GDP growth comes at expense of consumer savings

The episode opened with fresh economic data covering July through September. Gross domestic product grew at a 3.4% annualized rate in the third quarter, more than a percentage point faster than in the second quarter. Douglas Porter, chief economist at BMO Financial Group, called it a strong summer for the U.S. economy. Artificial-intelligence investment was a major contributor, but he said robust consumer spending also helped the economy grow faster than average despite the energy-price shock. That consumer strength came with an important qualification: the personal consumption expenditures price index rose 3.6% in September, and the savings rate fell to 3.8%, from about 5% a year earlier. EY-Parthenon economist Lydia Boussour said real consumer spending, after adjusting for higher prices, was essentially flat in September compared with August. In other words, consumers spent more largely to cover higher costs, rather than increasing their purchasing power. UBS chief U.S. economist Jonathan Pingle said this points to a weaker, more strained consumer entering the fourth quarter. Elevated stock-market wealth, much of it linked to AI investment, is also encouraging some people to spend more; Pingle warned that if AI falters, that wealth effect could reverse and affect the broader economy.

Kai Rizdahl spoke with Terry McClain, chair of George Washington University’s economics department, about the gap between reassuring economic statistics and public frustration. Initial unemployment claims were near a roughly 60-year low, the unemployment rate remained historically low, and layoffs were still low despite prominent layoff announcements. McClain said the weaker part of the labor market was the experience of people trying to find new jobs, switch employers, or obtain higher wages. That lack of movement is likely what people are feeling in daily life. McClain said the persistence of low layoffs without a rebound in hiring was at least better than the feared alternative, in which layoffs rose next. But she said a healthier labor market would involve firms hiring more confidently and workers changing jobs and receiving raises. Asked why people were “cranky” without using the word inflation, she pointed to affordability and purchasing power: wages are not necessarily allowing people to maintain the lifestyle they expected at this stage of life. Discussing the Federal Reserve’s decision to leave interest rates unchanged while signaling that December remained possible, McClain said the Fed may be avoiding disruption near the midterm elections and allowing previous rate increases to work through the economy. She added that rate hikes are painful and that the Fed mainly targets top-line indicators, not the labor market’s underlying problems.

Alphabet shares fell almost 12.5%, their worst day since Google went public about 22 years earlier, wiping roughly half a trillion dollars from the company’s market capitalization. The immediate trigger was its third-quarter earnings report, but Marketplace framed the problem as “live by the AI, die by the AI.” Carnegie Mellon professor Michael Smith said Google had effectively monopolized internet search, but chatbots have changed the competitive landscape. Google now faces OpenAI, Anthropic, Meta, and other companies offering competing AI products. The shift also threatens Google’s advertising model. Google search is free because the company makes money from ads, and that revenue depends on users spending time on search pages and clicking on advertisements. University of Washington professor Chirag Shah said that when users rely on AI Overviews or chatbot-style answers, they may not click through to ads. He described Google as “cannibalizing its own product,” while also saying it has to do so before another company takes the business. Babson College professor Tom Davenport considered the stock selloff an overreaction. He argued that Google has historically been good at monetizing new capabilities and still has a huge established search-revenue stream. Google generated $63 billion from search in the quarter, a source of money that OpenAI and Anthropic do not have while they spend heavily on data centers. The transition may temporarily pressure revenue, but Google remains better positioned to absorb AI costs.

The day’s market report showed a broad decline led by technology. The Dow fell 132 points, or 0.25%, to 52,342. The Nasdaq dropped 365 points, or 1.4%, to 26,184, while the S&P 500 lost 23 points, or 0.3%, to 6,772. Google’s collapse was the clearest individual technology story, but other companies connected to the AI and cloud-computing spending cycle also fell. Microsoft, which had reported earnings the previous day, declined 0.2%. CoreWeave, a cloud-computing provider with Microsoft as a leading customer, fell 5%. Nebius, another cloud competitor with a multibillion-dollar Microsoft deal, dropped 5.7%. Caterpillar also fell 9.25% after reporting earnings above expectations but declining to raise its full-year financial guidance. The company has increasingly been associated with supplying generators for data centers as well as manufacturing heavy construction equipment. Bond prices rose, sending the yield on the 10-year Treasury note down to 4.94%. The episode also briefly noted that the European Central Bank held its benchmark rate steady and that Christine Lagarde plans to leave her position as ECB president early. Separately, first-time unemployment claims reached another near-60-year low, reinforcing the episode’s broader point that strong headline numbers do not necessarily match people’s experience.

The episode turned to China, whose economy reportedly grew 4.5% on an annualized basis in the third quarter. Kai interviewed Yeling Tan, a University of Oxford public-policy professor, about why the world’s second-largest economy still identifies as part of the developing world. Tan said there is no universally accepted definition of “developed.” Income alone places China near the threshold for developed-country status under World Bank measures, but the United Nations Human Development Index also considers life expectancy and education. On that index, China ranked 78th the previous year, in the “high human development” category but below “very high.” Tan said China’s self-identification has historical roots. Mao Zedong argued in 1974 that most of Asia, Africa, and Latin America belonged to the “third world,” and President Xi Jinping’s current language continues that long-running foreign-policy position. However, Tan said the claim is increasingly challenged by scholars and by other developing countries that do not think China belongs in the same group. China’s internal differences also support its argument. Shanghai can look like an exceptionally modern, dynamic city, while rural areas hundreds of miles away face very different conditions. Tan said about 17% of China’s population remains below the poverty line used for upper-middle-income countries—potentially hundreds of millions of people—so regional inequality and poverty remain substantial domestic problems.

October is normally prime apple-picking season in Pennsylvania, but Solbury Orchards had almost no fruit after an unusually warm spring followed by a freeze. Owner Brian Smith said a string of 80-to-90-degree days in April was followed by freezing temperatures, wiping out virtually the entire apple and peach crops. Across the 90-acre orchard, it was the first year in 41 years that almost none of the trees produced fruit. The orchard normally earns most of its income from apples sold for picking, at its market, to other stores, and as applesauce, cider, and cider donuts. The shortage also changed the customer experience. Some visitors arrived expecting to pick apples despite notices on the orchard’s website and social media explaining the problem. To preserve an apple-picking-style outing, Smith and manager Ahosly Who arranged for pre-picked apples bought from upstate New York orchards to be placed in large crates among the empty trees. The orchard also planted pumpkins and worked with a local library on children’s story time. Customers said they were disappointed but generally stayed because the weather was pleasant and the purchased apples were attractive. Buying replacement apples leaves little room for profit, and Smith said he might make no profit this year, but he did not want to raise prices or lose customers built up over years. He believes the orchard can survive one bad season and hopes next year’s crop returns.

The closing item connected an apparently silly ticker symbol to a conventional business story. Cheesecake Factory trades under the symbol CAKE, and its shares rose 7% on the day. The company had reported earnings Tuesday, with revenue topping $1 billion, an increase of slightly more than 10%. The item served as the program’s final reminder that almost any company or news cycle can have a marketplace angle. The episode then ended with credits and Kai Rizdahl’s sign-off.