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| Real Time Economics |
| Good morning. Today we look at strong consumer spending despite another retail bankruptcy, a fizzling housing market, U.S. tariffs and Chinese tensions, setbacks for Theresa May and Angela Merkel, and the unraveling of Saudi Arabia's plans to become a regional investment hub. |
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Tough Day for Toughskins |
| Here's a juxtaposition: Retail icon Sears is filing for bankruptcy, while U.S. retail sales for September are expected to grow a robust 0.7% from the prior month. For Sears, it's a familiar story: Dozens of retailers have sought chapter 11 protection in recent years because of the consumer shift to online shopping, expensive store leases and heavy debt burdens, Lillian Rizzo and Suzanne Kapner write.
The U.S. economy will barely notice. American consumers are feeling pretty good right now—confidence is high, job growth is strong, wages are advancing—and are likely to power the economy through a solid third quarter of economic growth. NatWest's Michelle Girard and Kevin Cummins estimate that overall consumer spending in the second and third quarter of the year will notch the best back-to-back performance since late 2014: “Encouragingly, consumers along the entire income spectrum are finally feeling the benefits of sustained growth.”
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| Sears, Toys "R" Us, Bon-Ton and the list goes on. Is the U.S. losing anything as old-line retailers fade away? Write to Jeffrey Sparshott at realtimeeconomics@wsj.com, tweet to @WSJecon and visit wsj.com/economy for the latest news. (Responses may be quoted in this newsletter.) |
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| U.S. retail sales for September, out at 8:30 a.m. ET, are expected to increase 0.7% from the prior month. Excluding autos, economists expect a 0.4% gain.
The New York Fed Empire State Survey for October, out at 8:30 a.m. ET, is expected to inch up to 19.3 from 19 a month earlier.
China's consumer-price index for September is out at 9:30 p.m. ET. |
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A Kinder, Gentler Housing Slowdown |
| All signs point to a slowdown for an already sluggish housing market. Mortgage rates are rising, home prices have shot up, the tax law passed in December reduced homeownership incentives, foreign buyers have pulled back, and an ample supply of rental apartments has made buying less urgent for many. But it's not all bad. The WSJ's Laura Kusisto writes that this is nothing like the collapse that took down the economy in 2007. That's because the market never fully recovered and doesn't have nearly as far to fall. Builders never responded to high demand with a building frenzy. Instead of oversupply, the U.S. experienced the worst shortage of homes for sale in at least three decades.
What to watch: Data on housing starts, building permits and existing-home sales are out this week. Don't expect any relief. Both starts and sales are expected to decline.
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Unintended Consequences, Tariffs Edition |
| Trump administration tariffs on Chinese goods are meant to shift manufacturing back to the U.S. Instead, some companies that have brought manufacturing back say tariffs are raising their costs and making them less competitive. Intermediate goods, or parts and materials used to make a finished product, account for about half of the $250 billion in Chinese imports subject to tariffs, Ruth Simon reports. That can jack up costs—and companies hit by the tariffs aren’t simply raising prices to offset them. Some business owners say they are delaying plans to expand their U.S. footprint, looking at dropping product lines or shifting production offshore. |
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Cold War Kids |
| U.S.-China trade tensions don’t look set to disappear any time soon. The Trump administration is moving deliberately to counter what the White House views as years of unbridled Chinese aggression, taking aim at military, political and economic targets, and signaling a new and potentially much colder era in U.S.-China relations, Michael C. Bender, Gordon Lubold, Kate O’Keeffe and Jeremy Page report.
Summit spotlight: Rising tensions raise the stakes for a meeting between President Trump and Chinese President Xi Jinping tentatively planned for November. Treasury Secretary Steven Mnuchin said he is pushing for the summit but that no final decision has been made to hold the meeting. |
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Setbacks for Brexit, Merkel |
| Two developments to watch in Europe:
1.) Negotiations over Britain’s departure from the European Union stalled. The setback is likely to reawaken concerns of a no-deal Brexit, and raises the question of whether the two sides have the political space to solve the thorniest problems, notably how to avoid re-emergence of a physical border in Ireland.
2.) German Chancellor Angela Merkel suffered another political blow when her allies in Bavaria posted their worst electoral result since 1950. The poor performance is likely to fuel an undercurrent of dissatisfaction with Ms. Merkel that has been swelling in her conservative camp since she opened Germany’s borders to hundreds of thousands of refugees in the summer of 2015. |
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House of Saud |
| Saudi Arabia’s dream of becoming an investment hub in the desert is unraveling. JPMorgan Chase & Co. Chief Executive James Dimon became the latest prominent executive to back out of the kingdom’s premier business conference amid questions about the disappearance of journalist Jamal Khashoggi. He joins a host of Western executives and advisers who pulled out of Riyadh’s conference following allegations that the Saudi government ordered Mr. Khashoggi’s killing, Rory Jones and Benoit Faucon report.
President Trump promised “severe punishment” if the allegations about Mr. Khashoggi prove true. And Saudi Arabian stocks tumbled Sunday amid investor concerns. The Saudi government says it had nothing to do with Mr. Khashoggi’s disappearance. |
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Readers Respond |
| Recently, we asked if a college degree was necessary in today's labor market. Here are some responses, sometimes lightly edited and condensed.
While there are professions that require specific knowledge and/or skills, and while I believe all people benefit from "expanding their horizons," I no longer believe a four-year degree is necessary for either. Today, trade schools and apprenticeships/on-the-job training can provide the specific knowledge and skills necessary for many high-paying jobs, and thanks to the internet and the growing affordability of travel, expanding our horizons has never been easier. —C.K. Stuckey, Breckenridge, Colo.
I hope vocational skills experience a dynamic rebirth in this country. We have too many people with useless 4-year degrees, and not enough people who can actually provide the nuts and bolts to get this economy roaring. —Amy Lamborn
I feel having certain degrees are necessary to be fully successful in certain fields, particularly early on when looking for employment. It helps to “get your foot in the door.” However, a degree is no indicator of natural talent on the particular job at hand. —Mike Clark, Peoria, Ill. |
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| There aren't going to be lifelong jobs anymore and we shouldn't be lying to the American people about it. We should be thinking about what does it look like to help people get back to work, back to meaningful employment, back to shared labor with their neighbors when they're 35 and 40 and 45. |
| Sen. Ben Sasse (R., Ne.), speaking on CBS's Face the Nation |
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| The recession is well over, but its effects still linger. "We confirm that all labor market entrants experience persistent reduction in earnings, employment, and wages from entering the labor market in a recession that last at least 10 years. We show these effects are substantially larger for less-advantaged workers, in particular high school dropouts and nonwhites, but also for high school graduates," Hannes Schwandt and Till von Wachter write in a National Bureau of Economic Research working paper.
The Great Recession hit Spain especially hard, crushing demand for domestic products. The silver lining? Spanish companies were forced to find markets abroad to soak up excess capacity at home. "We find that this share is substantial and could be powerful enough to explain more than half of the growth in Spanish exports in the period from 2009 to 2013," Pol Antras, David Lopez-Rodriguez, Eduardo Morales and Miguel Almunia write at the University of Warwick's Center for Competitive Advantage in the Global Economy. |
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| U.S. industrial production for September, out at 9:15 a.m. ET, is expected to rise 0.3% from the prior month.
The National Association of Home Builders housing market index for October, out at 10 a.m. ET, is expected to hold steady at 67.
The job openings and labor turnover survey for August is out at 10 a.m. ET.
The San Francisco Fed's Mary Daly speaks at Wellesley College at 4:15 p.m. ET. |
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