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Stocks are down, home prices are up and inflation continues

SCOTT SIMON, HOST:

We begin this hour on the economy. Americans are still shopping, but what they're shopping for is changing, to the chagrin of some big retail chains and the stock market. We to turn to NPR chief economic correspondent Scott Horsley. Scott, thanks so much for being with us.

SCOTT HORSLEY, BYLINE: Good to be with you, Scott.

SIMON: Another rough week for the stock market, but let's talk about the retail markets closer to home for many, many Americans - Walmart and Target. What does it say when their profits take this kind of hit?

HORSLEY: Well, for one thing, it says their costs are going up. And that is eating into profits. We've all seen what's happened to the price of gasoline and diesel fuel. Just think of all the trucks it takes to fill a big-box store. Target says it expects its transportation costs to jump by about $1,000,000,000 this year. We are also seeing some shifts in consumers' behavior. People are gearing up to travel more. Maybe they're spending less time at home. Target CEO Brian Cornell told CNBC this week that's affecting what people are putting in their shopping carts.

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BRIAN CORNELL: A year ago during the pandemic, we were buying lots of TVs for our homes, as many Americans for really the last two years have been working and educating their families from home. Well, they're shifting from buying TVs to buying luggage. And our luggage business was up over 50%.

HORSLEY: So that's good for the luggage buyer and maybe the travel industry. But Target also ended up with too many TVs and had to mark some of them down. Investors didn't like that. Target shares plunged 29% this week. Walmart also says some of its grocery customers have been cutting corners in response to higher prices. In some cases, they're buying smaller bottles of milk, for instance, or switching to less expensive store brands. You know, grocery sales overall were down last month, but restaurant sales were up, and consumer spending overall continues to outpace inflation.

SIMON: Scott, we also learned this week that home prices are outpacing inflation and hitting record highs, but home sales are down. How do we reconcile that?

HORSLEY: Yeah, sales have been coming down for the last three months not because people don't want houses, but because in many cases they can't afford them. You know, the average price of a home last month was $391,000. That's up almost 15% from a year ago. And because interest rates are rising, the mortgage payment on that house is now about $400 a month higher than it would have been last year.

SIMON: Mortgage rates are climbing because certainly the Federal Reserve is trying to make it more expensive to borrow money to try and bring down inflation. Is there concern that the Fed could hit the brakes so hard the economy goes into recession?

HORSLEY: There is certainly some concern about that. A growing number of forecasters are skeptical that the Fed can engineer what's called a soft landing - that is, bring down inflation without going into recession. At a Wall Street Journal event this week, Fed Chairman Jerome Powell said he and his colleagues are determined to get control over prices, even if there are some bumps along the way.

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JEROME POWELL: There are a number of plausible paths to having a soft or, as I've said, softish landing. Restoring price stability is an unconditional need. It's something we have to do because, really, the economy doesn't work for workers or for businesses or for anybody without price stability.

HORSLEY: Right now, inflation's running three to four times the Fed's price stability target. So keep those seat belts fastened. You know, the stock market has lost some altitude. The S&P 500 slipped briefly into bear market territory yesterday, down 20% from its recent peak. It bounced back a little bit late in the day but still ended down 3% for the week. And that's the seventh week in a row the index has lost ground. That's the longest losing streak since 2001.

SIMON: NPR's Scott Horsley, thanks so much.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.