Real-Time Economy: How Long Can the US Economic Expansion Last? “Effectively indefinitely.”

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Hello. Today we look at the extraordinary US economic growth, rising bond yields, collateral damage in emerging markets, why US workers’ wages may fall in September, and the continued demise of the mall.

WHAT ABOUT THIS SAVING!

The 10-year US Treasury yield hit its highest level in more than seven years as investors bet on strong economic growth and rising inflation. The immediate cause: strong economic data and an easing of trade tensions after the United States, Mexico and Canada reached a new pact.

The 10-year Treasury is a closely watched barometer of sentiment towards growth and inflation. Investors seem to expect more from both. It’s also used as a benchmark for everything from car loans to mortgages. Higher yields likely mean higher rates and a potential drag on growth.

STRONGER FOR LONGER

Are the latest economic data too good to be true? Not for Federal Reserve Chairman Jerome Powell. “There’s no reason to think that this cycle can’t continue for a while, in fact indefinitely,” he said Wednesday. The Fed has gradually raised its key rate and does not seem ready to stop. Mr Powell said the policy was “far from neutral”, meaning there is much more room for interest rates to rise before they start to hamper growth.

That’s not to say Mr. Powell is complacent. Asked by PBS NewsHour’s Judy Woodruff what keeps him awake at night, he replied, “Basically everything.”

Comments or suggestions? Write to Jeffrey Sparshott at [email protected], tweet at @WSJecon and visit wsj.com/economy for the latest news. (Responses may be quoted in this bulletin.)

WHAT TO WATCH TODAY

US Unemployment Insurance Claimsreleased at 8:30 a.m. ET, are expected to remain at historically low levels.

US Factory Orders for August, as of 10 a.m. ET, are expected to rise 2.2% from the previous month.

Randal Quarles, Fed Vice Chairman for Oversight speaks on Community Banking at 9:15 a.m. ET.

TOP STORIES

SERVICE WITH A SMILE

An example of strong economic data: Activity in the US service sector, the biggest chunk of the economy, hit its highest level on record last month. The non-manufacturing index from the Institute for Supply Management showed that production, new orders and employment all picked up quickly, reports Sharon Nunn.

The numbers are good but there is a catch. Much of September’s growth appears to have come from price anticipation. Companies have increased their inventories, imports and exports to beat the clock on possible and likely duties on goods from China and elsewhere.

MORE GOOD NEWS ON FRIDAY?

American workers in August saw the largest annual increase in their hourly wages since the end of the recession. There was probably no rehearsal in September. The reason? In September 2017, two hurricanes, including one that shut down Walt Disney World and other Orlando tourist attractions, temporarily took low-wage workers off the payroll. This boosted the monthly average and raised the bar for year-over-year gains. Economists are still forecasting very strong monthly wage growth of 0.3% for September – a gain of 8 cents an hour – but such an increase would still mean lower year-over-year earnings growth. . And yes, Hurricane Florence could have a similar effect by removing some low-wage workers from last month’s calculation, but the cities affected by this storm are much smaller than Houston, Tampa and Orlando, which were hit last year. last. – Eric Morath

OUT OF SYNCHRONIZATION

More fallout from strong US growth and gradually rising interest rates: a stronger dollar.

Good: Cheaper imports and less inflation in the United States

The bad: US exports are indeed more expensive in foreign markets.

The ugly one: It is more expensive for countries and companies in emerging markets to service and repay debt in dollars. Many central banks were forced to raise rates to defend currencies, which also made domestic borrowing more expensive. And higher rates in the United States reduce the relative attractiveness of riskier assets elsewhere, writes Saumya Vaishampayan.

OUCH

American employers are raising wages. They also pay more on benefits. The average cost of employer health coverage offered to workers has risen to nearly $20,000 for a family plan this year, capping years of increases that experts say are mostly tied to higher prices paid for health services. Annual premiums rose 5% to $19,616 for an employer-provided family plan in 2018, according to the annual survey of employers by the nonprofit Kaiser Family Foundation. Employers, seeking to mitigate the cost of premiums, have also continued to raise deductibles that workers must pay out of pocket before insurance kicks in, reports Anna Wilde Mathews.

THERE ARE ALWAYS COMMERCIAL TENSIONS

Vice President Mike Pence will deliver a scathing rebuke to China in a speech scheduled for Thursday. The focus is more on Beijing’s attempts to influence US elections and global politics than on trade, but trade is clearly in the picture. Mr Pence will build on President Trump’s remarks last week at the United Nations, where the president accused China of interfering in the upcoming midterm elections in a bid to derail the tough trade policies of the administration and to overthrow him from the White House, Michael C. Bender reports.

SHOPPING CENTER: RATS

Consumer confidence is on the rise. Consumer spending is solid. The holiday shopping season is expected to be strong. And the shopping center vacancy rate hit 9.1% in the third quarter, its highest level in seven years. Much of the retail sector rebounded this year after years of losing to online competitors. But many lower-end malls are still struggling to benefit from the economic recovery, especially in some of the more economically depressed areas of Pennsylvania, Ohio and Michigan. They suffer from an overabundance of malls but not enough shoppers, reports Esther Fung.

TWEET OF THE DAY

It would be nice, but don’t bet on it. Territory too good to be true. pic.twitter.com/8fjA8L8TNg

— Ian Shepherdson (@IanShepherdson) October 3, 2018

WHAT ELSE WE READ

The workers of the world unite? Nope. Communists are more likely to care about immigration than capitalists. “I find that the effect of living in East Germany is driven by former East Germans who were born during, and not before, communist rule and that the differences in attitudes persist even after the reunification of People’s trust in foreigners and contact with foreigners represent two main channels through which communism affects people’s preferences towards immigration,” writes Matthew Carl of the Fed in a research paper.

Chinese spies have hacked nearly 30 US companies, including Apple and Amazon, with a tiny chip embedded in the tech supply chain. “This attack was something more serious than the software incidents the world has grown accustomed to. Hardware hacks are harder to pull off and potentially more devastating, promising the kind of long-term stealth access that spy agencies are willing to invest millions of dollars and many years to gain,” Jordan Robertson and Michael Riley write to Bloomberg.

NEXT: FRIDAY

US non-farm payrolls are expected to rise by 180,000 and the unemployment rate is expected to fall to 3.8% in September. The report came out at 8:30 a.m. ET.

The US trade deficit for August, as of 8:30 a.m. ET, is expected to widen to $53.4 billion, from $50.08 billion a month earlier.

Canada Employment Report for September comes out at 8:30 a.m. ET.

American consumer credit for August comes out at 3 p.m. ET.

Atlanta Fed’s Raphael Bostic talks about financial literacy at 12:40 p.m. ET.

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