail regulars. Here's her update. Business is actually very good right now. Year to date, we're up 49%. And I think a lot of that has to do with how vocal I have been as far as what this business stands for and who I am as a person. So when the park layoffs and like the public land layoffs started happening, I sat down with a design that I made years ago, and it's just a little saying that says, big fan of public lands.

And just out of frustration, I sat down and redrew it and just shared it on social media. It had such a great reaction that a lot of our followers and customers asked for that design to be put on different products. That definitely gave a big boost to our business and it just showed me how important it was to keep talking about those things. And that's something I want to carry through. My biggest concern is just hoping that the year continues to trend the way it's been trending for us. Living in a place that is really heavy with tourism, I know I'm going to get foot traffic,

but it's how much foot traffic are we going to get? Especially when I'm ordering for the year or for the summer, I always go back and forth on how much we need, should I be ordering this? That's what I'm thinking about constantly right now. I need to be making smart choices every day so that we can deal with leaner times and keep moving forward. Annie Lang Hartman is the owner of Wild Letty in Leelanau County, Michigan. Do you know the contents of your trash can? I ask because here's a factoid I didn't know. About half of what we put into landfills is organic matter, as in stuff that can be

composted. That's a lot of material we could save from turning into methane emissions, because landfills account for nearly 15% of greenhouse gas in the US, according to the EPA. Thing is, we don't have great systems that connect waste producers with compost users. Marketplace's Maria Hollenhorst reports on one company that's trying to close that gap. This is a story about dirt. Compost is a way to effectively feed your soil, and soil gets hungry too. Dr. Sally Brown is a research professor and soil scientist at the University of Washington.

When I go someplace where there's no composting, I get very upset. So I'll surreptitiously put it outside. We all have hills we'll die on. She does that because organic material exposed to oxygen, you know, decomposing in a compost pile or surreptitiously tossed behind a bush, creates CO2. But organic material rotting in landfills without oxygen creates methane. Methane is a very powerful greenhouse gas, having on a hundred year time frame about 23 times the potency of CO2. So getting stuff that rots out of landfills is a very cheap way to quickly reduce carbon emissions. At least in theory. Most of us don't live near farms that can readily use the lawn trimmings

or avocado skins produced in our homes. And that's where companies like Agrimon come in. Agrimon come in. Agrimon is one of the largest organics recyclers in California. I'm driving you into the receiving yard, which is about five acres. Bill Camarillo is the founder and CEO. He says they handle about 1.2 million tons of organic waste per year. My goal in the next 10 years is to get to 10 million tons. He brought me to a yard in Santa

Paula, California, about an hour from Los Angeles. Here, trucks carrying green waste from households and businesses dump their hauls. But as you can see, this material hasn't been cleaned yet. About a half dozen employees were pulling plastic bags and other garbage out by hand. Once that's done, the waste gets pushed into a grinder to create more surface area for the oxygen to work its magic. We always show the grinders to our customers who don't pay us. Joke! He's joking. Roughly 80% of Agrimen's revenue comes from something called tipping fees.

Cities pay the company around $60 per ton to accept the waste their trucks collect. The other 20% of Agrimenents revenue comes from turning that waste into mulch or soil additives that farmers, landscapers, and gardeners can buy. And it's kind of like a vitamin we put back in the ground that's alive. The material here is mostly yard and farm waste. There were piles of rotting lemons discarded from a nearby grove. And the whole place has a sour kind of smell. Flocks of birds were picking at the piles. After cleaning and grinding that raw waste down, it gets moved to another yard for finishing.

And you'll notice a distinct difference in odor. Not that this is bad. Smells like money to me, but if you go to the other side, it smells very earthy. Decomposition naturally raises the temperature enough to kill pathogens. Dig in a little bit and you could warm your burrito up inside if you want to because it's pretty hot. It was. One factor driving this industry forward is a California law requiring cities to divert more organics from landfills and purchase a certain amount of the finished compost. It's meant to pull on both the supply and demand side of the compost market. So I'll just take a city of Ventura as an example. So they called me three years ago and said,

what am I supposed to do with 8,000 tons of compost? So we did some homework for them and said, well, do you realize you have 700 acres of park lands? It'll reduce your water consumption by 30%. It'll reduce your chemical fertilization on your parks. Why can't you use it? Well, the issue now is, even if they can buy the compost, the application cost is greater than the compost. Dirt is expensive to haul around. So for cities that can't afford to use all the compost that they're required to purchase by law? We partner with a farmer under a direct service provider agreement where the farmer agrees to accept the compost from the city that the city buys and will pay for the delivery and the spreading so the city only has to buy the compost.

One thing that helps reduce that cost is putting compost facilities closer to compost users. This one is actually on farmland owned by a company called Lima Nera. Remember those rotting lemons we saw earlier? Well, Limonera is one of the largest producers of lemons and avocados in the US. Yeah, we farm around 3000 acres here. Edgar Gutierrez is Limonera's director of farming operations.

He took me to a field of avocado plants that were sitting on mounds of mulch compost from agrimen. Doing this type of practices is basically giving life to that soil. There are visible reminders here that it once came from someone's green bin. A piece of blue plastic, a chunk of wooden shipping pallet. You find, you know, shoes and stuff like that. Mostly though, it just looks like dirt. Dirt that helps produce avocados, the skins of which we mostly throw away.

I'm Maria Hollenhorst for Marketplace. This final note on the way out today, saw this in Newsweek. Travelers are feeling the tensions of the trade war. According to the aviation analytics company OAG, forward bookings from Canada to the US have fallen more than 70% every month through the end of September compared to the same period last year. Canadians are a big part of our tourism industry. They made more than 20 million trips here last year. In response, a White House spokesperson told a Wall Street Journal reporter, quote, Canadians will no longer have to worry about the inconveniences of international travel when they become American citizens as residents of our cherished 51st

state. Our theme music was composed by BJ Leiderman, Marketplace's executive producer is Nancy Fargoli, Donna Tam is the executive editor, Neal Scarborough is the vice president and general manager, and I'm Kristin Schwab. Have a great weekend, we'll be back here on Monday. This is APM. If there's one thing we know about social media, it's that misinformation is everywhere, especially when it comes to personal finance. Financially Inclined from Marketplace is a podcast you can trust to help you get serious

about your money so you can build a life you've always dreamed of. I'm the host, Janelia Espinall, and each week I ask experts important money questions, like how to negotiate job offers, how to choose a college that you can afford, and how to talk about money with friends and family. Listen to Financially Incline wherever you get your podcasts.