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Good morning! Today we look at demographic trouble on the horizon, the latest developments in trade, and an abysmal start to the spring home-selling season.
DEMOGRAPHICS ARE DESTINY
The surge of retiring baby boomers is reshaping the U.S. into a country with fewer workers to support the elderly. It’s a shift that will add to strains on retirement programs such as Social Security and sharpen the national debate on the role of immigration in the workforce, Janet Adamy and Paul Overberg write.
What’s happening: From 1980 to 2010, the ratio of retiree-aged adults to those of working age barely budged. But with the retirement of Baby Boomers, there has been a rapid shift. The old-age dependency ratio is projected to jump past 35 after holding steady around 20 for decades.
WHY IT MATTERS
First, the demographic transformation is a budget buster. Already, Social Security is dipping into its trust fund for the first time since 1982 to pay benefits. State pensions are strained.
Second, economic growth is a function of rising productivity and population growth. U.S. productivity gains have been lackluster. American women are having children at the lowest rate on record. That leaves the country more reliant on immigrants at the same time Washington is cracking down on immigration.
What’s the best way to boost economic growth as America’s population ages? Write to Jeffrey Sparshott at realtimeeconomics@wsj.com, tweet to @WSJecon and visit wsj.com/economy for the latest news.
WHAT TO WATCH TODAY
The Bank of England releases its policy statement at 7 a.m. ET.
U.S. jobless claims, out at 8:30 a.m. ET, are expected to land at 220,000, within the historically low range that has marked the series the past few months.
The Philadelphia Fed’s manufacturing survey for June, out at 8:30 a.m. ET, is expected to sink to 28.5 from 34.4 the prior month.
The Minneapolis Fed’s Neel Kashkari speaks at 9 a.m. ET.
The Conference Board’s leading economic index for May, out at 10 a.m. ET, is expected to climb 0.3%.
The Bank of England’s Mark Carney delivers the annual Mansion House speech in London at 4:15 p.m. ET.
The Federal Reserve releases the first round of its stress tests for the nation’s largest banks.
Japan’s consumer price index for May is out at 7:30 p.m. ET.
TOP STORIES
NEWTON’S THIRD LAW
The European Union will start imposing retaliatory tariffs on U.S. goods on Friday. American exports worth €2.8 billion ($3.2 billion) will be subject to tariffs immediately, €6.4 billion eventually. President Donald Trump has threatened to hit back with duties on European cars.
Is there a way out? Germany’s leading auto makers have thrown their support behind the abolition of all import tariffs for cars between the European Union and the U.S., William Boston and Bojan Pancevski report. Germany, of course, has no power to hammer out trade deals—a prerogative of the EU’s executive body in Brussels.
GERMANY UNDERCUTS THE EU
Germany likes to portray itself as the champion of European integration, but its actions often weaken the bloc. That’s the case with its latest peace offering to the Trump administration: dropping EU tariffs on car imports if the U.S. does the same. It directly undercuts the European Union and France in particular, who have insisted on no concessions until the U.S. rescinds its steel and aluminum tariffs, and that trade be liberalized between the two through a broad, not a piecemeal, process. It reflects Germany’s mercantilist obsession with export promotion, which also underlies its refusal to address its massive trade surpluses—one cause of the eurozone crisis. -Greg Ip
WON’T YOU BUY ME A MERCEDES-BENZ
Germany’s premium car manufacturer Daimler AG issued a surprise profit warning, saying Chinese retaliatory import duties on vehicles built in the U.S. would hit sales and profits of the SUVs it builds at its Alabama factory.
CENTRAL BANKERS WORRY OVER TRADE
Leaders of the world’s top central banks warned that escalating trade conflicts could ricochet through financial markets and hurt the world economy, potentially prolonging the era of ultralow interest rates. The heads of the Federal Reserve, European Central Bank, Bank of Japan and Reserve Bank of Australia called for calm and warned that the costs of further escalation could be high. “It’s very worrisome and again, I can’t see any positive,” said ECB President Mario Draghi. Rising tensions over trade come at an awkward time for major central banks, which have started moving away from easy-money policies introduced since the global financial crisis, Tom Fairless reports.
CHARTS OF THE DAY: HOME IMPROVEMENT
The U.S. economy is running hot, the unemployment rate is historically low, household formation is above its roughly two-decade average. This should be a boom time for the housing market. Instead, home sales are lackluster—sales of existing homes fell for the second straight month in May, Laura Kusisto and Sarah Chaney report. That’s largely a function of low inventories. Supply is tight in part because of a lack of new-home construction caused by regulatory barriers, lack of available land, and labor and material shortages.
At the same time, the median-sale price for an existing home in May hit a new all-time high. If mortgage rates continue to climb, falling affordability and limited availability could lock more people out of the market.
READERS RESPOND
Yesterday, we asked: Would you be willing to pay more for cellphones and other electronics to reset trade relations with China? Here are some responses (edited and sometimes condensed).
If you mean to ask, would I pay more for a cell phone if that’s what it takes to get China to stop screwing us, the answer is YES. We have the upper hand in this ephemeral “trade war” that has everyone on the left apoplectic. - Kevin P. Ellis, Milwaukee, Wisc.
Closing our eyes to Chinese gov’t’s global ambitions is always dangerous to free world’s security. Better to deal with them sooner than later. – Neal Schweitzer, Short Hills, N.J.
I don’t like the hit my portfolio has taken because of the nascent trade war, yet they are necessary to bring China into serious negotiations to restore trade equilibrium. - Dan Piecora Sr., Kirkland, Wa.
QUOTE OF THE DAY
“While persistently strong economic conditions can pose risks to inflation and perhaps financial stability, we can also ask whether there may be lasting benefits. As I mentioned, a tight labor market could draw more people into the labor force. … There could also be benefits to productivity and potential growth.” - Fed Chairman Jerome Powell, speaking at an ECB Forum on central banking
TWEET OF THE DAY
WHAT ELSE WE’RE READING
Is the wealth of the richest Americans trickling down to the poorest? “[T]his column argues that the floor in the US has been sinking, alongside rising top incomes. The floor would have fallen further without public spending on food stamps, which helped protect the poorest in the wake of the 2008 financial crisis,” Martin Ravallion, Dean Jolliffe and Juan Margitic write at the Center for Economic Policy Research’s VoxEU.org website.
America’s cities are turning into dystopian technocapitalist hellscapes. The New York Times’s Farhad Manjoo says so anyway. “Corporations are getting wide latitude in determining the future of cities. They are controlling more key services and winning important battles with once-indomitable city governments. Local officials find themselves at the mercy of tech: They can’t live without tech money, even if tech interests have a way of eclipsing every other civic priority.”
UP NEXT: FRIDAY
OPEC meets Friday to discuss the cartel’s oil-production levels. On Saturday, OPEC sits down with Russia and non-OPEC members to finalize details on lifting a production ceiling.
Markit’s composite index for the eurozone is out at 4 a.m. ET.
Markit’s U.S. index for June manufacturing, out at 9:45 a.m. ET, is expected to be little changed at 56.5 and the index for services is expected to slip just a little to 56.5.
from Real Time Economics https://ift.tt/2lrIRjL
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