Newsletter: Piling Up Debt

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This should be a big week for economic news, marked by President Trump’s speech at the Economic Club of New York on Tuesday, Fed Chairman Jerome Powell’s appearance on Capitol Hill Wednesday and Thursday, a decision on whether to impose tariffs on European and Asian auto imports, and important updates on U.S. inflation, consumer spending and industrial production. We’ll also find out if Germany dipped into recession.

Forever in Your Debt

More borrowers are going underwater on car loans. Consumers, salespeople and lenders are treating cars a lot like houses during the last financial crisis: by piling on debt to such a degree that it often exceeds the car’s value. Some 33% of people who traded in cars to buy new ones in the first nine months of 2019 had negative equity, compared with 28% five years ago and 19% a decade ago, according to car-shopping site Edmunds. Rising car prices have exacerbated an affordability gap that is increasingly getting filled with auto debt. Easy lending standards are perpetuating the cycle, AnnaMaria Andriotis and Ben Eisen report.

It’s not just consumers racking up debt. More farmers are taking on high-interest loans outside traditional banks to stay in business amid low crop prices, the trade war with China and record wet weather. Farm debt is projected to hit a record $416 billion this year, up nearly 40% since 2012. Defaults and bankruptcies are rising as well, crimping the ability of cash-strapped farmers to secure funding for seed, fertilizer and fuel, Jacob Bunge and Kirk Maltais report.

WHAT TO WATCH TODAY

Bond markets are closed in observance of Veterans Day. Stock markets are open. 

The Boston Fed’s Eric Rosengren speaks in Oslo at 8:15 a.m. ET.

TOP STORIES

President Trump last week disputed China’s assertion that the two countries had agreed to roll back tariffs as part of an interim trade accord. Investors, observers and Beijing will all be looking for some clarity on trade talks when Mr. Trump speaks to the Economic Club of New York on Tuesday. The president’s latest comments from the weekend: “The trade deal is moving along, and China wants to be there. I’d like to make a deal, but it’s got to be the right deal. China very much wants to make a deal. They’re having the worst year they’ve had in 57 years. Their supply chain is all broken, like an egg. They want to make a deal. Perhaps they have to make a deal. I don’t know. I don’t care.”

Reminder: The White House has until Nov. 13 to decide whether to impose tariffs on European and Asian auto imports.

Pig Out

A doubling of pork prices last month sent Chinese consumer inflation to its highest level in nearly eight years, constraining Beijing’s ability to stimulate the economy as growth continues to slow. China’s consumer-price index rose 3.8% in October from a year earlier, far outpacing September’s 3.0% reading. Consumer inflation was again fueled by a rise in hog prices, the fastest on record, amid an outbreak of the deadly African swine fever. That lifted overall food-price inflation to a more-than-11 year high, as consumer demand drove up prices for pork alternatives including eggs and other meat products, Grace Zhu reports.

U.K. Economy Inches Ahead

The U.K. economy returned to growth in the third quarter, banishing fears of recession as the country heads toward a general election. The British economy expanded 0.3% in the third quarter compared with the second, an annualized rate of 1.2%. Even so, the economy eked out the slowest year-over-year expansion in almost a decade, a result of uncertainty over Brexit and a darkening global outlook, Jason Douglas reports.

Baby You Can Drive My Car

Americans who lose their jobs become much more likely to drive for Uber, Lyft and other transportation apps, a new study from the JPMorgan Chase Institute found.

• Earning income from transportation apps increases 72% around the time an American first starts to receive jobless benefits, the bank’s research arm found. The finding, based on tracking transactions in an anonymized sample of 2.3 million bank account holders, shows ride-hailing apps serve to supplement and smooth income.
• Less than 1% of those who lose a job turn to ride-hailing apps to supplement their income.

—Eric Morath

Two Indias

India’s economy is divided in two. One part is rooted in its cities, where enterprises trade on global markets, operate through banks and pay taxes. Then there’s the vast informal economy, which sustains as many as nine of every 10 Indians, operates in cash and pays no taxes, Bill Spindle writes.

• A critical goal for India has been to enlarge the more-modern economy and shrink the informal one, but now progress is stalling amid a deepening economic slump.
• Whether India manages the economic transition matters far beyond its shores. It is projected to become the world’s most populous country in 2024 and by then will also likely be the fifth-largest economy.
• With China increasingly closing itself off to foreign firms or being shunned by them, India has emerged as the last huge growth market for many multinationals.

All Clear?

A closely watched barometer of economic expectations is encouraging investors to take risks again. Yields on longer-term U.S. government debt climbed above those on shorter-term Treasurys in recent weeks—a sign investors expect no immediate pullback in growth and inflation. Earlier in the year, longer-term yields fell below their shorter-term counterparts, a phenomenon known as an inverted yield curve. The yield curve, in fact, completely uninverted last week for the first time since November 2018. The reversal gives comfort to investors, because an inverted yield curve has proved to be one of financial markets’ best predictors of recessions, Sam Goldfarb and Daniel Kruger report.

WHAT ELSE WE’RE WATCHING

JPMorgan Chase Chairman and CEO Jamie Dimon sat down with CBS’s 60 Minutes to talk about politics, the economy and the 2008 financial crisis.

Lesley Stahl: Looking back, do you think that there were some bankers who were outright immoral and unethical, they knew exactly what they were doing?

Jamie Dimon: I believe there are people, I’m not gonna use the names, who were greedy, selfish, did the wrong stuff, overpaid themselves, and couldn’t give a damn. Yes.

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