Marketplace - Don’t be like Boeing

Episode Date: October 4, 2024

It’s a cautionary tale: Boeing was known for its reliably constructed aircraft. But when outsourcing for the sake of the bottom line went too far, product quality — and Boeing’s reputation — diminished. In this episode, the delicate balance of profit and perfection. Plus, the specialty contracting sector adds tons of jobs and an outdoor sleepaway camp in Wyoming combats brain drain.

Hi, I'm Kyle Rizdal, the host of How We Survive. It's a podcast from Marketplace. In 1986, before I was a journalist, I was flying for the Navy. Mr. Gorbachev, tear down this wall. It was the Cold War and my first deployments were intercepting Russian bombers. Today though, there's another threat out there, climate change. This could be the warmest year on record. Climate change is here.

Temperatures here are warming faster than anywhere on earth. And while the threat seems new, the Pentagon's been funding studies on climate change since the 1950s. I think we will put our troops and our forces at higher risk if we don't recognize the impact of climate change. This season, we go to the front lines of the climate crisis to see how the military is preparing for the threat. Listen to how we survive wherever you get your podcasts.

My favorite number is 254,000. What's yours? From American public media, this is Marketplace. In Los Angeles, I'm Conn Rizdall. It is Friday today, jobs day in case you hadn't heard. The 4th of October. Good as always to have you along everybody. Two hundred and fifty four thousand new jobs in this economy last month.

Blowing away, it is no exaggeration to say pretty much everybody's expectations, which leads me to this. What is even happening? Neela Richardson is at ADP. Jordan Holman is at the New York Times. Hey, you two. Hi, Kai. Hi, Kai.

All right, Neela, you get to go first and I ask you the same question. What is even happening with this jobs market? People are finding jobs. I know. I mean, $254,000 is, like you said, way more than economists or market watchers were looking for. and I think this is really important because we went through a summer where hiring was pretty lackluster and there seemed to be a sense of Uncertainty about the overall economy about the election about what the Fed is going to do Well something happened in September and I think that Fed rate cut may have triggered at least one in September and I think that Fed rate cut may have triggered at least one check mark box off the list of uncertainty items and it showed that companies were ready and willing to hire all along

and so I think this report was a summer in the making and companies really ready to go forward with their talent management plans. That is so interesting. Jordan Holman, you cover retail for the times. What do retail CEOs see when they read this figure today? Are they like, yep, that's what I expected? Yes. And then when you think about they are about to move into their busiest season, the holiday season. So they're ramping up for these seasonal hires that you do every year. So we've already seen announcements from Target and

Kohl's and Burlington saying that they're ready to hire and it's in line with past years. So yeah, it reflects the reality that's happening in the retail industry, which makes sense because retail sales have been holding up. So they're expecting a big holiday. Sorry, let me just jump in one more data point on this one, Jordan. 250,000 seasonal workers for Amazon. That's a quarter of a million people. Absolutely. Yes. And, you know, when you think about where you're getting gifts,

Amazon's a big place for that. Walmart is also hiring a lot of people. So some of the biggest companies in the retail industry are saying, we feel good about this. We're ready to take on these people. And the other thing about seasonal hiring is sometimes a lot of those jobs are transferred to full-time jobs come the new year. Oh, yeah.

Good point. Good point, actually. All right. So, Neela, let me ask you this though. Jay Powell, pretty much every time he's opened his mouth for the past two years has said, we need more data. We want more data. And here now, he is getting data that seems to me anyway to be

muddying the picture a little bit, right? We've all been saying the labor market is softening and here we go with a quarter million new jobs. Not just a quarter million. Remember the previous two months were also revised upward. So we've found new jobs in this economy. And you know And the number to watch for the Federal Reserve is not necessarily this blockbuster jobs report. It's what's happening to wages. We also saw wages go up a little bit, growing by 4% versus last year.

That's what's going to give the Federal Reserve the most pause when it looks at whether or not this kind of report is going to trigger a new round of inflation. So far, if they think that the balance of risk between inflation going up and the jobs market going down is about even, I think this report broke the tie. The jobs market is pretty healthy. Sorry, just to make sure people really understand, explain that whole wages and inflation thing

and why the Fed is watching wages so closely. So the issue with a very strong jobs report, which we all cheer, is if wages go up much faster than the labor market can accommodate. And what economists are concerned about is that wages, especially in the service sector, as Jordan mentions, there's been a lot of demand by firms for retail workers. We saw in this report two-thirds of the job gains came from leisure and hospitality and healthcare, service sector employment, that if wages go up too fast, it could trigger another round of inflation.

And that's the last thing the Fed wants to see going into October. Yeah. Jordan, quickly on the strike that is no more, I imagine a huge sense of relief from retailers all across this economy. So it was the funny dynamic because retailers are saying, you know, the past few years with the past supply chain issues, they've solved the problem and they're okay with the port strike. But, you know but it was only three days, we don't know what it would have looked like longer term, but definitely the trade industries, the lobby groups that rep the retailers are saying,

thank goodness, because once again, most important season, but I think it's just another reminder that how important the supply chain is and how that could really slow things down and Muddy muddy the picture for how good of a holiday they're expecting it to be Yeah, totally the fragility of the supply chains Neela one more thing and I I Have to let the words Federal Reserve pass my lips, even though I really didn't want to one more data point

For the Fed before their next meeting. It's the it'll be the October jobs report Wow, how I was gonna say how closely are they gonna be watching? But that's not a great question. The question is what are they looking for out of that next report? First of all, they want to see if this number gets revised from the 254,000 that we see today and we've known that these numbers are often subject to revision on first or second look. The second thing they want to see is if it's sustainable. Are we going to see another solid hiring month in October like September? And then the third thing and I think this is the most

important is wage growth. I don't think they have to be as concerned with the unemployment rate that ticked down and we've seen that layoffs as important is wage growth. I don't think they have to be as concerned with the unemployment rate that ticked down. And we've seen that layoffs as a proxy by initial jobless claims are very, very low still. What they should be concerned about is whether or not the progress that they made in inflation gets disrupted by a spike in wage growth because the labor market is stronger than they expected. Neila Richardson at ADP and Jordan Holman at the New York Times on a Jobs Day Friday. Thanks, you two. Thanks, Kai. Thank you.

Have a great weekend. Wall Street today, some all-time highs. Honestly, though, I kind of figured it might be all-time even higher. We'll have the details when we of the day. Workers who are responsible for specific tasks on a larger construction job, think plumbing and electrical work, pouring concrete perhaps. 23,000 new jobs in that subsector last month, non-residential construction mostly. 150,000 new jobs over the past year. Marketplace's Stephanie Hughes set about finding out why more specialty contractors are getting hired and what that might tell us about this economy of ours. The electrical contractor Kelso Burnett was founded in Chicago in 1908.

Not long after electricity became a thing regular people wanted. Back when they were converting the old gas piping to electricity. William Martin is a branch manager for the company which does electrical work in pretty much anything besides a house. He says of the 100 plus years it's been in business, the last two have been among their busiest ever. They brought on additional staff to keep up with all the work, which includes wiring brand new data centers.

As you can imagine, there's a lot of power needed for those projects. They eat up a lot of resources, a lot of electricians. COLLEEN O'BRIEN Another kind of building that's hungry for electricians? Old office spaces. Martin says in the post-COVID return to work shuffle, lots of employers have been moving to new digs that aren't necessarily in new buildings. And they need to make sure the lights go on, and the printer, and the broadband router. MARKUS They want to build their space out the way that they want their employees to work, right? And then they hire people like ourselves to go in there and remodel it and rewire it to

their needs. Those needs could also mean work for other specialty contractors like plumbers and painters. Along with retrofitting older spaces, there's also federal money coming from the CHIPS and Inflation Reduction Acts to build new kinds of work sites like factories, says economist Guy Berger with the Burning Glass Institute. There are different kinds of facilities, particularly manufacturing, than the ones we've had for a long time. And yeah, that requires labor and sometimes fairly specialized labor. The growth of these kinds of jobs signals real optimism about certain kinds of industries,

says economist Christine McDaniel with George Mason. You don't build a data center because you think the economy might do well, but you're not sure. You're building a data center because there is long term demand. And once facilities like data centers are built, there's housing and retailers and hotels that need to be built nearby, says William Martin. And that means more work for electrical contractors like him. I am Stephanie Hughes from Marketplace. Importers, exporters, business and economic journalists, and regular people alike were

all watching that East Coast port strike pretty closely. Perhaps none as closely as Gretchen Blau, though, the customs broker we talk to every now and then. So when the news broke last night that the strike was off or suspended, I guess, until January the 15th, pending further negotiations, we of course wanted to know what Gretchen was thinking. I was reading my email on my phone last night when the news alert popped up. I had an immediate sense of relief. Not going to lie, I did a little bit of a happy dance.

I was at home so I didn't embarrass myself. I think after the pandemic, if you haven't learned to roll with things in our business, then maybe logistics isn't for you. It was still a crazy week because the West Coast is busy and lots of things are arriving for the holidays. The ops team will be arranging pickups and deliveries and scheduling trucks. The export team can now finally take freight to the ports and get it on ships. There's a backlog that could take up to two weeks to clear. My

team will be working to clear customs for any shipments where we've held off filing the entry because we weren't too sure when it would actually arrive. What stands out to me is the increasing panic of importers who were concerned about when their freight would be available. Our customers have a sense of relief but now they are anxious to get their freight. Our ops teams do a great job of giving updates both with our online tracking and with personal communications. So our customers already have an idea of where things stand with their shipments. We mainly need trucks to deliver.

The availability was already tight and I'm sure the hurricane damage in the southeast isn't making things easier as far as road conditions go. If there is going to be a strike, January does give us a little grace as far as availability of options. It's one of our slower months for shipping. The holidays are over, construction season hasn't started, but we do have to work around Chinese New Year. There is, however, an election in between now and then, so we'll have to see how things shake out and affect this issue along with a few others that affect the supply chain.

I want to make sure you caught that nugget in there. Backlog could take two weeks to clear. That's not nothing. Gretchen Blau, though, Customs Brokerage Manager at Logistics Plus in Eerie, PA, hooking us up. The mountains and the fly fishing and the horseback riding. That's what gets the kids here. Would totally work on adults too, I'm just saying. First though, let's do the numbers.

Dow Industrial is up 341 today, 8 tenths percent closed at 42,352. The NASDAQ gained 219 points, 1.2%, 18,137 there. The S&P 500 added 51 points, 9 tenths percent, 57.51. For the week gone by, the Dow basically flat. The NASDAQ picked up a a tenth percent, S&P 500 increased two-tenths of one percent. The European Union has voted to impose new tariffs on Chinese-made electric vehicles.

They could go as high as 45 percent. Those tariffs could, slated the last five years. That is of course lower than the 100 percent tariffs on Chinese EVs imposed by the US and Canada. Could still though have major trade implications between the block and the Chinese. Budget carrier Spirit Airlines is exploring a potential Chapter 11 bankruptcy filing. So says the Wall Street Journal. It comes after a failed merger attempt with JetBlue. The greenback is having a good week.

Was bolstered even more by that strong jobs report we were talking about up at the top of the program. The US dollar index jumped nearly a half percent today, hitting a seven week high. Should you be going to Europe, it'll cost you a dollar ten for the euro. You're going across the channel, dollar 31 for the British pound. You're listening to Marketplace. From all of us at Marketplace, we want to say thank you to those who contributed during our fall fundraiser. We made good progress toward our goal to hear from 2,500 Marketplace investors, but we didn't quite cross the finish line. If you've thought about investing in Marketplace, make today the day you do it.

Help us get back on track. Go to marketplace.org slash donate and thank you. This is Marketplace, I'm Kai Rizdal. Here is something I bet you did not know. By official White House proclamation, under the signature of the President of these United States, today is National Manufacturing Day. One of course appreciates that sector of this economy, but the timing's not great.

Deep in the data of this morning's jobs report, we learned that manufacturing employment over the past year has been, as it has been for a while now, flat. As Marketplace's Sabri Benishaw reports, the business of making things here has been, as it has been for a while now, flat. As Marketplace's Sabri Benishaw reports, the business of making things here has been traveling a long and difficult road. Almost two decades ago, Miles Arnone worked at an investment firm trying to rehabilitate troubled companies. One of them made rug cleaning equipment, and it had been pretty successful, but a private equity firm bought it and came up with a way to increase profits even more. By closing their U.S. plant and moving production to China.

And it worked. Their profits spiked. The private equity firm sold, the revamped business made money, moved on. But something had gotten lost at the rug cleaning equipment company. When engineers and designers are close to the people making their product, they can talk. The engineers can go to the tool shop, they can go to the people making their product, they can talk. The engineers can go to the tool shop, they can go to the assembly plant, they can go and talk to people and see for themselves.

Jim Morgan is a senior advisor at the Lean Enterprise Institute and started off as a machinist himself on a factory floor working on experimental vehicles. Manufacturing might say, hey, I see what you're doing there, but I think that could be a quality issue on the shop floor.

Eventually, the rug cleaning machine company felt it made sense for engineering to move over to where the manufacturing was happening in China. And there was an economic downturn, so they really wanted to cut costs. Again, miles are known. Now we're starting to lose the ability to even direct what the product would be. After a while, the producer in China started dictating designs and selling to other companies in the U.S. That was it. The company's ability to differentiate its product declined dramatically, their ability

to command the market through the release of new and innovative products declined dramatically, and the company's performance suffered. Arnone is now CEO of Rebuild, a custom high-tech manufacturer. He says echoes of this story, where short-term financial gain came with long-term costs, where manufacturing was devalued and shipped out, can be heard at some U.S. manufacturers today, including companies like GE and Boeing, argues Jerry Usim. He's covered Boeing for more than two decades

and is a contributing writer at The Atlantic. A lot of it was financially driven in the sense that you could make your balance sheet look better by having other parties assemble big chunks of your product. Outsourcing can make good economic sense. You might want to produce close to your market. Some places are just better at making certain things. But at Boeing, competitiveness suffered, says you seem. In Boeing's case especially, it ended up being more expensive than if it had kind of just stuck with its original culture of manufacturing first, you know, put the factory floor at the center of the corporation rather than trying to kind of shove it to the periphery. This did not just happen at Boeing. Outsourcing, particularly outsourcing abroad, reached a scale in the U.S. over decades that

many now argue had consequences. American manufacturing jobs are half of what they once were. Ben Armstrong is executive director of the MIT Industrial Performance Center. We made this bed in the 1980s and now we're lying in it. Armstrong says the idea that you can just invent things here and make them over there overlooked the connection between the factory floor and the engineering and the inventing. It's harder and harder to invent when you don't have the capability to make. Reversing all of this is also hard, says Miles Arnone. Like if I'm making vacuums in the United States and I stop doing that and send it to China

and everyone does that, then the company that makes the bearings that go into the vacuums in Ohio goes out of business too. So does the machinist and the finisher and the toolmaker. So all these pieces wilt and wither away. The federal government is now trying to resuscitate American manufacturing supply chains, especially in critical areas, with hundreds of billions of dollars

from the CHIPS Act, the Inflation Reduction Act. Arnon says the US will need more. In New York, I'm Sabri Banishor for Marketplace. Parts of the Rocky Mountain region, including Wyoming, are dealing with a chronic problem. Net outmigration, meaning more people, especially professionals, are leaving than are moving in. Brain drain is another phrase you might have heard for that. And it's been happening there for decades. So the state is trying to keep them interested in staying while they're young.

Wyoming Public Media's Caitlin Tan has that story. It's mid-summer at the base of the Gros Ventre Mountains in western Wyoming and 17 boys are living their best lives. It's not that bad. 13-year-old Colton Christensen of Canear, Wyoming, has mud on his cheeks. He takes a break from restoring a beaver pond to explain a typical camp morning. So we wake up. Some of us get hot chocolate. Is it early? Yeah. Like, yeah, like the sluice box. Sluice boxes were used back in the day to separate gold from water. But here they funnel ice cold stream water off a hillside.

12-year-old Zach Cortez of Riverton, Wyoming explains it's a shower. I do it in the morning to get waked up. It's way better than coffee. And you guys are drinking coffee? Yeah. Yeah. Yeah. Because somebody decided to drink all the hot cocoa. Yeah, it's worth the coffee now. The week-long camp is spent fully outside and tuition is free. There was also a camp for girls earlier in the summer. It's out of a Wyoming initiative called Inspire a Kid and a partnership with a local cattle ranch and a wildlife nonprofit that Chris McBarnes heads up.

He's helped grow the camp since its first summer in 2022. The hook are the mountains and the fly fishing and the horseback riding. That's what gets the kids here. And once they're hooked, McBarnes hopes that excitement reels some of these kids back one day. Because in Wyoming, most people born in the state leave by their 30s, which is a problem for a state that has a relatively high rate of job openings. If we don't do this, we won't have the future conservationists and leaders that will continue

to make Wyoming all it is today. More than half of Wyoming is public land, meaning lots of wide open spaces, mountains, forests, and wildlife to take care of. And McBarn says these kids are up to the task, like one New Jersey camper from last summer. This young man has completely changed his career goals. He wants to be a conservation officer. That is his dream. That is his passion now. And jobs like that require competence in the outdoors and working with your hands. So today's task for the campers is unloading hay from a truck and moving it to a nearby hay

stack. It'll feed the camp's horses. There's enough hay on this truck that we need to unload and stack. Everybody is responsible for one bale. Instructor Chris Story points to the green rectangular hay bales on the truck that tower over the kiddos. Story heaves a few bales to the ground for the kids to start on. It's going to bounce guys so you gotta stay back. One bale probably weighs more than each boy. So they partner up, each taking an end of a bale, doing an awkward shuffle and breathing heavily. No, we need to put it back there. And sure, not all these kids need to know how to move hay bales,

but it's more than that. It's problem solving, teamwork, a sense of accomplishment, and of course, a love of Wyoming's outdoors. Yeah, I think I've kind of fallen in love with the mountains here. 15-year-old William Johnston came all the way from Newark, New Jersey. That's a pretty big city, and this is the first time he's really been in the mountains. So that's the biggest thing, is that I want to try to come back here. Whether that's just to fly fish or to maybe fill one of those open jobs, Wyoming is on Johnston's radar now and after a week-long camp in the mountains he knows more about what it takes to live and recreate here. One of his biggest realizations, the nights are cold.

So his recommendation for future campers, bring layers. In Wyoming's Gros Ventre Mountains, I'm Caitlin Tan for Marketplace. This final note on the way out today, haven't done this in a while, and that's on me. 4.1% is the overall unemployment rate in this economy. We talked about that earlier. Yola and Jordan and I did. White unemployment, 3.6%. For black Americans, it's 5.7%.

That is a smaller gap than it has historically been, but still. Our theme music was composed by BJ Liederman. Marketplace's executive producer is Nancy Fargolli. Donna Tam is the executive editor. Neil Scarborough is the vice president and general manager. I'm Kai Rizdahl. Have yourselves a great weekend, everybody. We will see you back here on Monday, all right? This is APM.

Some of the toughest moments we'll experience in life often come with the hardest financial decisions. Like, how much to spend when your pet is dying. Or what to do if you uncover a loved one's financial secrets after they've passed. It's like having this albatross, this monkey on your back that you don't want amongst everything else. I'm Rima Grace, host of This Is Uncomfortable, a podcast from Marketplace. This season, we've got a wide range of stories about life and how money messes with it, including the unexpected ways money can shape our journeys through loss and grief. Listen to This Is Uncomfortable wherever you get your podcasts.