Real Time Economics: A Delay in Tariffs, Cracks in the Global Economy, Help for U.S. Housing

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U.S. consumers get a reprieve, new cracks emerge in the global economy, the Trump administration tries to jump-start the housing market and U.S. inflation looks stronger. Good morning. Josh Mitchell here to take you through key developments in the global economy. Send us your questions, comments and suggestions by replying to this email.

Here We Go Again

The Trump administration abruptly suspended plans to impose new tariffs on about $156 billion in goods from China, Josh Zumbrun, Vivian Salama and Alex Leary report. It was the latest development in a tit-for-tat trade spat between the two countries.

• Stocks soared. The Dow shot up 1.44%. Retail stocks in particular enjoyed a bounce. Apple Inc. also saw shares rise more than 4%.
• The delay is a reprieve for U.S. consumers, who would have seen the tariffs kick into effect for goods arriving for the holidays. “The tariffs would have hit the kinds of products—consumer, Christmas toys, things like that—which would have certainly been felt by the American consumer heading into the holiday season,” said Myron Brilliant of the U.S. Chamber of Commerce.
• Not all consumer goods were spared by the delay. Among those still facing new duties: about $39 billion of fabrics and apparel.

 

Meanwhile, the politics are tricky. Pew released a poll Tuesday showing Americans’ views of China have turned sharply negative. “Today, 60% of Americans have an unfavorable opinion of China, up from 47% in 2018.”

WHAT TO WATCH TODAY

The U.S. import-price index for July is out at 8:30 a.m. ET.

Australia’s jobs report for July is out at 9:30 p.m. ET.

China’s new-home prices report for July is out at 9:30 p.m. ET.

TOP STORIES

Trouble in the Global Economy

Two of the world’s biggest economies appear to be weakening, in no small part due to global trade tensions. China reported a raft of weak economic data, Grace Zhu reports. The jobless rate in Chinese cities again rebounded in July to its highest level since regular reporting on the data began. Reports on factory production, consumption and property investment came in much lower than expected. Meanwhile, Germany’s GDP shrank 0.1% in the second quarter as a negative hit from foreign trade outweighed solid domestic consumption, Bojan Pancevski and Tom Fairless report. Europe’s largest economy has now become a drag on the eurozone. Analysts said the downturn should be a wake-up call for European policy makers to consider measures to stimulate activity in the region.

Help for the Housing Market

The U.S. housing market’s in a slump. The Trump administration has two plans to change that, potentially making it easier for Americans to qualify for government-backed mortgages.

• New rules set to be released Wednesday are designed to make it easier for Americans to use loans backed by the Federal Housing Administration, Laura Kusisto reports in a WSJ exclusive. The plan would target younger buyers and the condo market.
• A Federal Housing Finance Agency plan unveiled Tuesday could increase the number of Americans who qualify for loans backed by Fannie Mae and Freddie Mac, Andrew Ackerman reports. The plan will force the mortgage giants to consider alternatives to FICO scores to determine borrowers’ creditworthiness. FICO competitor VantageScore says its score could increase the ranks of borrowers who qualify for a mortgage.
• Loosening lending standards increases the risk that borrowers will default later on. FICO counters that VantageScore’s product could lead to riskier loans. David Stevens, former head of the Mortgage Bankers Association, tells Kusisto: “FHA is already a higher risk program. Layer that on top of a higher risk product called the condominium and you definitely have to prepare yourself for the fact that in the next correction you’re going to take more losses at FHA than anywhere else.”

 

U.S. Inflation Is Back (Sort of)

U.S. inflation picked up in July, in no small part due to the tariffs on Chinese goods, Paul Kiernan reports. Core prices–those outside of food and energy–just posted the strongest two-month gain since 2006.That said, July’s overall annual inflation rate of 1.8% is tame.

Heard on the Street’s Justin Lahart says the inflation figures coupled with the tariff delay take some pressure off the Fed to cut interest rates next month. “Nonetheless, interest-rate futures markets still suggest that investors believe a September rate cut is a sure thing. That alone might count as a reason for the Fed to ease, since holding rates steady when everyone thinks they are heading lower could prove disruptive,” he writes.

Big Number

$9.406 Trillion
Amount of outstanding U.S. mortgage debt, a nominal record

WHAT ELSE WE’RE READING

At least 2,500 truck drivers have lost their jobs in 2019 in what Business Insider calls a transportation “bloodbath.” “Rates in the spot market, in which retailers and manufacturers buy trucking capacity as they need it rather than through a contract, sank by about 18% year-over-year in June. That has caused truckers like Demetrius Wilburn, a Georgia-based driver, to find themselves unemployed.”

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