Newsletter: It’s Not the Economy Anymore, Stupid

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Good morning. Jeff Sparshott here to take you through key developments in the global economy. Please send us your questions, comments and suggestions by replying to this email.

Logjam

Tariffs are emerging as the main stumbling block in efforts by the U.S. and China to come to a limited trade deal, William Mauldin and Josh Zumbrun report.

• The logjam centers on whether the U.S. has agreed to remove existing tariffs in the “phase one” deal that the two countries have been working toward—or whether the U.S. would only cancel tariffs set to take effect Dec. 15.
• President Trump said Tuesday that a significant phase-one deal could happen soon.
• “If we don’t make a deal, we’re going to substantially raise those tariffs, they’re going to be raised very substantially,” Mr. Trump said in a speech to the Economic Club of New York.
• The U.S. has wanted to use the leverage from tariffs as part of an enforcement mechanism, where tariffs would only come down and stay down if China complied with its commitments under the deal.

WHAT TO WATCH TODAY

The U.S. consumer-price index for October is expected to rise 0.3% from a month earlier and 1.7% from a year earlier. Excluding food and energy, CPI is expected to climb 0.2% from a month earlier and 2.4% from a year earlier. (8:30 a.m. ET)

Federal Reserve Chairman Jerome Powell appears before Congress’s Joint Economic Committee at at 11 a.m. ET.

U.S. federal budget numbers for October are out at 2 p.m. ET.

President Trump and Turkish President Erdogan meet in Washington, D.C. The two hold a joint press conference at 3:10 p.m. ET.

The Richmond Fed’s Thomas Barkin speaks on monetary policy at 12:30 p.m. ET and the Philadelphia Fed’s Patrick Harker speaks on the economic outlook at 7:30 p.m. ET.

Japan’s third-quarter gross domestic product numbers are out at 6:50 p.m. ET.

TOP STORIES

The Tariffs and the Damage Done

Moody’s Analytics economist Maria Cosma estimates the federal government propped up U.S. farmers with about $50 billion from the fourth quarter of 2018 through the third quarter of 2019. It hasn’t been enough. Farm incomes in the Midwest have dropped by more than 30% between the first and second quarters of 2019 amid soft commodity prices, bad weather and the loss of what had been the top destination for U.S. farm exports—China. “Not only are farm incomes dropping, but farms are going out of business entirely. … Chapter 12 [bankruptcy] filings in Iowa, Illinois, Minnesota, Nebraska and Kansas are above their Great Recession highs and rising.”

Fedwatch

Federal Reserve Chairman Jerome Powell heads to Capitol Hill for two days of congressional hearings. The Fed cut interest rates three times this year and then signaled a pause. Economic data released since the Fed’s October policy meeting have largely supported that wait-and-see stance. So what should we look for? The WSJ’s Nick Timiraos says Mr. Powell will likely face a battery of questions about rates, the central bank’s $4 trillion asset portfolio, fiscal and trade policy (which are outside the Fed’s purview) and recent steps to ease bank regulations. But listen closely to lawmakers as they weigh in on Mr. Powell’s handling of his duties. President Trump has been highly critical of the Fed chairman. Lawmakers, in contrast, offered strong backing during his last appearance on Capitol Hill in July.

It’s Not the Economy Anymore, Stupid

President Trump has presided over solid economic growth and much lower unemployment than economists would have expected a few years ago, a record he proudly touted in a speech in New York Tuesday. Mr. Trump is counting on that record carrying him to re-election. Conversely, Democrats see hints of weakness, especially in manufacturing-intensive swing states, that could derail those plans. Yet both could be working from an outdated playbook. Polarized politics mean that voters’ views of the economy are increasingly shaped by their party preference, rather than the other way around. And for some key voting blocs, noneconomic issues such as immigration, race relations and Mr. Trump himself have superseded economic concerns in determining their vote. Thus, absent a serious recession or spectacular boom, the economy may have little bearing on how Americans vote next year, Greg Ip writes.

On the other hand…The national unemployment rate fell to a 50-year low this year, but joblessness has risen in some places. That could be a concern for the president: Over the last year, unemployment rates rose in 44% of the counties that supported President Trump in 2016, Labor Department data show. By contrast, unemployment rose in 32% of counties that supported Hillary Clinton. —Soo Oh and Eric Morath

Want more on the intersection of business and politics? Sign up for the WSJ’s 2020 Election+Business newsletter here.

Japan’s Labor Market Losing Its Shine

Japan’s booming labor market has been the bright spot of Prime Minister Shinzo Abe’s economic record. But the shine is now coming off, with economic forces at home and abroad weighing on employment gains. The slide in the unemployment rate has stalled. The ratio of open jobs to applicants has now been in slow and little-noticed decline for six months. And earlier this week, the government’s Economy Watchers Survey showed the worst reading for October in more than eight years—stretching back to the aftermath of the Fukushima nuclear disaster in 2011. There is some slim hope in the news that Mr. Abe has ordered an economic stimulus to be prepared. But without bold and decisive action, the labor market achievements of the current government risk being squandered, Mike Bird writes.

Royal Oil

U.S. shale-oil production will reshape global energy markets in the years to come, bolstering the country’s influence over nations in the Organization of the Petroleum Exporting Countries. The International Energy Agency in an annual report said even as annual U.S. production growth slows, the country will still account for 85% of the increase in global oil production to 2030, David Hodari reports. “Countries whose economies are exclusively reliant on oil-and-gas reserves are facing serious challenges,” said Fatih Birol, the IEA’s executive director.

WHAT ELSE WE’RE READING

Looks matter. “On average better-looking children show greater improvements in assessments based on objective tests. Because students who perform better in primary and secondary school are more likely to obtain additional education, these results imply that some of the labor market returns to education arise from the indirect effect of looks on educational attainment,” Daniel Hamermesh, Rachel Gordon and Robert Crosnoe write in a National Bureau of Economic Research working paper.

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