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Good morning! Today we look at OPEC’s plans to start pumping more oil, a little European dissonance on interest rates, signs of a heartbeat in the eurozone, big growth for the littlest businesses, and reader responses to our question on an aging America.
OPEC AND OIL PRICES
OPEC meets Friday and Saturday. There’s a lot at stake for oil producers, as well as consumers in the U.S. and around the world. Saudi Arabia led OPEC in a pact with Russia and a handful of other nations outside the cartel to whittle down a large surplus of crude. Prices have since climbed steadily. Now, Riyadh wants to dole out more oil to thirsty global markets, Summer Said, Benoit Faucon and Christopher Alessi write. That would help offset falling output in Venezuela and Libya, and keep prices from rising too high, choking global economic growth.
Surprise: Iran said late Thursday it was still opposed to a deal to lift oil output, fraying a sense of consensus among OPEC members. Iran can’t raise output on its own, partly because new U.S. sanctions. But intransigence would challenge Riyadh’s authority in the group, possibly leading to a free-for-all among other producers.
PAIN AT THE PUMP
Higher oil prices were once universally bad for the U.S. economy. Now, consumers certainly get squeezed at the pump—gasoline prices are up almost 25% over the past year. But the broader economy doesn’t take as big of a hit since the fracking boom jump-started the domestic oil and gas industry. A smaller petroleum trade deficit, and energy-related investment and employment gains help offset consumer losses. “The US is still a net importer and is not immune to higher oil prices. We would need, however, to see a much larger increase in prices—well over $120 per barrel—for there to be a net drag on the US economy,” economists at UBS said.
Note: At just under 11 million barrels a day, the U.S. is producing record amounts of crude. But the U.S. shale industry needs several months between a change in price and a tweak in output. Shale growth has also hit a few snags, including investor demands for higher returns, and production and transportation bottlenecks. Saudi Arabia can turn on the taps, and move markets, virtually overnight.
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WHAT TO WATCH TODAY
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 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.
TOP STORIES
SEPARATE WAYS
European countries outside the eurozone have been enjoying decent to robust economic growth lately. Not all of their central banks seem to have gotten the memo. Policymakers are signaling different outlooks for rate increases, suggesting the divergent paths of the world’s largest central banks are gripping smaller ones too, Brian Blackstone, Nina Adam and Jason Douglas write. The Bank of England held its benchmark interest rate steady but expects economic growth in the U.K. to pick up, setting the stage for a rise in borrowing costs this summer. Norway’s central bank also stayed on hold but said rates will probably go up in September. In contrast, the Swiss National Bank kept its key policy rate in deeply negative territory and signaled no forthcoming changes despite signs of healthy economic activity. Divergence among major central banks has emerged as a key theme recently with potential repercussions on stock, bond and currency markets.
REPORTS OF EUROZONE’S DEATH EXAGGERATED
Don’t write off the eurozone just yet. Business activity picked up in June for the first month in five—a first sign that the currency area’s economy may be shaking off a sluggish start to the year. The eurozone economy recorded its fastest expansion in a decade during 2017. But official figures for the first three months of the year recorded a sharp slowdown and signs of a rebound have been scarce, Paul Hannon writes. Friday’s data was a welcome change: IHS Markitid its composite Purchasing Managers Index for the currency area rose to 54.8 in June from 54.1 in May. A reading above 50.0 signals an expansion in activity.
CHARTS OF THE DAY: TAXI!!
We’re a little preoccupied by the gig economy. It looks like it’s everywhere, though recent Labor Department data showed that all those Uber drivers, contractors and temp workers added up to a scant 6.9% of the labor force last year. A separate Federal Reserve survey showed that nearly one-third of all adults dabbled in the gig economy, but for the bulk it accounted for 10% or less of family income. So where is the gig economy? How about the taxi industry. The Census Bureau this week showed that nonemployer establishments (businesses with an owner but no workers) in the taxi and limousine industry jumped nearly 46% from 2015 to 2016.
Receipts are up too. But more broadly, the economic impact is limited. The Economic Policy Institute notes that receipts at nonemployer establishments account for a scant 3.1% of all business revenue in the U.S. “This indicates that the growth of nonemployer establishments seems to reflect the growth of self-employed individuals…operating unincorporated businesses that generate very little revenue,” the EPI’s Lawrence Mishel and Julia Wolfe write.
READERS RESPOND
Thursday, we asked readers, “What’s the best way to boost economic growth as America’s population ages?” Here are some responses (sometimes lightly edited and condensed).
1.) Get people off of Social Security Disability Insurance. There are millions of young, able-bodied people on SSDI who should be in the labor force. 2.) Get the opioid epidemic under control. Prime-age Americans are dropping like flies due to overdoses and millions are addicted to opioids or heroin, making them totally incapable of work. 3.) In the meantime, allow more immigrants to enter to work. 4.) Society as a whole may want to consider placing more value on maternity and raising children. – Carli Heller, University of Maryland, Baltimore County
President Trump has said he wants to grow the economy at four percent yet this will be virtually impossible without growing the workforce, and it will be impossible to grow the workforce without significantly increasing immigration. His current policy is undermining his own goals. – Paul Christakos, New York, N.Y.
The simplest way is for older boomers to keep working which is already happening. I am past “retirement” age and still working. I plan to collect Social Security and keep working when I turn 70. This means I will still be paying into the system-Social Security and income are taxed. – Dave Machanick
You allude to the fact that it this will have implications for the immigration debate down the line. That’s spot on, in my opinion. Streamlining the legal immigration process, but tying it to a reduction or removal in the Social Security benefits that new permanent residents can receive seems like a potential compromise that both parties could swallow while ameliorating two major issues. – Jonathan O’Kane, New York, N.Y.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
Some of the nation’s tightest jobs markets aren’t attracting workers. “Places with the lowest unemployment rate today aren’t necessarily those with the best prospects for future job growth,” Indeed’s Jed Kolko writes. That’s one of the big differences between places like Dubuque, Iowa, and Boise, Idaho. Both have low unemployment, but Dubuque’s working-age population is falling while Boise’s is rising.
A day trader opened a €20,000 account to trade equity futures. “A couple of weeks later, he was practising trading at home on what he believed to be the demo version—placing €1bn of orders for European and US equity futures—before realising that it was the live platform and he had run up a loss of more than €1m. He continued trading, eventually building up a $5bn position in US equity futures and turning the loss into a profit of more than €10m,” The Financial Times reports.
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