Marketplace - This isn’t the 2018 trade war

Episode Date: March 7, 2025

The Federal Reserve may be steering the economy through another trade war. But this time, the inflation of the last few years complicates its task. Also in this episode: Unemployed Americans struggle to snag new positions, banks’ unrealized losses jump, and an aerospace tech startup sets up shop in Cumberland County, Tennessee.

All right, that's it. I give up. You all figure it out. I mean, I'm kind of kidding, but I'm kind of not. From American public media, this is Marketplace. In Los Angeles, I'm Kyle Rizdahl. Thursday, today the 6th of March. Good as always to have you along, everybody.

Tariffs are on, tariffs are off. Tariffs are modified. Tariffs are coming in a month. Stop me when you have heard enough. Traders obviously have given up on trying to figure it out. All three major indices tumbled amid the chaos and confusion, even though the tariff news today is that the president's taxes on most imports from Canada and Mexico, effective as of just two short days ago, are off for a month.

Whiplash is the economic order of the day for everybody for sure, but most particularly for the people whose actual job it is to keep this economy going. When it comes to navigating through a trade war, this is not Jay Powell's first rodeo. Powell was new to the job in March of 2018 when first-term President Trump announced those 25% tariffs on steel and 10% on aluminum and then the China tariffs a couple of months later. But the American economy the Fed was managing back then was very, very different than the one it's managing now.

And as Marketplace's Matt Levin reports, so are the Fed's options for keeping it on track. The obvious difference between the economies of 2018 and 2025? I think there's three words. It's inflation, inflation, inflation. Anne Owen is an economist at Hamilton College. Back in 2018, entire generations of Americans had never really had experience with high inflation. It was one of those mythical things from decades past,

like print newspapers or civil political discourse. So when Trump floated his first term tariffs, consumers and businesses didn't really expect inflation to rise above the 2% or so they were used to. Now though, after four years of paying through the nose for eggs? So if you are paying attention to any discussion about the impact of tariffs, certainly inflation is a word that you're going to be sensitive to, and that's going to influence your expectations about inflation. Soterios Johnson Higher inflation expectations can cause higher inflation,

a self-fulfilling nightmare for the Fed. Richard Clareta was Fed vice chair in 2018. He says consistently low inflation allowed the central bank to basically ignore Trump's tariffs as one-off shocks. Although those 2018 tariffs were smaller in scope. Richard Clareta Right now there's a discussion about tariffs as one-off shocks. Although those 2018 tariffs were smaller in scope. Right now there's a discussion about, you know, Mexico and Canada and potentially on the Eurozone and reciprocal tariffs. And so the menu of possible tariff options is vastly longer. On the other side of the Fed's dual mandate, full employment, the 2018 and 2025 economies

look similarly strong with unemployment around 4%. But over the past few months, payroll and GDP numbers show signs of a slowdown. Stephanie Aliaga at JPMorgan Asset Management says this time around, tariffs are hitting an economy that's losing momentum. The economy the 2025 fed is trying to steer is a far more fragile economy than the one that they encountered in 2019. And given the risks with inflation and growth, it puts the Fed in a really tricky spot. Either keep rates high to fight the inflationary impact of tariffs and risk recession, or lower

rates and risk more inflation. I'm Matt Levin for Marketplace. Wall Street today, seriously gang, traders have had it. We'll have the details a little labor market now. We get the first full monthly unemployment report of the second Trump administration tomorrow morning. Today it was first time claims for unemployment benefits. They dropped last week after a big bump a week earlier.

You might remember that. But the number of people making continuing claims has reached a three-year high, which means it is taking people longer to find new jobs. There was evidence of that competitive job market in the Fed's beige book, too. It was out earlier this week. A lot of businesses outside the chronically short staff sectors like healthcare and construction, they said they're having an easy time finding people. One said they had resumes stacked to the ceiling.

That's a quote. Another said jobs that used to get dozens of applications now get hundreds. Marketplace's Megan McCarty Carino has more on the state of American labor. On paper, the job market looks pretty strong this year. Layoffs and unemployment have been relatively low. But when you ask career coach Amanda Augustine at the outplacement firm Career Minds. For those who are looking for a job, you know, get ready to be in it for the long haul. Augustine serves mostly white collar workers

who've been let go. She says it's taking an average of five and a half months for them to find new jobs. It does seem to be a longer, more drawn out process than before. She says competition is fierce and many employers are asking applicants to jump through more hoops, skill assessments, personality tests, or multiple rounds of interviews. Nobody wants to make a costly mistake and hire the wrong person, so they're taking all this extra time. The job market in some sectors almost feels frozen.

Not just because hiring has slowed, says Allison Srivastav, an economist with Indeed Hiring Lab. People are pretty hesitant to leave their jobs. Quit rates are pretty low right now. It seems as though people don't have the confidence that they did a few years ago to just go out and find a new job. Srivastav says in some fields like accounting, job postings are well above their pre-pandemic baseline, but they're down in banking and software development. baseline, but they're down in banking and software development. Unemployment has hit hardest for workers with some college but without advanced degrees, says Julia Pollack, chief economist at jobsite ZipRecruiter.

There are some fields where workers are still doing fine, but for people with communications, majors, PR, IT, HR, all of those kinds of fields. This is a very, very unforgiving market right now. She says zip recruiter surveys of job seeker confidence show a decline this year. And workers are expressing a fair degree of layoff anxiety. Especially government workers who are job searching at increased rates.

Pollock says federal employees are concentrated in fields like program management and administration. So those areas are being flooded with applications. I'm Megan McCarty-Corino for Marketplace. Megan mentioned government workers and layoff anxiety there at the end. We now have a number on how many of those federal workers have been fired so far. I guess I should say it comes from the outplacement firm Challenger Grain Christmas which said this morning that overall in this economy 172,000 people were laid off in February. 62,242 of those were federal employees. A reminder here that what is being billed as government savings often and usually isn't. You might have picked up on this if you listen through to the end of the numbers every day

when I do the 10-year treasury, that when bond prices go up, bond yields go down. Or in simpler terms, when interest rates go up, the value of existing bonds goes down. Doesn't matter why right now, that's a whole separate thing. But the fact that that's what happens was a big factor in the collapse of Silicon Valley Bank two years ago this coming Monday, which does seem very, very long ago.

Interest rates were going up back then. Powell and the Fed were worried about inflation, and so the value of the bonds that the bank was holding tumbled. I mention all that because a new report from the Federal Deposit Insurance Corporation shows that banks are still holding plenty of exactly that kind of loss.

So Marketplace is just at home Ho looked into how that's affecting banks and what those banks are doing about it. When trillions of dollars of government relief aid went out early in the pandemic, a lot of it ended up being deposited in banks across the country, and they had to figure out what to do with that money. We sat on our deposits for quite a while

and then ultimately decided that, well, the money's sticking around. It's a little bit stickier than we thought it was going to be. Let's put it to work. That's Chris Duncan, chief lending officer at LaSalle State Bank in Illinois. He says there wasn't much demand for loans at the time. So the bank decided to invest some of those deposits in five to 10 year government bonds, which at the time were paying next to nothing in interest. But then the Federal Reserve started raising interest rates, and all of a sudden those low interest bonds the

bank owned were worth less. You can imagine that there is no one out in the market that is looking to purchase that very low interest rate bearing security when they could now go out in the market and buy a security that's earning them much higher interest rate. Duncan says he had hoped that interest rates might come down a bit more than they have, but they haven't, and so? We have not seen our unrealized loss position in our securities portfolio reduce as much

as maybe we would have anticipated a year ago. If a bank needs to sell off any of those securities, say to scrounge up some cash, it'd have to do so at a loss and take a chunk out of its profits. Julie Hill is dean at the University of Wyoming College of Law. Your shareholders are upset. Maybe it costs you more to borrow.

Maybe it's harder for you to provide loans to your customers. But Hill emphasizes that's only an issue if banks need to sell off their bonds. And right now, most of them are holding on to what they own, which might not be such a bad idea. Because at some point, some of those securities are gonna hit maturity and go away and they won't have been sold. So the bank gets back the full amount that it invested.

Banks can afford to do that when they have plenty of excess capital they can use as a cushion. Quinton Lady is chief financial officer of First National Bank Colorado. He says his bank has plenty of extra capital sitting around, in large part because he says his borrowers are paying back their loans just fine. And that really is a driver for an environment where you're building capital over time because you're not needing to put more aside for potential loan losses.

Lady says it also helps that most of the bank's assets are invested in loans rather than bonds because they tend to have shorter terms and often allow banks to increase the interest rate. And so we get to experience the rising rate environment quicker with those. At LaSalle State Bank in Illinois, Chris Duncan, the chief lending officer, says one strategy is to make more loans to take advantage of today's elevated interest rates. Another is selling off some of its old low interest bonds, taking the hit and reinvesting in new bonds with better yields.

We feel in five to 10 years when rates have come down, those securities, those investments will still be earning much higher rates and therefore those securities will have value. Hope is, Duncan says, that in five to ten years we'll be talking less about unrealized losses and more about unrealized gains. I'm Justin Ho for Marketplace. Coming up. We were sequestered out in the boonies. Living with your coworkers. But first, sure why not, let's do the numbers. Yeah, the wah-wahs again. I think that's like three days out of four, right? Dow Industrial

is off 427 points, about 1 percent, 42,579. NASDAQ plunged 483 points, 2.6 percent, 18,069. The S&P 500 down 104, 1.8%, 57 and 38. Remains to be seen what the back and forth and back and forth and back and forth and back and forth on trade will mean for retail prices, but we're guessing it's not going to be great. Walmart down 1.4%. Today Dollar General went up 3.4%. Target off by two and two tenths percent today. Costco, which reported earnings after the bell, was down two percent during the session, another one and a quarter percent after hours. Missed analysts' expectations, which is never good.

Bonds down, yield on the ten-year T-note rose, 4.28 percent, you're listening to Marketplace. If you want to be savvy about the economy, the Marketplace newsletter is just what you need. Every Friday, you'll get explainers and analysis that make sense of everything from the moving markets to grocery prices. No jargon, no hype, just smart takes delivered to your inbox. Sign up today at Marketplace.org slash subscribe.

This is Marketplace, I'm Kai Rizdal. We started a new series this year called The Age of Work about how the biggest wave of retirements that this country has ever seen are gonna change the economy here and abroad. Prime age workers, people between 25 and 54 years old, have been a smaller and smaller share of the American labor force since the 1990s. And as a result, compared to the rest of the world, the United States has fewer and fewer workers supporting the economy. Our first stop in this series was Cumberland County, Tennessee, where one out

of every three people is 65 or older. But among the golf courses, the quilt shops, and the other businesses aimed at that county's many retirees, we did find an outlier. Several of us came out of Uber Elevate knowing what we needed to achieve as goals and developed a whole new method of distributed electric propulsion that is focused on ultra quiet and ultra high efficiency. Mark Moore is the founder and CEO of Whisper Arrow. They're trying to make thrusters for electric airplanes and drones quieter. Mark worked at NASA for 34 years, then ran engineering at Uber's electric aviation division. In July 2020, he started his own company, Whisper Arrow.

As it happens, he was on vacation the days that we were in town. His first vacation, by the way, since starting the company. So we got him on Zoom. I'm sorry we're gonna miss you in person. I'm bummed too because it's, I'm so excited that you're doing a story about Crossville. It's a very cool place and a lot of things are happening.

Crossville is the county seat, population 13,000 or so. So it was an easy first question for this former NASA engineer running a tech startup. Cumberland County, Tennessee, how did that come to be? Well, in the last year that I was at Uber Elevate, I was doing a lot of traveling and COVID was just starting to rear up and happened to be in Tennessee and I saw this resort on a gorgeous lake right by the airport that was in foreclosure. I'm like, man, that would be a really cool place to start the company. And so I bought it, turned those Uber shares into a resort

and all the engineers just moved in and we started with Sparero. Sorry, like a resort resort? A resort resort, yep. So 40,000 square feet on 16 acres with about 2000 feet of lakefront on the most gorgeous clearwater lake and on the other side is the local Crossville airport where we have our flight test operations. So the pitches come live in a resort in Cumberland and do, you know, new technology in aviation?

Yes, and I can tell you, for the first engineers, they were like, you think I'm going to move to rural Tennessee? Forget that. And we say, just come visit. And they'd come to the resort, and they'd go, oh my gosh, this is paradise. And they'd bring their kids and wives and dogs.

And for the first two years of the company, there was a big risk where we could have ended up hating each other by living, working, and playing in such close proximity, but it was amazing, especially during COVID. While a lot of other companies moved to Zoom, this one had its own quarantine bubble, which Mark bought for $1.1 million,

comparable, you should know, to the median single home price in San Francisco. We were sequestered out in the boonies. And I say that lovingly for Crossville. Much, well, we'll get to Crossville in a second, but much as COVID, as it started to wane, you know, the stresses got to all of us. And, you know, I love my family, but I didn't want to be with them forever.

I can't imagine that there weren't some stresses that led you guys then to say look we got to figure out a new way to do this. Actually it was hiring in many more people so you know from that original eight which quickly grew to to twelve now we're at 56 plus 20 contractors and we outgrew the facility to do the advanced manufacturing that we do. Mark says an average engineer at Whisper Aero makes more than four times Cumberland County's median wage,

not including equity and bonuses. So once we got to Crossville, I went to see the company's new headquarters in a brick building downtown since they've outgrown that lakeside resort. This is about as nondescript as they come. I mean, I wasn't even sure we'd found the right door. I don't, oh, it was, okay.

Yeah, you go first. I'm not going first. We walk down a long, kind of dark hallway into a not yet fully built out office space. So, wait, did we interrupt lunch? I'm really sorry, we can come back in like ten. Where they keep their technology under lock and key. The iPad requires your phone number. Then you'll sign our standard NDA, which is just stating you will not share anything that you see here.

Except like, you know, on the radio, but other than that. Right, yeah, of course, things that have already been shared right everything else We'll just assume is a secret That's probably not a great assumption me who's my host we'll say John yeah, so John Huff John Huff John Huff's been at whisper arrow about a year. He's the head of testing also today our tour guide Yeah, so Louie has his assembly stations here. There were engineers working at computers, some poking at fan blades in a pristine manufacturing space.

Next to it we have where we're prototyping some parts. Also, test machines. It looks like some kind of weird concept art. It kind of does. You know, just sort of a new age flower or something like that. It had a spot for the engines that Whisper makes on one side and then a structure almost like a sea coral on the other with egg-sized round things all over it. It's a beam forming array or some people call it an acoustic camera.

And so each one of these balls has a microphone under it. This is just a windscreen. The engine turns on, 116 microphones capture the sound coming out of it. And so what you end up with is a sound map, like a color image or like a thermal image, if you will, of the acoustics. Remember, this is a tech company

focused on making stuff quieter. John showed me an electric leaf blower they made as a sort of proof of concept of their whisper technology. Alright, so it's audible, you know what it is? It's a little higher pitch, right? There's a little... Right.

And that's a big part of the fan design. Idea being, that same technology could be used for a drone or electric airplane too. Please don't take offense at this, I thought it would be quieter. You know, what's the expectation, right? I mean, no one would love it. Well, my expectation was a whisper. That was my expectation. I thought it would be quieter You know what what's the expectation right? I mean well my Sorry, it's a medium whisper well they're right. Okay. That's fair not a secret whisper. That's fair Along the way as John was showing us around we met people who'd moved to Crossville from big cities to work there Seattle So he's worked for And so I came from Seattle maybe about three years ago. And we met local Crossvillians taking advantage

of this new hometown opportunity. Where'd you come from? Crossville, I'm from here. That's Ace Hawkins, manufacturing technician. Graduated from technical college about a year ago, worked at a car dealership before coming here. How old are you? 20. 20.

20. Yes sir. None of my business, but you're making a good living for a 20 year old here in Crossville? Yes I am. In Crossville, yes I am. You got spare change? You got enough disposable income?

Yes sir. How long you think, without your boss being standing right here, how long you think you're gonna be here? I'd say we got about five years. All right. And then where do you go from here, right? Cause you'll have really, I mean,

you'll have good like high tech manufacturing background. Then what? We'll see. I haven't thought about it that much yet, but we'll see. Fair enough. Thanks, Ace. Thank you. Appreciate your time.

Yep. Younger skilled workers like Ace are critical for growing companies like WhisperAero if they can keep them around. What else haven't I asked you, John? What's the most important thing? Do you know any test engineers interested in moving to Crossville?

I do not. Oh, okay. For this high-tech company in a small Tennessee town, labor force is top of mind. So I put that question to Mark Moore, Whisper Aero's CEO. Talk to me now about the recruiting challenge that you're having as you grow and as you scale. You're going to have to recruit many more people to come to Crossville, yeah?

Well, and I want to be completely honest about this because look, small town living is not for everyone. I love it. But we have a lot of single engineers who are PhDs from Stanford and MIT. And frankly, the dating life in Crossville was not too exciting for them. And so, for the single guys and gals, we actually had to open up a Nashville, Tennessee office, a satellite office, where those engineers could have a more exciting dating life, night life.

It's about an hour and a half away between the two offices, but it really works well to give employees the maximum choice and be able to fit to diverse needs. Mark Moore and his company are invested in Crossville. They've worked out a partnership with Tennessee Tech University to build an incubator here in town. And Mark has actually done some work with the city to help them raise money for a new sports complex. The whole time we were in Cumberland County, we talked about how changing demographics created both opportunities and challenges for that community.

Whisper Arrow is an example of one opportunity for the county to expand its economy and give young people more reason to stay. At the same time, though, people moving into a place with high-tech wages can and does change things for the people already there. ... Canon does change things for the people already there. You can find all of our stories from Cumberland County in our Age of Work series. It is of course at Marketplace.org.

This final note on the way out today, which I offer for, you know, no reason, just some vocabulary that might be useful in the near future. A particular Wall Street index or commodity or a stock is said to be in a correction when it falls more than 10% from its most recent high. As in, the Nasdaq is now in correction, off 10.4% from its high this past December. That's true, by the way. That sentence.

Should you be curious, a bear market is a decline of 20%. John Buckley, John Gordon, Noya Cardi, Amanda Parker, Amanda Peacher and Stephanie Sieck are the marketplace editing staff. Amir Bibawe is the Managing Editor. I'm Kyle Rizdahl. We will see you tomorrow, everybody. This is APM.