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The Federal Reserve cut its benchmark interest rate but officials were reluctant to promise more, the economy is getting stung by a series of small supply shocks, and home construction bounced to the highest level since 2007. Good morning, let’s dive into Thursday’s economic news.
One Day at a Time
The Federal Reserve cut its benchmark interest rate by a quarter-percentage point for the second time in as many months to cushion the economy against a global slowdown amplified by the U.S.-China trade war, Nick Timiraos reports.
- Markets have been looking to the Fed for more concrete promises of rate cuts, but Chairman Jerome Powell has been reluctant to make any. Trade-related risks are out of the Fed’s control and officials are divided: Three of 10 voted against the quarter-point cut—two said rates should have been left unchanged and one supported a bigger reduction.
- Mr. Powell repeatedly cited the costs of rising trade-policy uncertainty, though officials still have a positive outlook for the U.S. economy. Most Fed governors and reserve bank presidents who decide on policy are taking a “meeting by meeting” approach, he said.
- “We made one decision, to lower the Federal funds rate by a quarter of a percentage point,” Mr. Powell said.
What else did the Fed chairman say about rates? Not much. The WSJ’s Greg Ip says Mr. Powell seems to have mastered the art of saying nothing. The immediate reason for his studied unhelpfulness is that the principal risk to the economy—the trade war—is impossible to forecast. But there is a larger purpose too: Talking less about the Fed’s intentions minimizes miscommunication while maximizing flexibility.
- President Trump’s Twitter take: “Jay Powell and the Federal Reserve Fail Again. No “guts,” no sense, no vision! A terrible communicator!”
WHAT TO WATCH
The Bank of England releases a policy statement at 7 a.m. ET.
U.S. jobless claims are expected to rise to 215,000 from 204,000 a week earlier. (8:30 a.m. ET)
The Philadelphia Fed’s manufacturing survey for September is expected to fall to 9.5 from 16.8. (8:30 a.m. ET)
The U.S. current account deficit for the second quarter is expected to narrow to $128.0 billion from $130.4 billion the prior quarter. (8:30 a.m. ET)
U.S. existing-home sales for August are expected to fall to an annual rate of 5.37 million from 5.42 million a month earlier. (10 a.m. ET)
The Conference Board’s leading economic index for August is expected to fall 0.2% from a month earlier. (10 a.m. ET)
Japan’s consumer-price index for August is out at 7:30 p.m. ET.
TOP STORIES
Shock Treatment
In recent days, the U.S. suffered two supply shocks: an attack on Saudi oil production sent crude prices sharply higher and the United Auto Workers walked off the job at General Motors. Neither event would be worrisome in isolation. But they aren’t isolated. They are the latest in a series of supply shocks for the American and global economies, Greg Ip writes.
- Some are idiosyncratic and acute, like the grounding of Boeing’s 737 MAX airliner or an outbreak of African swine fever that has sent Chinese pork prices soaring. Others are more systemic and slower moving: A retreat from globalization is raising trade barriers; resistance to immigration could aggravate labor shortages; and geopolitical threats hang over the oil market.
- By restricting the supply of a vital product or input, such shocks can undermine economic growth, push up inflation, or both. Right now, investors and economists see these supply shocks as a threat to growth, but not inflation. They might have it backward.
- The U.S. shows no sign of slipping into recession and the labor market—judging by the unemployment rate—is the tightest in half a century. Inflation excluding food and energy in the past few months has bounced back to around 2%. The risk of rising inflation isn’t high, but in these circumstances it definitely isn’t zero.
Take the Long Way Home
U.S. new-home construction in August jumped to the highest level since 2007. Economists have been waiting for lower mortgage rates to boost the market and that may finally be happening: The average rate on a 30-year, fixed-rate loan touched a nearly three-year low in recent weeks. Caveat: The Commerce Department’s monthly construction data is volatile and can be subject to large revisions. More broadly, home sales and home building have been weak this year. In the first eight months of 2019, starts were down 1.8% compared with the same period in 2018, Will Parker and Sarah Chaney report.
Bye Bye Bonus
Private-sector spending on benefits fell 1.1% in the second quarter of 2019 from a year earlier, logging the steepest year-over year decline in records dating back to 2005, according to new Labor Department data. That’s the third straight year-over-year drop—all driven by a steep falloff in bonus payments. Bonuses had climbed sharply last year as companies like Walmart and Wells Fargo announced one-time payments following the 2017 tax bill. Take this as another piece of evidence that the effects of the tax cut are waning.
Companies are investing in other perks: Spending on paid leave climbed 3.3% in the second quarter from the same period in 2018, more than twice the rate employers spent on wages and salaries. This suggests that many employers are using perks to hold on to workers in a tight labor market—without locking in higher salaries. —Sarah Chaney
Slow Down
The global economy is set to grow at the slowest pace since the financial crisis, with business investment and trade hampered by an escalating dispute between the U.S. and China. The Organization for Economic Cooperation and Development said it now expects world output of goods and services to increase by 2.9% this year, the smallest annual rise since 2009. It expects growth to remain low in 2020 and possibly beyond if the trade conflict between the U.S. and China spills over into other aspects of their economic relationship, Paul Hannon reports.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
Oregon in 2008 banned non-compete agreements for hourly workers. The result? “We find that banning NCAs for hourly workers increased hourly wages by 2-3% on average. … The Oregon low-wage NCA ban also raised monthly job-to-job mobility by 12-18%, increased the proportion of salaried workers, and decreased the probability of being unemployed, without affecting hours worked,” Miami University’s Michael Lipsitz and the University of Maryland’s Evan Starr write in a working paper.
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