Marketplace - The negative wealth effect

Episode Date: April 1, 2025

People feel richer — and spend accordingly — when their assets rise in value. That’s called the wealth effect. But when folks get their retirement account statements for Q1 of 2025, they may feel the opposite, since most of those accounts lost value. Will Americans pull back on their spending as a result? Plus, subcompact cars steer into the sunset, farmers are pessimistic about tariffs, and very small businesses can be a bellwether of economic trends.

Today we'll talk jobs, dwindling 401ks, and the disappearance of the subcompact car. And of course, we'll cover tariffs too. From American Public Media, this is Marketplace. In New York, I'm Kristin Schwab in for Kyra's Doll. It's Tuesday, April 1st. Good to have you with us. The headline number of the day has nothing to do with the T word, though we will get to tariffs in a bit. Today, we kick things off with the Joltz Report, or the Job Openings and Labor Turnover Survey, out this morning from the Bureau of Labor Statistics. Changed little is the phrase of the day. February saw 7.6 million job openings and 5.4 million

hires, both about the same as in January. And the number of quits and layoffs didn't change much either. Remember, February's numbers do not reflect the bulk of federal layoffs. We might get a better picture of that come the March jobs report out on Friday. Overall though, this jolt's data shows what looks like a steady, decent labor market. With one asterisk, layoffs were up at the smallest of small businesses. That's companies with fewer than 10 workers. Marketplace's Daniel Ackerman looked into small business staffing decisions. Soterios Erick Saunders runs Carolina Landscaping and Cleanup near Myrtle Beach, South Carolina. He's got just a couple full-time employees, and with major question marks over how much

his customers are willing to spend these days, he sure isn't hiring. Yeah, hold them steady. Unless the market changes to where people aren't so worried about every little cent they have, it's kind of hard to do anything right now with laborers. Holding steady in the face of uncertainty was kind of the theme of today's Joltz report, says Ron Hetrick, senior labor economist with Lightcast. Workers don't want to go anywhere. Employers don't want to hire. Everybody just freezes. Really small businesses, though, were laying off workers at a higher rate than anyone else.

Pavlina Cherneva, an economist at Bard College, says that's an indicator to watch, because even though firms with fewer than 10 workers represent just about one-eighth of total employment, To me, their behavior is bellwether for overall trends in the economy. Cherneva says that's because small firms have no choice but to respond quickly to a changing economy. A small business owner really is working day to day, month to month. They don't have savings, liquidity, access to credit

nearly to the same extent as a big company would. So when small businesses feel the need to cut costs, reducing workforce is a tempting lever to pull, says Lindsay Owens, executive director of progressive think tank Groundwork Collaborative. Our measures of small business uncertainty have skyrocketed. And so for me, it is no surprise at all that we're starting to see the layoffs in small businesses.

But sentiment has soured among businesses of all sizes, says Guy Berger of economic research nonprofit, the Burning Glass Institute. It's just that a large enterprise is like, you know, we always joke, it's a supertanker, right? It takes time to turn around. So changes to headcount might take an extra month or two to play out.

I'm Daniel Ackerman for Marketplace. WallS Today, a little up, a little down, as it waits to hear more on tariff policy. We'll have the details when we do the numbers. Tomorrow, on April 2nd, or what President Trump has been calling Liberation Day, the U.S. intends to impose a 25% tariff on imported vehicles, light trucks, and auto parts, which were announced last week. There may be other tariffs on the table, but Trump has not yet announced his full plan. The thing about ever shifting and unannounced plans is they're hard to plan for. So we called up one of our regulars. Gretchen Blau is a customs broker manager at Logistics Plus in Erie, Pennsylvania. Hi Gretchen, how are you? Gretchen Klobuchar Good.

Gretchen Klobuchar Is that a loaded question right now? Gretchen Klobuchar Yeah, this week it kind of is. Gretchen Klobuchar Can you catch me up on what's happened since we last heard from you? What is work like right now? Gretchen Klobuchar Well, it's a little crazy. We have the steel and aluminum tariffs that are in effect and then we have a bunch of other tariffs that are going into effect tomorrow. The steel and aluminum, that has the 25% tariff on it with no exclusions, no exceptions, but there's also some finished goods that have this tariff on it as well, where if a large component of steel or aluminum in the finished good, we basically need

to break everything out into a bill of material and then that 25% only applies to the steel or the aluminum and then the rest doesn't have the 25%. So that's presenting a problem for a lot of our importers because none of us were expecting that. If they don't have that information, then everything has the 25% apply to the entire good, which no one really wants that to happen either. But you have to weigh what costs more, the storage or the tariff at this point. Right. Well, that's a lot of ins and outs. How do you even keep track of all the nitty-gritty when the rules are constantly changing? I assume you've got to dot all your I's and cross your T's.

It's not always easy. Mostly we're relying on the Federal Register when it's updated, but that's not always updated right away. We used to have fact sheets available on the government websites and those seem to have gone away. So we're relying a lot on, you know, just news publications and whatnot to get a lot of the information as to how things are going to apply because we don't have things readily available. So we're trying to keep our customers up to date and our operations folks up to date. And it's not always easy to do that when we're not quite sure what's going to happen. For example, tomorrow there's scheduled to be 25% on Canada, Mexico, and also retaliatory tariffs, which we aren't quite certain what

those are going to include for other countries. You know, I talked to a small-scale banana importer yesterday who was talking about how she just doesn't have a lot of alternatives. She's got to import from Mexico. What are you hearing from your clients about buying in America or buying American? Well, you know, you see that a lot on comments on Facebook posts and whatnot, but that's not always realistic. There's a lot of stuff that you can buy that's made in America that has foreign components. And you know, it hurts manufacturers here because now they have to pay more for their components.

By America, it's not always the alternative. And the other thing is if the manufacturing does come back to the United States for these component parts, it's going to take some time to build the plants and get things operational in order to source them here in the US. You know, as somebody who has an intimate look on the ground of how tariffs are impacting businesses, also your own work, how much planning can you do for the next few months or the year ahead? Or is it just more of a day-by-day, in-the-moment kind of work workplace right now?

Well, it tends to be just an in-the-moment type thing. It's really hard to plan when, as we saw the tariffs with Canada and Mexico, they're on again, they're off again, they're on again, they're off again. You don't know what's going to happen from day to day sometimes. And plus the retaliatory tariffs, we don't even know what those are going to be. Do you have a long day ahead of you? What are your work days like right now? My work days are answering a lot of questions. A lot of upset importers right now explaining everything to everyone, having people that aren't too happy because they had something on the water in order to import it. It cost 25% more than they were expecting. And people try and explain to me that they've had this purchased for

six months. Why do they have to pay this now? And I really don't have a good answer for them because I'm just the messenger, unfortunately. Gretchen Blau is a customs broker manager at Logistics Plus in Erie, Pennsylvania. Gretchen, thanks so much for coming back on the show. Thank you. As we just talked about, cars are likely to get more expensive because of tariffs. And this is against the backdrop of the trend of cars getting more expensive. Because recently, the auto industry has been phasing out some of its lowest priced vehicles. Mitsubishi ended production of the Mirage in December, so it'll likely be gone from dealer lots by this summer, and Nissan reportedly plans to discontinue the Versa

after this year. These are the last two new car models with starting prices under $20,000, according to Car & Driver. Marketplace's Henry Epp reports on the disappearing subcompact. There's nothing fancy about the 2024 Mitsubishi Mirage. It's a small car available as a hatchback or a sedan. Tim Bedard shows me the sedan version in black at the Mitsubishi dealership he owns near Burlington, Vermont. It has the power locks, the windows, cruise control, tilt steering wheel, air conditioning. It has enough amenities to make it comfortable. But there's no getting around the fact that there's just not a lot of room inside.

Though its small size, Bedard says, contributes to its real selling points. The beauty of the car is price tag, warranty, fuel efficiency. $18,000, 10-year warranty, 39 miles per gallon, better than any car that isn't a hybrid. And that sticker price? $30,000 less than the average new car right now, according to Kelley Blue Book. Bedard says it makes sense that about a third of the new vehicles he sells are Mirages, though they're not likely to turn many heads. No one's like, oh wow, you have a Mirage?

Wow, cool. Clayton Seams of Toronto bought a 2021 Mirage a couple years ago. He's an editor with the Canadian automotive publication Driving.ca, and he had some strict criteria when he was shopping for his own car. I had $15,000 cash. I want a car I could buy without a car loan or a lease. Andy wanted something that was easy to drive and park in the city. The Mirage fit the bill and despite its limitations... It's very noisy at highway speed and the stereo is honestly not very good. He actually really likes it. It just felt like driving a car from the 90s.

I was back and it was simple. It had a manual transmission. It was charming in a way of how basic it was. But basic is not what most car buyers are looking for these days, says Jessica Caldwell, head of insights at Edmunds. We like SUVs, trucks, vehicles with just more cargo capacity. So even if it is a bit on the smaller side, it still is more of an SUV format rather than a sedan format with a trunk.

For years now, she says sales of larger vehicles have been climbing. Affordable, smaller cars, on the other hand. We're just seeing the demand for these vehicles go away, despite the fact that a lot of Americans are dealing with financial difficulties right now. Caldwell says automakers have responded to that declining demand by dropping smaller vehicles from their lineups. The Ford Fiesta, Toyota Yaris, Honda Fit, all gone.

But the change isn't just about consumer preferences. Bigger vehicles are more profitable. Because making a subcompact isn't that much cheaper than making an SUV, says Patrick Olson, editor in chief at Carfax. Some newer SUVs are even built on the same platforms as the old subcompacts. Honda's HRV, for example, is the sibling

of that discontinued Honda Fit. So for not a lot more cost in material in terms of aluminum or steel to build the car, they could put a higher price tag on it because there was more demand for that vehicle. Federal fuel economy regulations play a role too. The Trump administration is currently reviewing them, but right now they require smaller vehicles to get better mileage than bigger ones. Olson says that gives carmakers an incentive to go large. Bigger SUVs, bigger pickup trucks, because it's easier to meet those standards than it is for the smallest of vehicles.

The industry's increasing focus on larger vehicles has thrown the new car market out of whack, according to Burlington Mitsubishi owner Tim Bedard. With the influx of SUVs and crossovers that have taken over the market, we kind of lost sight that life was and has gotten very expensive for most people and can't afford an average crossover SUV of $30,000. What's the consumer do now? At least until the summer, Badaard expects to have Mirages available on his lot. After that, a used vehicle might be the price-conscious consumer's best option, but they're 32% more expensive than they were just before the pandemic. I'm Henry App for Marketplace. Coming up. Biggest cost fluctuations we're looking at right now, as you can imagine, eggs. Eggs are everywhere, not just bakeries and breakfast joints, but cocktail bars too.

But first, let's do the numbers. The Dow Jones Industrial Average lost 11 points, essentially flat, to close at 41,989. The Nasdaq gained 150 points, 9 tenths percent, to finish at 17,449. And the S&P 500 found 21 points, 4 tenths percent, to end at 5633. The Department of Justice is reportedly close to approving Capital One's buying of Discover for $35 billion. Capital One Financial Corporation lost 0.6%. Discover Financial Corporation fell 0.1%. Meanwhile, the mortgage company Rocket this week announced its acquisition of rival Mr. Cooper Group in a $9.4 billion deal. Rocket shares grew 4.4%, Mr. Cooper Group added 4.6%. Bonds rose, the yield on the 10-year T-note fell to 4.16%. You're listening to Marketplace.

This is Marketplace. I'm Kristin Schwab. The first business quarter of the year has officially closed. With that comes envelopes and emails of quarterly statements for 401ks, IRAs, and mutual funds. And unfortunately, those summaries will be full of minus signs showing how much investors lost over the last three months. On this show, we often, especially over the last handful of years, we often talk about the wealth effect. Basically, how when assets like stocks and homes go up in value over time, people feel richer even if it's just on paper and are likely to spend more because of it. So what happens when investments shrink? Marketplace's Mitchell Hartman reports. Things were going really well for the stock market until they weren't anymore, says Rob Hayworth at U.S. Bank Asset Management.

In the middle of February, we had the S&P 500 touching new all-time highs and we finished the quarter in negative territory for the year so far. S&P 500 down 4.5%, NASDAQ down 10%. Economist Kathy Busjancic at Nationwide says there'll be a psychological impact. When you see this sharp decline in equity prices, that's the negative wealth effect. Consumers start to pull back. But here's the thing, for a lot of Americans, the majority of their wealth is in their homes.

The latest data continue to show appreciation in home prices. So that in terms of like a wealth effect is still intact. And as for stocks, Sam Stovall at CFRA Research says history shows that a sharp decline followed by a quick rebound, like we've seen recently, doesn't usually lead to a prolonged downturn. But he says most small investors probably don't know that. They're the ones that are most likely to allow their emotions to become their portfolio's worst enemy. One group that's especially nervous right now, people 55 and up, seeing their retirement accounts decline in the midst of rising economic uncertainty, says Olivia Mitchell at the Wharton

School. A lot of financial advisors advocate, just ride the bumps, you'll be all right in the long run. Mitchell is over 70 and not really listening. I myself got basically completely out of U.S. equities about two weeks ago. As for whether recent losses on stocks will translate into less spending on stuff, Rob Hayworth at US Bank says declines of this magnitude don't always squelch retail sales. The biggest driver we see for consumer spending is really do people have jobs and are their incomes growing? More, he says, than the negative wealth effect from a falling stock market. I'm Mitchell Hartman for Marketplace.

We got a window this morning into how farmers and ranchers are feeling about the economy. Purdue University's farmer sentiment index slipped in March. Farmers have weaker expectations for the future, with more than 40% of them citing trade policy as the top driver of pessimism. And five-year expectations for ag export markets hit an all-time survey low. Marketplace's Savannah Peters has more on agriculture's cloudy outlook. We usually think about uncertainty coming from weather, coming from pests. And we usually think of federal policy as insulating the farm economy from those chaotic forces. But right now, it's piling on. Owen says farmers who were already stressed about breaking even in a tough commodity price environment now have bigger things to worry about.

Where do we spend grain? And where do we send agricultural products globally? If countries targeted by Trump administration tariffs respond with tariffs of their own, demand could fall for American corn and soybeans and other ag exports. Michael Langemeyer, who runs the Purdue survey, says it's sort of surprising farmer sentiment wasn't lower in March. A lot of the respondents are thinking that, yes, it looks like we're going to have tariffs, they're going to have a negative impact on farm income, but they're expecting some compensation.

Compensation like the billions in federal relief paid to farmers during the last Trump administration trade war. Two-thirds of respondents to the Purdue survey are expecting something similar. Josh Gackel is with the American Soybean Association. Farmers would much, much rather have an open and fair and free market that we can sell our products to. Gackel farms soybeans, corn, and barley in Coulomb, North Dakota, where he says the mood is pretty jittery.

If you go to the local cafe and you sit down at a table with a group of neighbors, the first thing that comes up in the conversation is what is the price of soybeans today? What's the price of corn? What's the price of wheat? In his small town, Gackle says everyone's livelihood is tied up in shifting trade policy. I'm Savannah Peters for Marketplace. Yesterday, Sabri Benishore did a story on how things have been a bit tough lately for bars and restaurants. Spending has been down and so has hiring.

Here's another service industry story, this time from the co-owner of a vinyl listening bar. It's the latest installment of our series, My Economy. My name is Brian Teterakis and I am one of the owners of Bad Medicine in Cleveland, Ohio. We call ourselves a listening bar or a hi-fi bar, so we don't do any streaming whatsoever, no Spotify, no Tidal. Everything's played through vinyl records on a vintage hi-fi system. A lot of my friends and family, when they come in the first time, they're usually not empty handed.

So I just got some cool records from a friend I haven't seen in a while. Over the weekend, he stopped by for the first time and brought Alice Coltrane. I work at Bad Medicine, I would say, part-time. I think about it all day, every day. I'm shooting emails and working on things on the side, but I do have a full-time day job that pays my salary until the bar can do that. We have four front-of-the-house employees currently, not including myself, and we have two back of the house employees.

One of them is a chef partner and the other one is a part-time line cook. Compensating staff is always something that we talk about and, you know, make sure that it's appropriate. We're one of the states where you have a tip tax credit where you can pay below minimum wage. We pay well and above that three to five times more as a matter of fact. The biggest cost fluctuations we're looking at right now as you can imagine eggs. So egg white cocktails are very much a thing people request them all the time but you know an egg white costs about a dollar now, so it gets

a little bit difficult. We use the vegan version called aquafaba. It's chickpea water. It doesn't have the same taste to it. The texture is pretty similar, but as far as not having to raise prices or charge anyone a surcharge or anything like that, it's been pretty dependable. The bar has been negative the first couple months, but it was predominantly because we were doing so much spending as we're, you know,

learning the space. And the past two months we have not been in the negative at the end of the month, so we're hoping for greener pastures now. It's stressful owning a bar, but it's also very gratifying. My day job, I don't get to be very creative. So I love to go in there, bounce cocktail ideas. That's my creative outlet. That's my place that I get to go and express my work. It's my acrylics. That's, you know, that's a Van Gogh paints. I mix whiskey and sugar together. Brian Tedarakis, co-owner of Bad Medicine in Cleveland, Ohio. This series only works with your help. Tell us about your economy at marketplace.org slash my economy.

This final note on the way out, another note about cars, saw this in the Detroit Free Press. Monthly auto sales came out today. At Ford Motor Company sales were down a bit more than a percent compared to the same quarter last year. That's not really the interesting part here because that number includes sales to car rental companies and the like. The interesting part is retail sales were up 5% last quarter. Analysts attribute the spike to consumers trying to get ahead of tomorrow's tariffs. The Ford Maverick saw an all-time monthly sales record in March. The Maverick is built and assembled in Mexico.

Our digital and on-demand team includes Carrie Barber, Jordan Mangy, Dylan Yetinen, Janet Nguyen, Olga Oxman, Ellen Rolfus, Edward Silver, Virginia K. Smith, and Tony Wagner. Francesca Levy is the Executive Director of Digital and On Demand. And I'm Kristin Schwab. We'll be back here tomorrow. 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 Espinal, 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 Inclined wherever you get your podcasts. can afford and how to talk about money with friends and family. Listen to Financially Inclined wherever you get your podcasts.