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Republicans and Democrats live in different economic worlds, Fed Chairman Jay Powell is trying to send a message to President Trump, and the U.S. housing market is—finally—showing signs that its slump may be over. Happy Friday. Let’s take a look at key economic developments around the world.
Democrats and Republicans Live in Different Economic Worlds
America’s political polarization is almost complete. Its two main political parties increasingly represent two different economies. And they barely overlap. Democrats can be found in educated cities and suburbs where professional jobs are plentiful. Republicans live in working-class and rural communities, home to agriculture and low-skill manufacturing. Another way to look at it: Democrats are dominant among high-producing districts, while Republicans now represent more of those with the least economic activity.
- Why does this matter? “When folks have less in common with one another, it’s hard to expect that they’re going to see the problem the same way,” said Roger Johnson, president of the National Farmers Union, “let alone recognize that a problem exists.”
Click here to read the full project from the WSJ’s Aaron Zitner, Dante Chinni, Jessica Wang and Danny Dougherty.
WHAT TO WATCH TODAY
The New York Fed’s John Williams gives a presentation on monetary policy rules and the lower bound on interest rates at a Swiss National Bank research conference at 8:15 a.m. ET, and the Boston Fed’s Eric Rosengren speaks in New York at 11:20 a.m. ET.
President Trump meets with Australian Prime Minister Scott Morrison; press conference at 11:45 a.m. ET
The Baker Hughes rig count is out at 1 p.m. ET.
TOP STORIES
Listen to What the Man Said
Federal Reserve Chairman Jerome Powell’s press conference this week carried a subtle message for President Trump: If you’re worried about an economic slowdown, find a way to cool down the trade war. Mr. Powell, of course, didn’t spell this out so explicitly, Nick Timiraos writes.
- Mr. Powell in his last three public appearances has amplified his concern about the U.S.-China trade war and its impact on business confidence, investment and markets.
- Trade disputes have simmered for the past year, but they ratcheted up in May. “Trade developments have been up and down and then up, I guess, or back up perhaps, over the course of this intervening period. In any case, they’ve been quite volatile,” Mr. Powell said.
- The Fed chairman mentioned trade policy or trade developments 20 times at his news conference on Wednesday. Other geopolitical risks figured less prominently: Mr. Powell mentioned Brexit once, while Hong Kong and Saudi Arabia didn’t come up at all.
Our House
U.S. home sales in August rose to the highest level in nearly a year and a half, sparking fresh hope that a protracted slump may finally be starting to reverse. The latest data strengthened the case that some of the lowest mortgage rates of the past 50 years may at last be luring more buyers back into the market, Will Parker and David Harrison report.
- Existing-home sales in August were up from a year earlier for the second straight month—following 16 straight months of declines.
- Separate data this week showed new-home construction posting its biggest monthly gain since 2007.
- Significant headwinds remain. For one, the price of homes available for sale continues to rise. The median sales price in August posted its 90th consecutive increase on an annual basis. The number of homes available for sale, meanwhile, fell.
India’s Big Fiscal Stimulus
The Indian government on Friday announced a series of measures, including a cut in the corporate tax rate for domestic companies, to boost growth that has hit a six-year low. Local firms will now have to pay a 22% corporate tax, 8 percentage points lower than before, and new companies that can begin manufacturing within the next four years will be subject to a tax rate of only 15%, the country’s Ministry of Finance said. To boost confidence and stabilize capital markets, the Indian government said it won’t be levying a tax surcharge on capital gains from the sale of equity investments. Analysts said these measures could make India a manufacturing hub given the U.S.-China trade war, Gaurav Raghuvanshi reports.
China’s Little Rate Cut
China’s new benchmark lending rate fell for the second month in a row. September’s one-year Loan Prime Rate stands at 4.2%, down from 4.25% in August, the People’s Bank of China said Friday. The five-year LPR, which is normally used in longer-term credit like mortgage loans, was kept unchanged at 4.85% for September. The slightly lower rate may not be enough to boost an economy that has been slowing at a sharper pace amid a protracted trade fight with the U.S., Grace Zhu reports.
Rotten Tomatoes
The U.S. finalized a deal with Mexican tomato growers that American retailers and importers warn could lead to more expensive and lower-quality tomatoes at the supermarket. The new pact requires the U.S. Department of Agriculture to inspect round and Roma tomatoes and bulk grape tomatoes. According to the agreement, the inspector will “normally arrive and complete the inspection within 24 hours.” But fruit and vegetable importers said any delays in transporting their product—which normally moves from Mexican greenhouses to stores across the U.S. in seven days—would bring risks of spoilage, higher costs or a requirement to pick the tomatoes earlier, William Mauldin reports.
WHAT ELSE WE’RE READING
Working with friends doesn’t always have benefits. “Worker productivity declines when a friend is close enough to socialize with. … Estimates suggest that a median worker is willing to pay 4.5% of her wage to work next to friends,” Sangyoon Park writes in the American Economic Journal: Applied Economics.
The American working man still isn’t working. “There is one important economic indicator that still hasn’t rebounded to pre-crisis levels: the employment rate among prime-age men—that is, men between the ages of 25 and 54. … The costs of their non-participation go beyond lost wages and lower GDP, to a lack of dignity and life satisfaction—both of which, in turn, hurt the communities these non-employed men belong to,” Harvard’s Jason Furman writes in Foreign Affairs.
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