Diesel prices fuel uncertainty for small businesses

What should you look at to see what the war is doing to this economy? Well, when you find out, let us know what you're doing. I'm kidding, I'm kidding, from American public media, this is Marketplace.

In Los Angeles, I'm Kyri Rizdoll, it is Monday today, 20 April, good as always.

Maybe a long, everybody. Let us begin today with what I hope is a self-evident truth. Nobody knows what's gonna happen. The straight is open. No, it's not. Talks are happening. No, they're not. You get the picture.

“And should you be looking to market indicators to make sense of things?”

Don't, equities honestly don't know which way to turn and you kind of can't blame them.

Or, another commodities are being whipsawed as well, which is why we are going with the bond market to start week eight of this war.

Treasuries, as have we all, have had a lot to digest, but they can be a crystal ball of sorts. The man for government bonds can tell us how nervous investors are as they turn to treasuries in times of trouble. And the yields those traders demand can tell us how much inflation they expect. So, Marketplace Adjust and Host starts us off with the signals that short, medium, and long-term government bond yields are sending us right now.

“yields on short-term government debt as in treasuries that mature in a couple of years or less are heavily influenced by what traders expect the federal reserve to do with interest rates.”

Traders should conclude that the Fed is very likely on hold at least through this year and perhaps through next year as well.

That's Chris Low, chief economist with FHN Financial. He says short-term yields are basically in line with the federal funds rate, which the Fed sets.

That's a signal that traders don't expect any changes. Low says investors think this because the war is causing inflation to pick up. The Fed would, in fact, like to cut rates, probably another half percent at some point, but they're not going to do it until inflation is materially lower than it is now. And there's medium-term yields, treasuries that mature in five or seven years. If you are investing in five-year notes for seven-year notes, longer-term inflation expectations become a bigger concern.

That's John Canovan, lead economic analyst at Oxford economics. He says even though the war is pushing up inflation in the short-term, longer-term inflation expectations are actually tamer. And what we have seen since the prospect of an end to the war grew a little bit more optimistic, we've seen a decline in those inflation expectations, a notable decline. That kind of optimism has also helped to relieve pressure on long-term bonds, the mature in 10, 20 or 30 years. Randy Vogel has had a fixed income with Wilmington Trust.

With a less drawn out conflict or resolution to the conflict, the Fed's spending doesn't increase as significantly, and budget deficits don't jump as big as they would have otherwise. Which means the Treasury Department wouldn't have to flood the market with new debt and pay higher interest rates to attract borrowers. But if the war escalates, that would most likely mean higher budget deficits more defense spending. And higher interest rates on long-term treasury bonds and on credit card debt, mortgages, and all of the other kinds of debt that bond yields influence.

I'm Justin Howe from Marketplace. Here's one for your macro-economic calendar.

“Should you find yourself with a free moment tomorrow morning 10 o'clock Eastern?”

You could do worse than tuning into the Senate Banking Committee hearing the guest of honor. We'll be Kevin Worsh, President Trump's pick to chair the Federal Reserve. Wall Street today, so look here's a thought, maybe traders are just done with the war and all the head snapping news there of major indices down a little bit. We'll have the details when we do the numbers. There's just a lot happening in this economy right now between the lingering effects of tariffs and inflation and slowing growth and the war.

But effects a bit short of full are beginning to crop up and our bell weather of choice today is fresh tomatoes. The most recent consumer price index shows tomato prices were up 15% in March from a month earlier up more than 22% in the past year. Marketplace is Kristen Schwab looks at the humble tomato and the cost increases along its supply chain.

“100 Sanchez has been growing tomatoes in Mexico for more than 15 years and he says if he had to start all over, honestly, he would think twice.”

I don't know that I would have done it if I had no. It's much harder than I thought. Tomatoes are a high maintenance crop, Sanchez who's managing director at Vista Produce says they need the perfect balance of temperature, light and fertilizer. You can do everything right and so have a terrible year. So for example, right now I have pests that I didn't have 12 years ago.

There's a type of spider like red spider. Never seen it. Now it's all over.

Spiders aren't even as biggest worry right now. What really keeps him up at night is how much the economics of growing tomatoes is changing. Minimum wage in Mexico went up 13% at the beginning of the year and cherry tomatoes are labor intensive. Each one has to be picked by hand. Packaging has also gotten more expensive. Like we had to increase the width of the polyform because tomatoes would get bruised otherwise.

“And this is all before the produce even hits the border.”

According to the USDA, about a quarter of every dollar Americans spend on vegetables is tied to farm production. And yes, tomatoes are vegetables, not fruits according to U.S. tax law. The rest of the cost of growing a tomato is mostly transportation and import taxes. David Ortega is a food economist at Michigan State. And so it's really this perfect storm of factors that are impacting tomato prices.

Last summer, the U.S. put a 17% tax on Mexican tomatoes. And the timing of that tax collided with a terrible growing season in the U.S.

A cold snap in Florida where most domestic fresh tomatoes are farmed cost 160 million dollars in damage.

It's put more pressure on imports, which Ortega says makes up 70% of American supply. It's really tough to tease out. Well, how much of this price increase is it because of the war in the Middle East versus the terror versus weather. Just because all of these things are kind of happening at the same time. Skip Heal it is chief legal officer at Nature Suite, which handles every part of the tomato chain from growing to importing to distribution.

We like to say we take our product from seed to smile. He says because of the war, diesel prices are up. They spiked more than 40% in March alone.

It means getting tomatoes from Mexico to grocery stores all over the U.S.

is getting more expensive. When you transport them, it's under refrigeration in other words, cold chain. Which uses more diesel than a regular freight truck with this long list of pressures. Stunted supply, growing labor costs, high import taxes, pressure on fertilizer prices and gas prices. Tomatoes will likely continue to cost a pretty penny all summer.

You know, if you eat a hamburger, you have tomatoes on it. If you pay a salad, you have tomatoes on it. If you eat pasta, you have tomatoes on it. And experts say it's only a matter of time before the price of fresh tomatoes starts trickling down to the price of canned and processed foods.

I'm Kristen Schwab for Marketplace. There were some research out from Morgan Stanley not too long ago that showed about 60% of the most prestigious AI institutions on the planet are in the United States. So yes, this country is a leader in artificial intelligence. But also 40% of leading AI institutions are not here.

And it turns out China is closing in fast, very fast. Sebastian Maliby is just back from a reporting trip to China to see what artificial intelligence is like there. He's with the council on foreign relations and the author most recently of a book called The Infinity Machine. The headline on his piece of the New York Times about his trip is called, "I went to China to see its progress on AI. We can't beat it."

Mr Maliby, welcome to the program. It's good to have you on it. So great to be with you.

“So you go to China to talk about artificial intelligence and a nutshell, what did you see?”

The big surprise guy was that when I was there, people brought up safety more than I had expected.

And pretty much everywhere I went, whether I was talking to tech leaders at companies or AI researchers at universities,

they would say to me, "Look, we have this window right now to make AI safer before it gets too powerful and we need to seize it."

“Here's the thing though that I don't quite get about China and its development in artificial intelligence.”

The Biden administration sector at Romando went to great lengths to impose limits on what the Chinese could use of American AI development. The chip exports all of those things.

And the just of your pieces, that hasn't worked. The Chinese figured out a way around it and we have to deal with it.

Pretty much yes. I mean, those export controls were imposed by the United States and its allies in 2022. So points to the Biden team for seeing this coming before Chatchy PT was even released. But it didn't work in terms of depriving China of cutting-edge AI models. They went ahead and they figured out a way of building them anyway.

“Did they just like reverse engineer what we've done? I mean, it seems too simple to say that, but that's sort of, how else are they doing it?”

Well, that is part of it. There is this technique called distillation where a Chinese motor maker and gets lots of outputs from an American one and those outputs help it to more efficiently train its own AI model.

But then there's also the fact that China has excellent AI engineers, it produces scientific papers on AI and a prestigious rate. We shouldn't underestimate just how good they are.

Aside from the experts that you spoke with, how are lay Chinese people using AI? Because look, I'm a bad example. I dabble in it. But that's the broad swath of America, right? There are people who are really good, but most people are like, yeah, it's a thing we use it sometimes. What's it like over there? There's more optimism about AI in China and in Asia generally than there is in US days. I think if you look at the polls in the US, two out of three people see AI as a threat, not an opportunity. In China, there's much more readiness to download even models that might be a bit dangerous, like the open cruel one, which was a big thing about a month ago. When I was in China, there were photographs on the newspapers of mum and pop consumers lining up outside tech companies to get help from the engineers to install this open cruel thing on their laptops.

Just to see what it could do, just for the heck of it. Yeah, because it's an agent and you can tell the agent to organize the information you're in your laptop and it's fun to play around with, but it's also dangerous and they didn't seem to mind. You suggest in this piece of the time from the other day that really what needs to happen now is, I'm paraphrasing, but work with me here. Enough of the AI or arms race, what needs to happen is the China and the United States have to get together and negotiate some kind of global safety pact on artificial intelligence. Is that fair, is it fair characterization?

Pretty much. I mean, some element of arms race and competition is inevitable, but I think you can try and do both at the same time. You know, in the Cold War, that was when the agreement for the IAEA, the International Atomic Energy Agency was done.

“Then you go forward to the 60s, and despite the Cuban missile crisis, the nuclear number of information treaty was agreed. So you can have what's known as adversarial cooperation, and I think that's what we need to think about now.”

Which I appreciate, and of course, Reagan and trust but verified does come to mind, but Donald Trump and Xi Jinping are not leading at Brezhnev and Ronald Reagan. That's true, but maybe they need to switch, right? I mean, I actually think that in China, you know, at the elite level, in terms of sort of AI, company leaders, influential academic researchers, these people who's views often do filter up into the communist party. We're much more open to talking about safety than I expected. Now, on the American side, you're right that there was no interest in controlling AI until maybe a couple weeks ago, because then you had mythos, this new cyber hacking model come out, in order for certain treasures that got best sent to summoning the banks, telling them to take it seriously, and I think there's a bit of a mood change in Washington about needing to regulate AI.

It's a best of Maliby. Just back from China on a reporting trip, he's at the castle on foreign relations, also he's got a new book out. Mostly about the subject of the year, actually, it's called the Infinity Machine. It's a best in texture time, I really appreciate it. Great to be with you. Coming up, not to to my own horn, but we make colorful, fun, and functional things.

Now industrial is basically flat, 49,442, that has decked down 64 points, about a quarter percent, 24,444, the S&P 500 subtracted 16 points,

“also a quarter percent, and it thinks it's 71,09, or what?”

Speaking of which, renewed unrest between the US and Iran, maybe, as next US Airlines, we don't really know. Investor Warrior, of course, is our fuel costs on lower demand, delta dip 7/10%, and I did down 2.8% jet blue, the client 2% and the cruise industry carnival down 7/10% Norwegian, descend to 3.5% Royal Caribbean, or Caribbean, take your pick down 1 and a 10% energy you ask. Sure, we can do that. Kind of go Phillips rows of 3rd of 1% x on mobile, picked up 8/10%, Chevron went the other way down 4/10 of 1%.

And if new figures on retail sales tomorrow about which more in a second, performance of a couple of retail stocks today,

dollar general lost about 2/10 and 1% home depot gained 4/10%. Bond prices went down yield on the 10/10 rose, 4 and a quarter percent you're listening to Marketplace.

This Marketplace podcast is supported by Faye Greedrinker, one of the largest law firms in Minnesota,

“with nearly 300 Minneapolis attorneys helping clients solve complex legal issues and meeting their goals in the Twin Cities and beyond.”

Faye Greedrinker.com This is Marketplace. We're going to do a 1/2 here on war and what it is doing to US consumers and businesses. Because while it is true that this country has been less affected than Europe and Asia, what's happening here is not nothing.

Case in point that global commodity crude oil and its derivatives. The national average for a gallon of diesel fuel sits right now at $5.53 a gallon, that is from Triple A. A year ago, it was $3.57 and for a whole lot of companies in this economy smaller ones in particular, the costs of war are very, very real as Marketplace's Stephanie Hughes reports. At West Clean's veterinary supply and Springfield Missouri, their customers are pet stores and farm stores,

and they sell things like cattle IDs, animal vaccines, a lot of dog food. Pretty much everything that goes inner on and animal. Joseph Babitt is an accountant with the company, which owns a fleet of trucks to make deliveries. All of them run on diesel. And since the war began, the company's fuel costs have risen on average by five grand a week.

Just depending on how many miles are running that week. Babitt says the company hasn't raised their prices yet, but he says eventually they might have to. Rising diesel prices have also affected George Peek. He owns an operates 100 acre cotton soybean and pecan farm in central Georgia. We're actually in a kind of a major drought right now, and so this was a big part of our irrigation fuel.

This is just added 30 percent, 35 percent of our fuel costs, and that's concerning.

The Peek says there's another aspect to the war in Iran. It's driven up the price of one of the crops he grows cotton. That's because the big competition for cotton is polyester, which comes from all. So the increase in all prices has inadvertently really helped us. And when polyester goes up in price, I mean, there's more demand for cotton.

“And I'm like, yes, people, you quit, where are that damn gum hole on your body? You know, where cotton?”

In anapolis, Maryland, commercial diver Bill Eubanks runs his own business, harbour diving services. He repairs everything from small boats to large shipping vessels. He says his worry is that high diesel prices will keep people from taking their pleasure boats out. I need them to go out and break something up, think or blow something up. Yubanks says it's just the start of the voting season. He'll know in the next couple months whether he is successfully navigated these uncertain waters.

In Baltimore, I'm Stephanie Hughes, for Marketplace. The flip side of how businesses are doing right now is, of course, how consumers are doing. And we'll get a sense of that in the morning when the census bureau releases retail sales for March. Consumers, as we know, have been disgruntled for a good long while now, but that hasn't really had much of an effect on how we're spending. Marketplace Smithfield has more on what we might learn in the morning.

Elizabeth Pantotti at the Groundwork Collaborative says there are two reasons for that.

One is it is tax refund season, and we know that every tax refund season, we see a bump in retail sales as folks spend those one time refunds. And two, as prices go up, retail sales go up. And prices have been going up, but she says refunds, which are bigger than usual this year, because of last year's budget bill are the main reason for the expected bump in spending. That infusion of cash is likely making people less sensitive to price increases from both tariffs and the war on Iran, at least for now.

I suspect as we head out of tax season, this is really the inflection point in all of that data. Especially if the war continues and prices keep rising.

But Mark Matthews at the National Retail Federation says that is still an if.

“We'd need to see at least a few more months of higher prices, I think before it really begins to impact consumers ability to spend.”

Inflation fears and the war are already affecting how consumers feel about the economy. The latest consumer sentiment numbers are the worst they've ever been. But like we have seen since 2020, there has been a complete disconnect between consumer psyche and consumer spending. Gas prices have a big impact on consumer psyche's and they're now about a dollar higher than before the war. When the Edelberg at West Executive Advisor says that translates to roughly $70 more a month on average for a two-car household.

That's unpleasant, but I don't think that that's enough to. Get people to radically change their spending plans. What could is if oil and gas prices stay high and push the cost of all sorts of other things up to.

“I think the way that the war is going to show up is through grinding the higher inflation that just comes more broadly.”

But Edelberg says that's going to take a little time. I'm Samantha Fields from Marketplace. [Music] Same just gave us the macro on expectations for the retail and consumer economy a minute ago.

But it is always good to pair that big picture analysis with the micro.

The people who are actually doing the buying and for us right now the selling in this economy. And Elaine Hartmann is one of our retailer regular. She runs a wild lady that's a gift and stationary store in the Lelandau County, Michigan.

“Business for a wild lady right now is actually pretty good.”

It's just the start of the year for us winter is very slow. For the year we're up 10% which feels really really good. Most of the money that is coming in is online orders and then we also do wholesale. So we work with other retailers all over the country. We definitely feeling the price increases.

Our utilities are going up. One of the things I've really been noticing is our shipping costs are going way up. We offer free shipping for online customers if they purchase a specific amount of products. So like 75 or more with shipping costs being so high we're definitely going to have to raise that threshold this year. I feel like a hung-on for as long as I could.

But it is time to raise that threshold. People that are coming in the door and spending money are just wanting to spend money and something that's going to make them happy right now. So I feel like that is the perfect place to do that, not to to my own horn, but we make colorful, fun and functional things. So we're kind of hitting that with people that have spendable income right now. This time of year is that crunch of not much sales are coming in, but we're spending a significant amount of money getting products ready for the summer.

So it's kind of just like hold on things are going to be absolutely wild in just a few weeks. This is my favorite time of year kind of just getting this hard work done so we can just focus on talking to customers in the summer. Any language, Hartman, wild lady, we will not count you, Michigan.

But after 15 years in charge, Cook is going to become executive chairman.

“The quarter office, if you will, an Apple's billion dollar, notably round headquarters building in Cupertino,”

goes to John Ternis, who should you not be familiar with him is currently the senior VP of Hardware Engineering.

I'm here to borrow a Katelyn Ash John Gordon or your car Steve Mullis and Stephanie Seek are the marketplace editing staff Kelly.

“So Vera is the news director and I'm Kai Riddell, we will see you tomorrow everybody.”

[Music] This is APM. [Music]

“Being in debt can bring up a lot of shame, but what if it doesn't have to.”

I'm Marie McRase and this week on my podcast this is uncomfortable.

I'm talking with best friends Jamie Feldman and Rachel Webster. They're the host of the podcast Deadheads and they tell me about what happened when they decided to face their debt and the shame around it together. Having that partnership has been really wonderful and it's allowed both of us to transform for the better. Just looking at the shadows in your life the things that scare you the most are.

It can be the most empowered thing that you go through. Be sure to listen to this is uncomfortable wherever you get your podcasts.