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West Coast home prices are falling for the first time since 2012, the hometown of Pixar Animation Studios now has the nation’s highest minimum wage, and the Justice Department is opening an antitrust review on Big Tech. 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.
House of Pain
Home prices in major West Coast cities declined for the first time since 2012 and the nation’s home sales slumped in June, ending the spring selling season with a thud, Laura Kusisto, Will Parker and Abigail Summerville report. The lack of momentum is expected to weigh on second-quarter economic growth.
- Home values in the Bay Area, Los Angeles and Seattle have roughly doubled over the past seven years; prices may have to retreat further before buyers do more than look
- Nationwide, existing-home sales fell 2.2% compared with a year earlier, marking the 16th consecutive month of annual declines.
- Falling sales have puzzled economists: The economy is expanding, borrowing rates have fallen to their lowest levels in two years, wages are rising and unemployment is at a 50-year low.
WHAT TO WATCH TODAY
Caterpillar reports earnings this morning. The manufacturer is often viewed as a barometer for the wider economy.
IHS Markit’s U.S. flash manufacturing index for July is expected to tick up to 51.0 from 50.6 at the end of June. (9:45 a.m. ET)
U.S. new-home sales for June are expected to rise to an annual pace of 659,000 from 626,000 a month earlier. (10 a.m. ET)
TOP STORIES
Face Time
A U.S. delegation is expected to travel to China for trade talks next week, marking what would be the first in-person talks since the Group of 20 summit last month. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will meet with China’s Vice Premier Liu He and his team in Shanghai, Vivian Salama, Rebecca Ballhaus and Josh Zumbrun report.
- Starting point: The U.S. wants China to agree to buy more American agricultural products, White House economic adviser Lawrence Kudlow said. China appears willing to do so as a “good-will gesture.”
- The last round of face-to-face negotiations between U.S. and Chinese officials took place in Washington in May, and ended in an impasse. Mr. Trump subsequently raised tariff rates on $200 billion of Chinese goods.
Up
Emeryville, Calif., has America’s highest minimum wage. Proponents say a boost to $16.30 an hour was desperately needed in the hometown of Pixar Animation Studios, where the median rent for a one-bedroom apartment is $2,840, the median home price is more than $560,000, and a salad costs more than $15. But local businesses are nervous about their financial viability, Jim Carlton reports. “There is a tipping point,” said Erik Hansen, a restaurant owner who is deciding whether to raise sandwich prices by as much as $1.50 or lay off one of his three employees.
Cost of Climate Change
U.S. production of corn and soybeans could decline as much as 80% over the next 60 years if greenhouse gases are allowed to continue to increase, a U.S. Department of Agriculture report found. As a result, corn and soybean prices would skyrocket and the cost of crop insurance to the federal government could rise to $7.6 billion a year for corn and $3.3 billion for soybeans. By comparison, the USDA has spent roughly $300 million on insurance for the 2019 crop year as of mid-July, Kirk Maltais reports. Federally subsidized crop insurance covers as much as 85% of a farmer’s acres against natural disasters or declines in commodity prices.
Breaking Up Is Hard to Do
The Justice Department is opening a broad antitrust review into whether dominant technology firms are unlawfully stifling competition. The new inquiry could ratchet up the already considerable regulatory pressures on Facebook, Google, Amazon.com, Apple and other top U.S. tech firms. There is no defined end-goal yet for the Big Tech review other than to understand whether there are antitrust problems that need addressing, but the inquiry could eventually lead to more focused investigations of specific company conduct, Brent Kendall reports.
German Manufacturing Worst in 7 Years
Germany’s manufacturing sector posted its worst performance in seven years. IHS Markit’s purchasing managers index for manufacturing fell to 43.1 in July from 45 at the end of June, well below the 50 level that separates expansion from contraction. The country’s service sector continued to grow, keeping the overall economy afloat for now. “The health of German manufacturing went from bad to worse in July…raising the risk of the euro area’s largest member state entering a mild technical recession,” said Phil Smith, economist at IHS Markit.
Hello My Precious
Gold is hovering near its highest level in six years as the prospect of easier global monetary policy burnishes the allure of owning the metal. Central banks have purchased nearly 250 tons of gold this year through May after hoarding over 650 tons during 2018 in their biggest buying spree in decades, according to data from the World Gold Council and TD Securities. Central banks “may be concerned over massive U.S. budget deficits and believe the Fed could be fairly aggressive in cutting rates,” said Bart Melek, head of commodity strategy at TD Securities.
WHAT ELSE WE’RE READING
The past few years have been a jobs bonanza in the U.K. But they’ve been a pay disaster. “A strong jobs recovery has not resulted in workers vigorously re-climbing the jobs ladder. Both their willingness to climb, and the pace of this climb, has been subdued relative to the strength and tightness of the jobs market. Post-crisis risk aversion, and changes in the nature of work, may have increased insecurities and dimmed workers’ appetite for a vertiginous career climb–or indeed any climb. The result has been subdued rates of pay and, in particular, productivity growth,” Bank of England chief economist Andrew Haldane said in a speech.
Government spending is the Trump economy’s secret sauce. From 2011 through 2016, fiscal policy at the federal, state and local levels subtracted 0.5 percentage points from GDP a year. “Since Trump took office, fiscal policy has by contrast contributed an average of 0.3 percentage points a year to GDP growth. That represents a 0.8 percentage point shift. Meanwhile, the average real GDP growth rate has risen from 2.1% a year during those six years to 2.8% since the beginning of 2017, a difference of 0.7 percentage points. Coincidence?” Justin Fox writes at Bloomberg Opinion.
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