Tensions in the data center capital of the world

SPEAKER_1 (0:00)

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Kimberly Adams (0:31)

Higher energy prices are starting to really show up in inflation data.

From Marketplace in Washington, I'm Kimberly Adams. We just got another batch of inflation data for September. The producer price index went up 1.3% in a month. That is much, much hotter than what economists predicted, more than double. And the number was up 6.3% year over year. It follows a hot inflation reading for consumer prices yesterday.

For more, let's welcome Diane Swank, Chief Economist at KPMG. Good morning, Diane.

Diane Swank (1:04)

Good morning.

Kimberly Adams (1:05)

What's responsible for this huge spike in producer prices?

Diane Swank (1:08)

In the producer price index, it was starting to see the impact of diesel prices into just about everything. We even saw the service sector show strong increases in prices. And this is despite the fact that we saw a retail sales number after adjusting for inflation, which was actually pretty weak.

The retail sales number was revised up for the month of August, but it really paints a picture along with the beige book that we got out for the month of October as well, as that much of the momentum we saw over the summer started to hit a bit of a wall as we got into October.

Kimberly Adams (1:43)

I want to follow up on the Federal Reserve's beige book, which is sort of the snapshot of how business owners are feeling about the economy in the districts all over the country, because that ties right into what we're seeing with the producer price index. How are small businesses navigating even having to charge their customers these higher prices?

Diane Swank (2:06)

This is really hard. Across the districts, what we saw was a slowdown in consumer spending and more of the economy dependent on the AI boom with pockets of labor shortages in those sectors that feed the AI boom. But outside of that, you started to see some more concrete evidence of a hesitancy of hiring by firms that were actually deploying AI, riding the attrition curve and not hiring up as much as they did. And that is worrisome. And then you see on the inflation side of it, many firms reporting that even though consumers are pushing back against some of these price increases, they really have no choice but to pass along those price hikes.

Kimberly Adams (2:49)

Diane Swank is chief economist at KPMG. Thank you, Diane.

Diane Swank (2:53)

Thank you.

SPEAKER_1 (3:10)

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Kimberly Adams (3:41)

Loudoun County, Virginia, a suburb of Washington, DC., claims the highest concentration of data centers anywhere in the world. Data Center Alley, as some people call it, has been a steady source of tax revenue, but a backlash against new centers prompted county officials to think about how to slow development. They're also trying to figure out how to cope when the facilities stop gushing gobs of cash. Marketplace's Nancy Marshall Genzer reports.

Nancy Marshall Genzer (4:09)

Loudoun County's Data Center Alley started growing in the 1990s. The first wave of internet giants started opening offices there along a backbone of fiber networks. America Online put its headquarters in Loudoun. And between 1990 and 2000, the county's population nearly doubled.

Robert Wirtz (4:28)

When we were gaining about a thousand people a month, putting a strain on local services and a lot of new residents, a lot of new school students.

Nancy Marshall Genzer (4:37)

Robert Words has been Loudoun County's Commissioner of the Revenue, basically the chief tax assessor, since 2004

He's standing in a parking lot across from a data center in Leesburg, the county seat. The first of these facilities in Loudoun was built nearly 30 years ago. Today, the county gets almost 40 percent of its tax revenue from them. It's been spending that money on new schools and roads and more, and it cut property taxes by about 30 percent over the past decade.