Newsletter: World Economy Heading for Worst Year Since Financial Crisis

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The global economy is slowing, doubts persist over China’s commitment to U.S. farm purchases, a Brexit deal is maybe possibly but maybe not in striking distance, and homeownership is further out of reach even for households with six-figure incomes. Welcome to Real Time Economics as we hit this week’s halfway mark.

Slow Down

The global economy in 2019 is on course for its weakest year of growth since the financial crisis, weighed down by tensions that have slowed international trade to nearly a standstill, Josh Zumbrun reports.

• Global growth is expected to slow to 3% this year, according to new estimates from the International Monetary Fund, down from an estimate of 3.2% in July. As recently as 2017, the global economy was growing at a 3.8% pace.
• The IMF attributed the sharp slowdown over the past two years primarily to rising trade barriers that have stunted manufacturing and investment around the world.
• Forecasts for the U.S. were cut by 0.2 percentage point to 2.4% annual growth in 2019; euro-area forecasts were cut 0.1 point to 1.2%; China’s forecast was lowered 0.1 point to 6.1%.

WHAT TO WATCH TODAY 

U.S. retail sales for September are expected to rise 0.2% from the prior month. (8:30 a.m. ET)

Bank of England Gov. Mark Carney participates in a panel discussion on big tech and finance at 10 a.m. ET, and speaks at the Harvard Kennedy School at 6 p.m. ET.

U.S. business inventories for August are expected to rise 0.2% from the prior month. (10 a.m. ET)

The National Association of Home Builders’ survey for October is expected to hold steady at 68. (10 a.m. ET)

The Federal Reserve releases its beige book at 2 p.m. ET.

The Chicago Fed’s Charles Evans speaks on the economy and monetary policy at 10:45 a.m. ET, and Fed governor Lael Brainard speaks on the future of money at the Peterson Institute for International Economics at 3 p.m. ET.

TOP STORIES

Despite a Chinese promise to buy more U.S. farm products, questions remain over how much, the time frame for purchases, and what the U.S. might have to give in return, Chao Deng and Lingling Wei report.

• President Trump said Friday that China will reach the $50 billion range in “less than two years.” The Chinese side hasn’t confirmed the figure; negotiators say purchases must be based on actual demand and at fair-market prices.
• $50 billion is far beyond what China has historically spent. U.S. exports of soybeans, sorghum, pork and other agricultural products to China peaked in 2013 at around $29 billion. They plunged to $9.2 billion over the past 12 months.
• Beijing is pushing the U.S. to drop plans to impose new 15% tariffs on $156 billion in consumer goods starting Dec. 15 and could use the farm purchases as leverage. U.S. and Chinese trade officials are set to continue discussions by phone over the next two weeks.

Come Together

Talks between the U.K. and European Union toward a draft plan for Britain to leave the bloc dragged into Wednesday after negotiations late into the night failed to resolve key issues. EU chief negotiator Michel Barnier is due to meet member state ambassadors Wednesday afternoon to say whether he will recommend that EU leaders sign off on an agreement later this week. Even if the U.K. and EU reach a deal, Prime Minister Boris Johnson would still need approval in a divided U.K. Parliament, Laurence Norman and Max Colchester report.

Everything Is Borrowed

So you make $100,000 a year? That still might not be enough to buy a home. The result: More high-earning Americans are renting instead of buying, Ryan Dezember, Laura Kusisto and Shane Shifflett report.

• As more people forgo homeownership, there is a risk that America’s already-wide wealth gap gets worse. Home-price appreciation has historically been the way most middle-class Americans accumulated wealth.
• It’s not just New York and San Francisco. In Houston, Denver, Nashville, Tenn., Seattle, Cincinnati and Ann Arbor, Mich., the number of six-figure renters has at least doubled between 2006 and 2017.

 

Feeling a Little Deflated

Longer-run inflation expectations hit the lowest level on record last month. The Federal Reserve Bank of New York said the public’s expectation of inflation three years from now fell to 2.4%, the lowest reading since the start of the survey in 2013. Part of the case for the Fed’s two rate cuts thus far this year has been to help push inflation pressures higher. Weak inflation expectations now could bolster the case for another rate cut when central bankers meet at the end of the month, Michael S. Derby reports.

Don’t Call it QE

The Fed is buying bonds again. Just don’t call it quantitative easing. The WSJ’s Nick Timiraos has an explainer here.

TWEET OF THE DAY

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WHAT ELSE WE’RE READING

What happens when states make it illegal to text and drive? “We find consistent evidence that introducing a law which restricts the use of handheld devices while driving results in a 22% reduction in daily traffic fatalities and reduces average fatalities by 0.64 individuals each day,” Florida Gulf Coast University’s Nicholas Wright and Georgia State University’s Ernest Dorilas write.

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