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The partial government shutdown enters its 27th day with a little more clarity for federal workers but growing anxiety about the economy.
Good morning. Jeff Sparshott here to take you through the day’s most important economic news, including the high cost of student debt, shutdown fallout, pressure on Huawei, support for a carbon tax, Brexit planning and Europe’s new steel quotas. Let us know what you think by replying to this email.
FOREVER IN YOUR DEBT
The Federal Reserve has linked rising student debt to a drop in homeownership among young Americans. Roughly 400,000 borrowers who could have owned a home by 2014 didn’t because of student loans, new research shows.
Why? First, many borrowers fell behind on their student loans, hurting their ability to qualify for mortgages. Second, many others have good credit but are unable or unwilling to save for a down payment because they funnel a chunk of their disposable incomes toward student debt, Josh Mitchell and Laura Kusisto report.
BRIGHT LIGHTS, BIG CITY
More economic impact: Americans with student debt are leaving rural areas in droves. Half of all student-loan borrowers in rural areas moved to urban areas within six years of taking on their debt, a separate Fed study said. “While investing in postsecondary education continues to yield, on average, positive and substantial returns, burdensome student loan debt levels may be lessening these benefits.”
WHAT TO WATCH TODAY
U.S. jobless claims are expected to rise to 220,000 from 216,000 a week earlier. (8:30 a.m. ET)
The Philadelphia Fed manufacturing survey for January is expected to slip to 8.0 from 9.4 a month earlier. (8:30 a.m. ET)
U.S. housing starts for December won’t be published due to the shutdown.
Fed Vice Chairman Randal Quarles speaks on insurance regulation and supervision at 10:45 a.m. ET.
Japan’s consumer-price index for December is out at 6:30 p.m. ET.
TOP STORIES
SMALL-BUSINESS LIMBO
The Small Business Administration has stopped approving routine small-business loans because of the shutdown. The result: Business owners are halting plans for expansion and repairs, and considering costlier sources of cash, Ruth Simon reports.
SBA loans are a mainstay for many entrepreneurs, who generally can borrow as much as $5 million to start, buy, expand or run a small business. While the SBA doesn’t directly fund owners, it covers as much as 90% of loan losses, giving an incentive to banks to finance businesses they might not otherwise serve.
SHUTDOWN HINDERS TRADE AGENDA
The start dates for two major trade negotiations appear to be in jeopardy because the shutdown has reduced staff at the U.S. trade representative’s office, the White House and other key offices. The Trump administration had planned to start formal talks with the European Union and Japan as soon as this month. “I think they’re going to be delayed,” Sen. Chuck Grassley (R., Iowa), chairman of the Senate Finance Committee, said.
JOB STREAK
The longest stretch of U.S. job creation on record appears likely to continue through January after President Trump signed legislation that promises back pay to hundreds of thousands of furloughed federal workers. The bill will pay federal workers for wages lost since the start of the partial government shutdown that began Dec. 22. Because the approximately 380,000 federal employees not working will get paid—after the shutdown ends—the Labor Department will count them as being on federal payrolls, Eric Morath reports.
BUSINESS OPTIMISM FADES
Optimism is waning among U.S. businesses as they grapple with the government shutdown, trade disputes, higher borrowing costs and a volatile stock market. Although the economy continues to grow, some firms are pulling back on planned investments and paring back their 2019 forecasts, the Federal Reserve said in a report.
FLYING BLIND
“Now in its fourth week, the government shutdown represents a triple threat to US economy: the direct loss of output from government workers and affiliated parties; increasing system inefficiencies and reduced aid to low-income families; and a blindfold on private-sector and Fed policymakers at a time when economy appears to be slowing.” —Oxford Economics’s Nancy Vanden Houten and Gregory Daco
PRESSURE MOUNTS ON HUAWEI
Federal prosecutors are pursuing a criminal investigation of China’s Huawei Technologies for allegedly stealing trade secrets from U.S. business partners. The probe is at an advanced stage and could lead to an indictment soon, Dan Strumpf, Nicole Hong and Aruna Viswanatha report. The federal investigation comes amid a broader push by the Trump administration to aggressively pursue claims of intellectual property theft and technology transfer by Chinese companies.
CARBON TAX
Former Fed chair Alan Greenspan and former Council of Economic Advisers chief Austan Goolsbee are among dozens of economists signing on to a new statement in support of a carbon tax on businesses. The plan advocates replacing many environmental regulations with a simplified tax on businesses that release carbon, an incentive for them to use cleaner energy. The new statement shows broad support for a political sweetener: sharing the proceeds with American consumers, Timothy Puko reports.
Proponents say the tax would generate roughly $200 billion a year to start and send an estimated $2,000 to a family of four, with the money intended to offset the impact of higher energy costs likely passed down to consumers.
DISASTER PLANNING
Uncertainty about Brexit is creating uncertainty for European firms. With the deadline just weeks away, many big companies find themselves making contingency plans for a hard exit, Denise Roland and Robert Wall report.
“The worst case for us is not that we sell a little less fizzy pop,” said Hugo Fry, who has spent almost two years at French drugmaker Sanofi SA planning how to insulate the company from a messy Brexit. “It’s patients don’t get medicine.”
EUROPE THROTTLES STEEL IMPORTS
The European Union set restrictions on steel imports to manage the fallout from disruptive U.S. trade policies. Europe has faced surging imports since President Trump announced a 25% tariff on almost all steel imports to the U.S. in March. The steel measures come in response to U.S. actions but are effectively driven by Chinese production flooding global markets and threatening producers world-wide, Emre Peker and Alistair MacDonald report.
NOODLES OVER JEWELRY
The U.S.-China trade conflict, a weaker currency and slowing growth have raised concerns about the health of Chinese consumer spending. The market response: Shares in companies catering to everyday Chinese needs have fared better than those serving high-end consumption, Joanne Chiu reports. Investors say Chinese consumers are continuing to spend, just in a more discerning way and with less emphasis on luxury and big-ticket items.
CORRECTIONS & AMPLIFICATIONS
In Wednesday’s newsletter, we incorrectly attributed authorship of a study on balancing work and family duties. It was written by Harvard’s Joseph Fuller and Manjari Raman.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
The Trump administration’s trade war often takes the blame (or credit) for China’s economic slowdown. “But it may also be the latest manifestation of a trend that began a decade ago. And it may signal that China’s entire system of authoritarian state capitalism is less effective than many had believed,” Noah Smith writes at Bloomberg Opinion.
The U.S. economy is enjoying its second-longest expansion on record. Does longer duration mean the next recession will be more severe? Nope. “Deeper recessions are often followed by stronger recoveries, while longer and stronger expansions are not followed by deeper recessions,” Murat Tasci and Nicholas Zevanove write at the Cleveland Fed.
UP NEXT: FRIDAY
Canada’s consumer-price index for December is out at 8:30 a.m. ET.
U.S. industrial production for December is expected to rise 0.2% from the prior month. (9:15 a.m. ET)
The Philadelphia Fed’s Patrick Harker speaks on Philadelphia’s economy at 9 a.m. ET, and the New York Fed’s John Williams speaks on the economic outlook and monetary policy at 9:05 a.m. ET.
The University of Michigan consumer sentiment index for January is expected to drop to 96.4 from 98.3 at the end of December.
from Real Time Economics https://on.wsj.com/2TYnTIN
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