Historical Lessons from Oil Embargoes

The bigig economic picture is good. sometometimes the tighter view is good too, so we'll do both. From American public media. This is Marketplace In Los Angeles, I'm Ky Risal. It is Tuesday. Today, this one is the twenty third of June. goodood as it always is to have you along, everybody We're going to go macro and micro in our approach to the economic news o the dayay today, global and local, if you will. We learned this morning courtesy of S andP Global's purchasing Magers indndex, that's PMI in the vernacular The growth in both services and manufacturing in this economy picked up in June Take a look around At other major developed economies though, and it is a whole different ballgame. In the eurozone overall, business activity contracted for the third straight month, albeit just slightly. Also though, some of Europe's biggest economies were some of the weakest. Germany's PMI had a one and a half year low. France clawed its way back from a bit more than a two year low This plac of Mitell Harman explains the good news and the bad news It seems like we've got another demonstration here of U. S economic exceptionalism Yet again, the United States continues to post pretty robust growth amid all the global turbulence and uncertainties Ishwua Prasad teaches economics and trade policy at Cornell For the rest of the world, it's not this pretty a picture. But the US is a major spoiler of that picture because of oil and supply chain disruptions caused by the war on Iran Prusad says Japan, the EU, the UK All of them are dealing with a significant t inflation, this has put a damper on what was already a pretty soggy set of economic prospects Dampest is the United Kingdom, says Jennifer Lee at BMO Capital Markets the UK. it's almost like when it rains port. comppassite PMI fourteen months low. now they're dealing with yet another new prrime minister, the unstable political environment is and settling for businesses There is a silver lining in the recent PMI data, says Gary Schlossberg at the Wells Fargo Investment Institute business activity is still contracting in many developed economies, it's doing so less than in May. The slowdown is decelerating A lot of that has to do with the fact that there's a little bit less concern about the situation in the Gulf. The two sides are talking Crucially, global oil prices have fallen to within about ten dollars of their pre war level This month's PMI reports indicate that other input prices paid by businesses have now peaked and are heading down again I'm Mitchell Hartman for Marketplace All right, Mitchell and the gllobal, Marketplace Elizabeth Trvall, has the local Initial June data from S andP Globals showed a strong performance in U. S. manufacturing output According to economist Chris Williamson I mean, this is a real gross that we're seeing. growth isn't necessarily happening for the right reasons There is some worrying signs here since the outbreak of the war been an increase in buying not just to meet production needs, but to build some safety stocks. So precautionary stock building ahead of potential further supply problems or further price rises. Aaron McLaughlin, with the conference board also has a hunch manufacturers are stockpiling because What we're not seeing is a strengthening of employment in that sector. and we're also not seeing Really increasing demand at the consumer level And it's not just the war that has companies nervous. forward, there's uncertainty about what the tariff rate may be And if we zoom in on manufacturers in Maryland, the Carolinas and Virginia, Jason Cossow with the Richmond Fed says Prices that firms are experiencing have continued to increase due to conflict in Iran and also additional terroriffs He says overall, manufacturers there are optimistic Firms are very bullish about the next six months And in the Midwest, Tom Wallstrom with the Chicago Feds says manufacturers there are reporting above average growth Defense is a strong sector. The other strong sector is products for data centers thingsings like semiconductors and building materials I'm Elizabeth Troball for Marketplace. Wall Street todayay let's you say the bloom appears to be coming off the AI roose. It started in Asia overnight, worked its way all around the world to the corner of Wall Street and broad in lower Manhattan We will have the details when we do the numbers We took this program over to the UK in twenty nineteen, naively thinking, But the deadline in March of that year to finally take the UK out of the European Union was actually gonna to hold Well, shame on us because it wasn't until almost a year after that that the original vote on Brexit ten years ago today was a done deal All of that is a very long way to say that on that twenty nineteen trip I met Sam Wallace. She's the owner of a stall in London's Borough Market Wh she and her husband sell honey, it's called from Field and Flower And given the anniversary in all of the British news this week We figured we had to get her back on the phone. Sam Wallis it is so good to talk to you again Hi, how are you? I'm well, I'm well, but look you're the one with all the news going on over there, the whole prime Minister thing and oh by the way, ten years of Brexit, holy cow Yes, I know. it's been quite the morning. I mean, it's been quite a few months. I guess if you're following the news from over there about over here frrankly, it just feels very messy. And How can I say bitterseet, although probably a bit more bitter about the Brexit anniversary or the kind of timings at the same time, it just feels Yes, like it's been a chaotic ten years. From my perspective as a little business owner, definitely. Let's talk then about you as the little business owner. First of all, as I always do, how is business at the Honey Sall there in Burhamark But you know what? It is pretty good. I really cannot complain. but again, you know you're always nervous about the future. You're always worried that the good thing won't last We had a good Q one, I have to say, a good Q one, given that there was already quite a lot of kind of turmoil and there's cost of living crisis still going on in the background. But Q two at the moment, I have to say, is very up and down which is exciting if I put it that way Oh Exciting is an interesting choice Why is Q two up and down? I'm not sure, other than to say I think so global events, obviously with events in Iran, it's cost of fuel and travel. We have a lot of European visitors. So you know, if you're a family from say Barcelona, I don't know if it's even feasible economically anymore to come to London. London's already an expensive city to be in, it has always been thus but with the current kind of exchange rates and with the cost of travel, the cost of staying, places and being in places And so I think that, and then I think more locally here in the UK We've got all of that going on. But then we have this political turmoil with the Prime Minister and the governing party and economics and the way forward for the country, which I think makes people very nervous. you know, it just makes people not want to necessarily spend money. Yeah. Can we talk for a second about the actual product that you sell You have been for most of the time, I've been talking to you U wildflower honey, a lot of it. from Europe Brexit obviously was a huge wrench in those works Here we are ten years on You've adapted somewhat, but, you know we' How much of a crimp in your style is it still Oh, I mean the costs are pretty hefty. I mean, I think if we're going back ten years ago and of course all costs rise over time, you know transports are what we pay to freight across Europe these pallets of honey. It you know used to cost us something like, I think it was one hundred ninety pounds prior to Brexit and that was it. And he just needed an invoice. you just needed one piece of paper Now, I think our transport at last glance was three hundred and eighty pounds And then we have all the extra paperwork, the red tape So this is a whole new language and stress level because we're of course not in control. It'll be no surprise to you, but we really hate being out of control. Yeah, no, totally. I get it. I get it. For those of doing the math at home, it's about what? aboutbout a dollar thirty to the pound if you want to do all those calculations. I should have probably started with this, but I'll end with it anyway. So ten years ago U twenty third of june twenty sixteen, do you remember your initial reaction when you heard about the Brexit vote and which way it had gone Oh, I think utter shock and dismay. I mean, real dismay. I come from European roots. know my dad's side of the family will come from Europe some of them in the Second World War And so I've always been brought up as European. You know, British absolutely, you know, then frrankly English and a Londoner. very important part of the identity. And in London, nobody really cares where you're from. you are a Londoner. I just felt a real wrench. I felt very sad and a real shame that it had been allowed to come to that because you know the people that voted, they voted how they voted and that's fine. But they we should not have had that vote. It just was wrong, I think If you happen to find yourself in London, go to the borough markarket and find the stall where Sam Wallace works and owns. It's called from Field and Flower Sam, than you so much. It's always so good to talk to you. A it's an utter pleasure, Kai, have a lovely day This will come as small solace, but inflation doesn't play favorites. Too much money chasing too little of almost anything and price levels are going to go up And housing is not immune There's a new report from Zillow showing the number of cities where a typical starter home, typical in air quotes there The number of cities where that home is worth a million dollars or more is it an all time high of two hundred and forty two cities tripling since the before times For the record Zillo defines a starter home as being the lowest third of home values in any given region, but One person's definition U H's Marketplacees Christin Schwab Identifying what a starter home is these days is tricky because the definition is changing so much that Susan Walkter, a professor of real estate at Wharton, won't offer a definition. So I think I'll pass on that one and we'll just let it be Entry level homes are different depending on where someone lives. There's no unifying square footage. But Walkter says the price first time buyers pay is outpacing the overall cost of housing It's an outcome of the general economic trend that explain why housing prices have gone up overall. St start with land prices and materials, labor and appliances, they've all gotten more expensive. So builders are building bigger and fancier for better margins But it's not just the market that's changed. Buyers have changed too. Jessica Laouts, deputy chief economist at the National Association of Realtors, says new home buyers used to buy condos We are increasingly seeing first time home buyers look to the suburbs, look to a single family home because the age of them purchasing their first home is ten years older Laout says people are buying later, yes, because housing is harder to afford, but also because marriage and family formation are happening later. By the time people are ready and able to buy, they want something they can grow into The typical first time home buyer is expecting to live in that home for fifteen years twice as long as the historical average Also, elevated home prices and mortgage rates are making people stay put. That's the case for Joel Berner, a senior economist at realtor d. com in Austin. We bought a small starter home and we're feeling like we're going to be there longer than we intended, just because of the way the market works right now He says the market needs more smaller starter homes, but it also just needs more homes, period. And so even for the people who might leave a starter home, they don't have a lot of options themselves. So it's kind of this backup, this traffic jam Berner says, according to realaltor dot com's estimate, the US is short, about four million homes I'm Kristen Schwab for Marketplace Coming up We paid just over one hundred thousand for it in nineteen eighty three Wait until you hear the rate on that mortgage. though, gang first though. the numbers. Well, this one's the wall was for the NasdAQ. Hold on to your hats. The NasDAq down five hundred and seventy nine points today, two and two tenth percent, twenty five thousand five hundred eighty five Dow slipped forty five points aboutout a tenth percent fifty one six sixty six. S and P five hundred down one hundred seven points One and four th percent, seventy three and sixty five Carnival reported earnings today beating estimates, but full year guidance was disappointing. Thus Carnival drooped four and nine tenths of one percent on the day. Royal Caribbean Royal Caribbe, I don't know, takeake your pick. Leads the category, by the way, by market capitalization, up less than one tenth of one percent. Happy birthday to Reddit at the site which bills itself as the front page of the interternet founded on this day in two thousand five. Reddit is, according to the Data inssights Comany Similar Web. It is the sixth most visited website globally, publicly traded as of twenty twenty four two and eight th percent on the day, you're listening to M market This is Marketplace. I'm Kai Rizdal We're going to do a little pop quiz on the way to this next story. What do the International Energy Agency, the original fifty five mile an hour speed limit, the strategic Petroleum Reserve and fuel economy standards all have in common I would give you a little bit more time, but the show's only half an hour. So I'm going to tell you the answer L chance here is the nineteen seventy three Arab oil embargo And one cannot help but imagine that that energy shock might have some lessons for todayayss. So we've called Mike Jacobs prorofessor of history at Princon Al also, as it happens, the author of Panic at the pump. It's all about the oil crises of the nineteen seventies Pfessor Jobs welcome the program. G good to Nice to be here. thank you. Do me a little compare and contrast here. Would you with an eye toward economic power. nineteen seventy three versus today oil, embargoes, straight or Hormz, all of that It's a good comparison. seventy three twenty six, twenty six doesn't necessarily have the same ring yet, but it might because yet that I feel right now. Yeah, right. because it might because nineteen seventy three, the moment of the Arab oil embargo is remembered and rightfully so is this big turning point certainly in American history and also in global economic history. And that's the moment when Americans, writ large, discovered that they were not as powerful as they thought that they were. And also and you know, this is based on things you've said and said on this program. Kissinger, Nixon in seventy three misjudged Arab economic power the same way it seems that President Trump is misjudging Iran today I think that that's fair. as late as September and the embargo started in October, as late as September Richard Nixon was on the record saying that the oil producers in the Middle East would never use the quote unquote oil weapon because oil in the ground wasn't worth anything to them. And lo and behold, That's exactly what they did. in an effort to reshape American politics in the region For those who don't remember seventy three, seventy four, seventy five and the economic after effffects and what it felt like in this country. What did it feel like when when we, as Americans discovered and we didn't have all that economic power you were talking? It came as a tremendous shock. I mean, we were a very celebrated producer of oil. No country was more identified with the open road than the United States And very few Americans knew that we had become increasingly dependent on oil imports from abroad. So to overnight have this Supply disrupted came as a really big shock and the shock itself then manifested itself into a panic. And you have to be of a certain age, which I am, and I'm guessing you are too. You and me both. T remember that the panic really was everywhere because you saw lines working their way all around the country as people feared that they would not have access to oil and as they also saw the price of oil quadruple in a very short period of time Okay, so look, with the understanding that you are a historian and not a fortune teller What lessons do you anticipate? U You know, Americans have a tough time learning lessons, but Let's give us the benefit of the doubt. What lessons might we learn from this particular episode Well, I mean, you know, we learned that Iran is prepared to close down the strait something that I think the president did not necessarily anticipate, although he had been warned that that was one of the dangers. and what might not make quote unquote economic sense for various reasons the Iranians determine makes political and military sense for them and possibly now even economic sense too, as we see Trump reversing sanctions, the question of lessons to be learned know, you just said, we're not very good at learning lessons. ' seventy three is a long time ago The main goal in the nineteen seventies was independence. The United States should not be dependent on any foreign country for its oil. And even as we are independent really in terms of our oil we are still vulnerable. So in terms of lessons learned or really not learned, the question is, why are we still so dependent on oil? And basically until that changes, I think we're going to see this ongoing vulnerability Mick Jacobs. Prceton. Professor Jobs for time. I appreciate Thanks so much thirirty seven million people sounds like a lot It is a lot, in absolute terms, works out to about eleven percent of the U.S population That's how many people This is from the Census Bureau, by the way, moved in twenty twenty four That though is a record low down from fourteen percent just a decade ago There are lots of reasons for that, of course, many of which we cover on the regular here, highigh prices, high mortgage rates, low supply of housing among them In the end though Home isn't just about where you move It's also about where you stay Here's this latest installment of our series Adventures in Housing. My name is Louis Chen. My name is Carol Jean Smith. We live in Watertown, Massachusetts. in a house that we've lived in for forty three years It's a two family house with two units side by side. I would say we looked at a lot of single family houses out in the suburbs and between the commute and the price, we just didn't find anything that we liked It doesn't look like any of the two family houses that you imagine because was built on a little here and raised a little there and a little this thing was put on and that thing was put on. and so it It has a very irregular shape and it was not in very good condition. It was habitable it did. But at the same time, there were ceilings that were full of cracks and one of them completely fell down. We have a lot of that kind of thing that we had to deal with. So yes, the income that we could gain by renting the other side was definitely a factor in making it affordable for us. We paid just over one hundred thousand it in nineteen eighty three. And it was a thirty year fixed mortgage at. twelve percent We thought that was good because The mortgage rates had recently been eighteen percent. We refinanced several times We have A little less than two years too on what will hopefully be our last mortgage There was a point in time when my manager told me that my job was moving to someomewhere out west And I had a choice. I could either move with the job or take the severance package And I wanted to look, but Carol Jian said to me You can go look, but I'm not going with you. I had a job here that I liked and we had a number of very good close friends and it seemed like a lot to give up talked about aging in place in which case we might expand our lives into the part of the house that we now rent out and create a new bathroom there so we could live on the first floor and wouldn't need the stairs if we couldn't do them at all So we have a lot of options in this building It's done well by us. We've enjoyed our time here A lot of history, a lot of funny stories. Our daughter loves this house. We have to believe that we probably have less time Going forward, then we had in the past at this point in our lives, but It's it's served us well, yes twelve percent mortgage. Laychan and Carol Jean Smith in Watertown, Massachusetts for forty three years now. Whether you are looking for that forever home or maybe you're already living it. Share your story with this, would you? Marketplace. org slash adventures in housing This final note on the wayay out today saw this on AxiOoss courtesy of our Friday regular Courtney Brown, for which my personal choice of a headline would have been careareful what you wish for, you just might get it. New research from Stanford, the Bank of England, Kings's College London, and the University of Nottingham estimates by the end of last year Brexit had made the UK economy between six and eight percent smaller than it would have been hadad the remain side one. There is a lesson in there somewhere. Sort Manji. Sunum Ma Haraj Janet Winn Og Oxman and Virginia Kay Smith are the digital team. I'm Kai Risal. We will see you tomorrow, everybody This is APM.