Marketplace - Bad debt prep

Episode Date: October 14, 2024

JPMorgan Chase and other major banks are setting aside extra cash in anticipation of an uptick in bad loans. Lending always comes with some risk, but right now, banks are worried about a few specific types of debt. Also in this episode: Some discouraged job seekers aren’t included in the official unemployment tally, OPEC downgrades its demand forecast — again, and Russian bots take over online poker games.

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to see what we might learn. From American public media, this is Marketplace. In Los Angeles, I'm Kyle Rizdall. It is Monday today, the 14th of October. Good as always to have you along everybody. The cast of characters that affect what happens in this economy starts obviously with consumers. We talk about all the time. It then snakes its way through small businesses, government, whether the politicians, that

would be Congress and the White House, or independent agencies like the Federal Reserve. It also makes a stop in corporate America, which is where we start today. We're going to be hearing a lot from the big companies in this economy in the next couple of weeks as those that are publicly traded release earnings reports for the most recent quarter. Banks started us off this past Friday, JP Morgan Chase and Wells Fargo. More will report tomorrow. And a theme that's emerging is that many of those banks have been setting aside more cash

to cover bad loans. Marketplace's Justin Ho gets us going with why banks are getting more cautious. Banks always stock away some cash to cover loan losses. That's because in good times and bad, banking involves a certain amount of risk. Loans go bad, hopefully not at a high rate, but there are always some people or businesses that don't pay back their loans.

That's Julie Hill, Dean of the University of Wyoming's College of Law. She says loan losses picked up a's Julie Hill, Dean of the University of Wyoming's College of Law. She says loan losses picked up a lot in the early years of the pandemic and banks drew down their reserves to cover those losses. So now that the economy has recovered. You're seeing banks realizing that they're away from the downturn of the pandemic

into more stable financial times and they're wanting to restore their reserves to prepare them for the next economic downturn. But banks also have a few reasons to be concerned about certain types of loans. Stephen Bigger, a bank analyst with Argus Research, says a lot of banks are nervous about their commercial real estate loans.

Because the vacancies are pretty high, and the rates, of course, are much higher than where these loans had been taken out three and five years ago. Digger says banks are also keeping an eye on credit card debt, especially since delinquency rates have been rising. So there is quite a bit of credit card lending going on, people carrying a balance and so forth and that's usually not a terrific sign for the economy broadly. Banks have also been working to ensure that their credit card customers can stay on top of their payments, says David Schiff, senior managing director with FTI Consulting.

One solution, better communication. They're using more effective collections techniques to remind customers about those payments, to work through solutions to help the customers to become current. solutions to help the customers to become current. Shift says banks are also trying to keep their commercial real estate loans healthy too. And now that interest rates are starting to fall, he says banks have been trying to work out better payment plans for properties that might be able to avoid going into default. Because they see where interest rates are going and they're going to try and hold on until the customer is able to refinance at a more effective rate. Even though the economy is uncertain right now, Schiff says banks need to keep making

loans to stay profitable. And preventing loan losses is part of that strategy. I'm Justin Ho for Marketplace. At the risk of repeating myself, more record highs in equities today, bond traders had the day off. We'll have the details when we do the numbers. Oil can be a real good way to take the global economic pulse, demand for oil to be clear, about which news today from the Organization of Petroleum Exporting Countries. The cartel said this morning it expects the growth in global crude demand to slow for what's left of this year and into next

To be clear demand is still growing. We're still using lots of oil just less than had been expected It is the third time in as many months that OPEC has downgraded his forecast Marketplace Samantha Fields has that one the world uses more than 100 million barrels of oil every single day, and next year it'll use even more. But OPEC sees demand growing more slowly in the coming year, in one key place in particular, China. Demand concerns there tend to overshadow almost anything else that happens. Tom Tseng is with the Ralph Low Energy Institute at Texas Christian University. He says that's because China imports more crude oil than any other country in the world.

And right now... They are having economic problems. And obviously, economic woes, right, they almost always equate to less energy demand. In addition to China's current economic troubles, Matt Smith at the data and analytics firm Kepler says it's also moving much more quickly than many other countries to adopt electric cars.

So that's starting to really impact gasoline demand. At the same time, he says China is also transitioning many of its commercial trucks over to liquefied natural gas or LNG and away from diesel. And so we're expecting both gasoline demand to be peaking around this year into next year and then diesel demand in the country to peak. And so suddenly, from a country that was the engine room of the global market, you're seeing them really slowing down. Demand for diesel is also weakening in other countries outside of China, including the U.S., according to Bob McNally at the consulting firm Rapidan Energy Group. And diesel fuel is the fuel that's most closely linked with general economic activity because

diesel is used in trucks and some shipping and airplanes and freight and things like that. So he says slowing demand for diesel could be a sign of slowing economic growth. I'm Samantha Fields for Marketplace. Turn with me now in your copy of the monthly jobs report that came out a couple of weeks ago to table A15, the section entitled, Alternative Measures of Labor Underutilization. There are, and this is perhaps a little known fact, no less than six different measures of unemployment in this economy, labeled appropriately U1 through U6.

U3 is the rate you're probably most familiar with, the official overall unemployment rate, 4.1% last month. Historically, as we've been telling you, pretty good. A little bit farther down though is U5, the total unemployed plus discouraged workers plus all other persons marginally attached to the labor force, which in September was 5% even. Marketplace's Matt Levin explains why we ought to care about that number too and why it's been ticking up lately.

According to the Bureau of Labor Statistics, Chelsea Kidd is not technically a discouraged worker, but listen to her and she might be close. Every time I apply, it's like, I might as well ball this resume up in paper and throw it in the nearest trash can for all the good it's going to do me. Kidd is 35 and lives in midcoast Maine. She and her 14-year-old daughter moved into her mother's place after she was laid off five months ago. She was working remotely for a financial technology company, making almost $60 grand a year monitoring

customer service calls. Kidd says she's applied to somewhere between 50 and 100 jobs, but she hasn't seen many that would actually be a good fit, especially any jobs that don't require her to move. I don't want to uproot my daughter right now, so I'm tied here right now. And there's just, I can feel the world shrinking around me when I look at the job market.

Because Kidd actively searched for jobs last month, the Bureau of Labor Statistics counts her as one of the 6.8 million people officially unemployed in September. But if she took a break from all those time consuming cover letters and resumes and applications, BLS would call her a discouraged worker and not part of that official rate.

So these are guys that aren't necessarily part of the unemployment pool, but they've flowed back and forth. And one of the reasons they've stopped looking for work is they just don't think there's anything out there. Jason Faberman is an economist at the Chicago Fed. He says a lot of the discouraged workforce feel their skill set is outdated.

Maybe their jobs have been automated away or offshored. But there's also a lot of workers like Chelsea Kidd who just feel stuck. They're either tied to a location or choose to not look outside their location. And, you know, they're just wherever they are, there just isn't much there for them. About 445,000 out of work Americans fit BLS's definition of discouraged worker last month. That's not a huge number, but when you add in the people BLS says are marginally attached to the workforce, basically folks who want a job

but haven't looked in the past month for any reason, that number is big, 1.6 million. Those workers tend to skew more male and lower educated than the officially unemployed, and also older. Ali Bustamante is an economist at the University of New Orleans. Just over the year, we've seen about a 200,000 increase in marginalized workers, and about, you know, more than 60% of that increase has actually been driven by workers who are 55 years of age and older. Bustamante says employers might be favoring younger, cheaper talent.

Older workers may also be more reluctant to accept lower wages or switch industries and have more savings to keep them afloat. While the number of discouraged and marginalized workers have ticked up, along with the unemployment rate in recent months, by historical standards... We're really on target with what the labor market actually looked like back in 2019. But all the headlines about a relatively healthy labor market aren't much solace right now

for Chelsea Kidd, the laid off single mother back in Maine. It just feels like, as in so many other situations, if you're ahead, you can keep getting ahead. And if you're behind, you get further getting ahead, and if you're behind, you get further behind. Kid says she's planning to finish her undergrad degree in the hope that it'll make her more competitive on the job market. But she's not sure if it will. I'm Matt Levin for Marketplace. Coming up. It turns out that the in keeping industry is very small and we all know each other. Small but mighty.

First though, let's do the numbers. Dow Industrial is up 201 points today, about a half percent, 43,065. The NASDAQ added 159 points, about 9 tenths percent, 18,502. The S&P 500 gained 44 points, three-quarters percent, 58 and 59. That OPEC forecast of slowing growth in oil demand that Samantha Fields was telling us about didn't do a whole lot to hurt oil stocks. ExxonMobil pocketed four tenths percent today. Hess added about a tenth percent.

Chevron picked up a quarter of one percent. The natural gas market seems to have decided there will be less demand this winter here in the United States. The benchmark price deflated five and a half percent. Natural gas producers went the same direction. Next decade drew down 1.4 percent. CNX Resources compressed three and four tenths percent today. Compressed natural gas. Get it? Come on. Whole lot of bad news about Boeing. Lately. Friday announced it's cutting 17,000 jobs

and will be delivering its first 777X jets a year later than expected. Also, that strike still happening. Boeing decided one and a third percent today. Bonds, as I mentioned, did not trade today due to the holiday you're listening to Marketplace. This podcast is supported by Fundrise. Buy low, sell high. It's easy to say, hard to do. For example, high interest rates are crushing the real estate market right now. Demand is dropping and prices are falling, even for many of the best assets.

It's no wonder the Fundrise flagship fund plans to go on a buying spree, expanding its billion-dollar real estate portfolio over the next few months. You can add the Fundrise flagship fund to your portfolio in just minutes, and with as little as $10, by visiting fundrise.com slash marketplace. That's F-U-N-D-R-i-s-e dot com slash marketplace. Carefully consider the investment objectives, risks, charges, and expenses of the Fundrise flagship fund before investing. This and other information can be found in the fund's prospectus at fundrise.com slash

flagship. This is a paid advertisement. What do they say? More money, more problems, and way more questions? From your kids, right? But not to worry. Million Bazillion, a podcast from Marketplace, has you covered. I'm Bridget Bodner, and with my co-host, Ryan Perez, we take you and your young ones on

grand adventures and comedic sing-alongs to answer all the questions your little ones have about money. Join us as we explain how banks work, why name brands are more expensive, and what happened to Black Friday sales. Listen to Million Bazillion wherever you get your podcasts. This is Marketplace. I'm Kyle Rizdal. As Justin Ho is telling us up at the top of the program, quarterly earnings season is upon us. Banks can, of course, tell us a whole lot about the financial health of this economy, but banking ain't the only game in town, you know. We're going to hear from airlines this

week, entertainment companies, AI chip makers too. So it seemed to us a preview was in order marketplaces Savannah Marr has it. Earnings reports pull back the curtain on how individual companies are faring and help answer bigger questions, says Karen Petrou with Federal Financial Analytics. How much consumers are spending, whether demand for a particular product is going up and what that means further down the supply chain. And quarterly results are playing a particular role now.

Shiraz Mian, director at Zax Investment Research, says analysts are shifting their focus from macroeconomic data on the labor market and inflation to watching companies for the fallout of last month's rate cut. There's been fears about whether the Fed, perhaps they were late to the party and perhaps the slowdown may get out of their heads. That's kind of like the big picture theme this earnings season. For example, we'll hear from United this week. Sam Stovall with CFRA Research says airline earnings will give us a look at labor costs.

Could we be seeing companies face higher and higher expenses in that regard. And Stovall says results in the retail and entertainment sectors, like Thursday's report from Netflix, will include tells about whether consumers are willing to keep up with high prices. Shiraz Mian with Zax will be tuned into Thursday's earnings call with Taiwan's semiconductor manufacturing company. AI has been a big theme in the marketplace and TSM are right in the middle of that. He says TSMC's outlook will offer a clue as to how much AI is fueling corporate growth this quarter.

In a few weeks, results from a slew of tech companies will give us a fuller picture. I'm Savannah Marr for Marketplace. Here's another preview of sorts. I can tell you that tomorrow morning's Marketplace Morning Report with David Brancaccio and the gang will tell you everything you need to know about business neck and neck news to start your day. Check it out. Music Online poker is only legally available in a handful of states, but it is a huge market globally.

The research firm Custom Market Insights figures it was worth a bit more than $96 billion last year. Now, what follows is not an endorsement of online poker, to be clear. Only bet what you can afford to lose. But should you choose to participate, Kit Shalell writing in Bloomberg the other day, discovered something interesting. If you've ever played online poker in any capacity

for any stakes, you've probably played against a bot and not known it. I am not a gambler, so I've never played online poker either, not even in getting ready for this interview. But it does seem to me that that's a bit challenging. Yes, the scale of things means there has to be some bot involvement, I suppose, but it does lend itself, I would imagine, to all kinds of mischief. Yeah, I don't think that it's fair for a human being to play against, especially a modern day bot. The way poker bots play now is kind of inhuman.

It is beyond the level that even the very best professionals who have ever lived can play the game. They play sort of mathematically perfect poker and they don't make mistakes. So it isn't really a fair fight and they are probably going to take your money. Or in some cases, they're like programmed to lose a little bit and the first one's always free, right? Yeah. One of the things I discovered doing this story was that not all poker bots are intruders

who are unwelcome and have snuck onto the websites. Some websites definitely have bots that have been invited there to keep the tables looking busy and to keep people playing longer, which is a strange thing to get your head around. Tell me about this company. It's called Deep Play, I think. Yeah. That's one of their names. They've actually been through a bunch of evolutions over the years, but it's the same group of guys out of Siberia in Russia who have come up with this very clever poker technology and have used it in various different ways. Well, to say more about that, I mean, how are we seeing this employed out there?

If I sit down in front of my virtual felt table there, what's it going to look like when these bots are playing? I think when you're playing against a bot, it feels almost like you're playing against someone who's cheating. They just seem to be winning and you don't know how. And it happens slowly and it feels very hopeless. I've spoken to professionals who have taken part in these tournaments against bots designed by AI researchers.

And they describe this kind of hopeless feeling of just feeling like they never had a chance. How do the companies who run the online poker sites feel about these bots? Because in some way, I'd imagine they kind of need them. Obviously, customers, the people who play online poker don't like having bots in the system. It's not fun. It kind of takes the fun out of it.

You want to play another human being. But the big poker websites and the big poker platforms online don't have a lot to say about botting. And what they do say is that they're opposed to the idea of it, but they're not very transparent about how they keep bots off their systems and how many bots are out there. And one of the reasons for that is that there just aren't commercial incentives to exclude all bot accounts. Cause they all make money. They all make money for the poker websites.

But if I'm a newbie, want to get involved in poker and I decide to start playing online to, you know, sort of learn how things go and I keep losing all the time, I'm out, right? And that seems to me to be a business model problem. It is, yeah, that is a problem. There's not an easy solution to that. There is definitely data showing

that people who start playing poker online are very quickly put off by the standard of the games they're playing in and by how often they lose and by how hopeless it feels. And that's one of the reasons why people who know about poker botting, the people who really know, will tell you this is an existential threat to the game. You know, Chris Moneymaker told me he's arguably the most famous poker player of the modern era.

He told me the game may not exist in a few years unless we get a handle on this. And it's a new problem. I don't think the game is really adapted to the new reality yet. Kit Shalel, Reddy and Bloomberg about the Russian Pokerbot army, about which I knew nothing until this piece. Kit, thanks a lot. I appreciate your time. Thanks, man. Albuquerque wrapped up its annual International Balloon Fiesta yesterday. It's a 10-day festival that brings almost a million visitors to the city every year

to watch hundreds of hot air balloons fly over the western skies. And all those hundreds of thousands of people coming into town got to find a place to stay, right? Right, they do. Here's today's installment of our series, My Economy. I'm Steve Hyatt. And I'm Kathy Hyatt, and we're the owners of the Botker Mansion Bed and Breakfast

in old town Albuquerque, New Mexico. So Steve is a New Mexico native, and his family was from here. We met when we were in the service, and stationed in northern Japan. We moved to New Hampshire where he got a job and stayed at a bed and breakfast there

for our 10th anniversary and it was just extraordinary. And we decided that that was something we would be interested in doing someday. And that's basically how we ended up here. Yeah. I always felt that I needed to be somewhere west of the Rockies. And coming back to New Mexico was great.

We've owned it for 20 years now. So over those years, you can imagine the use that a bed and breakfast gets. And so we've replaced every air conditioner in every room at least once and sometimes twice. We've replaced our large air conditioner for our main space twice. So there's been a lot of significant infrastructure investment. Let's just say that. We're not trying to take it back to 1912. Let's just say that. We're not trying to take it back to 1912. So the International Balloon Fiesta starts this year on October 4th and goes through

October 13th. It's huge for Albuquerque and New Mexico. We tend to be full until we're well through the balloon fiesta. All the hotels and lodging facilities increase their prices for balloon fiesta because the demand is so high. You know we have we have to determine what our rates for rooms for balloon fiesta are going to be a year in advance because we're already starting to book for Balloon Fiesta for next year.

So after Balloon Fiesta, but really after the season is winding down, this year we're planning on going to San Diego to a conference of other innkeepers. It turns out that the innkeeping industry is very small and we all know each other all over the country. Or we know of each other. Or we know of each other.

Cathy and Steve Hyatt, innkeepers and owners of the Botger Mansion in Albuquerque, New Mexico. Whether you are west of the Rockies or east, we want to know what's going on with you. So take a second and tell us, would you? Marketplace.org slash My Economy. This final note on the way out today, first of all, and not to be that guy, but it's technically not the Nobel Prize in Economics. It's the Bank of Sweden Prize in Economic Sciences in memory of Alfred Nobel.

He, Nobel, didn't make it one of the five original prizes in his will. Sorry not sorry, just trying to be accurate. Second and sadder, but arguably more economically impactful, Lily Ledbetter has died. Ledbetter had worked for Goodyear for 20 years before she discovered she'd been paid less than her male colleague. She sued and made it to the Supreme Court, which ruled against her, five to four, because she hadn't made the complaint within 180 days of when those discriminatory pay decisions were made.

The literally led better fair pay act relaxed the timelines for wage discrimination lawsuits, first law Obama signed, by the way, in 2009. Our daily production team includes Andy Corbin, Lise Haasen, Maria Hollenhorst, Sarah Leeson, Sean McHenry, and Sophia Terenzio. I'm Kai Rizdal. We will see you tomorrow, everybody. This is APM. What do they say? More money, more problems, and way more questions from your kids, right? But not to worry. Million Bazillion, a podcast from Marketplace, has you covered. I'm Bridget

Bodner and with my co-host, Ryan Perez, we take you and your young ones on grand adventures and comedic sing-alongs to answer all the questions your little ones have about money. Join us as we explain how banks work, why name brands are more expensive, and what happened to Black Friday sales. Listen to Million Bazillion wherever you get your podcasts.