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The grounding of Boeing’s 737 MAX weighs on the economy, the White House and Congress avoid a fiscal crisis, and the U.K. today picks the person who will lead it through Brexit. Good morning. Jeff Sparshott here to take you through key developments in the global economy. Send us your questions, comments and suggestions by replying to this email.
Grounded
The prolonged grounding of Boeing’s 737 MAX aircraft is rippling through the U.S. economy, hurting the nation’s trade balance and clouding the outlook for airlines, suppliers and their tens of thousands of workers, Doug Cameron and Alison Sider report.
- Boeing is the largest U.S. manufacturing exporter and one of the nation’s top private employers. The MAX is its best-selling plane, and jets worth more than $30 billion sit idle since global regulators grounded the aircraft.
- Economists say the production cuts likely weighed on U.S. gross domestic product in the second quarter, and warn the negative impact could intensify.
- The company hopes to resume deliveries in the fourth quarter, but some airlines and officials expect the MAX to stay out of service until next year. That would further dent U.S. exports and durable-goods orders at a time when some manufacturers are experiencing higher costs and lowering their output due to tariffs and trade tensions.
WHAT TO WATCH TODAY
The U.K. announces a new prime minister.
U.S. existing-home sales for June are expected to fall to an annual pace of 5.31 million from 5.34 million a month earlier. (10 a.m. ET)
The Richmond Fed manufacturing survey for July is out at 10 a.m. ET.
Eurozone consumer confidence for July is out at 10 a.m. ET.
TOP STORIES
Hey Big Spender
Congressional and White House negotiators reached a deal to increase federal spending and raise the government’s borrowing limit. The compromise avoids a looming fiscal crisis and pushes the next budget debate past the 2020 election, Andrew Duehren, Kate Davidson and Catherine Lucey report.
- The deal would suspend the debt ceiling until the end of July 2021. It also provides for about $320 billion in spending over two years above limits set in a 2011 budget law, known as the sequester.
- The accord marks another example of Washington’s rising tolerance for deficits, among both Democrats, who prize domestic spending, and Republicans, who consistently seek more money for the military.
Return on Investment
Government programs for adults often lead to more government spending, but programs for low-income children return taxpayer dollars over time. A new study from Harvard’s Nathaniel Hendren and Ben Sprung-Keyser shows programs geared toward adults end up costing an extra 60 cents for every $1 spent, often by reducing a person’s earnings or causing them to use more government-funded services. But investing in low-income children often lifted their earnings over time and decreased their dependence on public aid: You get back your $1—plus about 47 cents, Soo Oh and Janet Adamy report.
Brexit Boss
The U.K. selects a new prime minister today. The frontrunner: Boris Johnson. The former foreign secretary has promised to dial up the brinkmanship with the European Union ahead of Britain’s scheduled exit from the trade bloc on Oct. 31. Mr. Johnson says he wants to renegotiate a divorce deal. The EU has repeatedly said the agreement isn’t up for renegotiation, Max Colchester and Laurence Norman report.
Hanging on the Telephone
President Trump met with major technology companies at the White House on Monday to discuss restrictions on Chinese telecom giant Huawei, a move regarded as a step toward softening the U.S. stance on the blacklisted firm. China has insisted that the U.S. lift its ban on Huawei, the world’s largest maker of telecommunications gear, as a condition to returning to the trade talks that stalled in May, Alex Leary and Josh Zumbrun report.
It’s a Bold Strategy, Cotton
U.S. cotton exports to China have tumbled, and the domestic price for the crop has fallen roughly 30% since China slapped retaliatory 25% tariffs on U.S. farm commodities last summer. Stockpiles of U.S. cotton are forecast to be the highest in a decade. By mid-July, many cotton farmers who would have normally sold half of the current year’s crop have yet to market any because cotton prices are hovering in the low-60-cent-per-pound range, below the cost of production in many cases, Kris Maher reports.
Deaths of Despair
Death rates are rising for young and middle-aged U.S. adults. A report by the Centers for Disease Control and Prevention adds new detail to a grim picture of worsening health trends as the opioid epidemic and stalled progress against heart disease have dragged down life expectancy. Among younger adults age 25-44, death rates rose 21% for white and black adults and 13% for Hispanic adults between 2012 and 2017. Most young victims in that age group died of injuries, including drug overdoses and suicides. Homicides have also risen, as well as deaths related to heavy use of alcohol, Betsy McKay reports.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
There’s a one-in-four chance the U.K. is already in a recession. And it could get worse. “We see the risks to growth to be heavily weighted to the downside in view of the high probability of a no-deal Brexit and the risk that this could be disorderly. Given the slow underlying growth rate of the U.K. economy, the fragility of the global economy, and the significant risk of an abrupt downward shift at the end of this year, we judge that there is around a 30% chance of output growth of less than 0% in 2020,” the National Institute of Economic and Social Research says in a new forecast.
German companies are cutting hours for employees as the economic outlook darkens. “A recent survey … found more and more companies seeking to curb their wage costs by reducing employees’ working hours—a sign of emptying order books and slowing output. … The advantage of short-time work is clear: under German law, the government will cover most of the shortfall in a worker’s wages if his employer has been forced to cut hours due to an economic downturn,” Guy Chazan reports in the Financial Times.
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