Newsletter: The High Cost of Rising Car Prices

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Good morning. Jeff Sparshott here to take you through key developments in the U.S. and global economies. Please send us any questions or comments by replying to this email.

Unlimited Wants, Limited Resources

Consumers are facing rising prices for cars and trucks, and relying on debt to buy them. One big problem: Some dealerships are dressing up car-loan applications with fake, inflated incomes, Ben Eisen and AnnaMaria Andriotis report.

• Certain large lenders have cut back on safeguards that could catch the forged applications, in much the same way some mortgage lenders stopped double-checking applications in the run-up to the financial crisis.
• Sometimes, borrowers lie about their earnings. But some dealerships concoct numbers without telling the customers, according to lawsuits and interviews with customers and lawyers. Those borrowers often default on their loans within a few months, destroying their credit.
• The share of loans going delinquent soon after they are made is rising, particularly among subprime loans. U.S. consumers, meanwhile, held a record $1.3 trillion of debt tied to their cars at the end of September, up from about $740 billion a decade earlier.

WHAT TO WATCH TODAY

U.S. durable-goods orders for November are expected to rise 1.2% from the prior month. (8:30 a.m. ET)

U.S. new-home sales for November are expected to fall to an annual pace of 730,000 from 733,000 a month earlier. (10 a.m. ET)

The Bank of Japan releases minutes from its Oct. 30-31 meeting at 6:50 p.m. ET.

TOP STORIES

Boots on the Ground

U.S. employers are turning to on-the-job boot camps to fill out their workforce. The short-term training programs customized to employers’ specific needs have gained popularity as the labor market has tightened. The programs allow companies and workers to bridge a skills gap. “When you have human capital needs, you either grow your own talent or you have to go out and take talent from somewhere,” said Dorian Newton, director of technical services at N3B, a private contractor working to clean up radioactive and chemical waste on the Los Alamos laboratory grounds. The company, working with a state agency, started two training programs to fill positions monitoring radiation and processing waste, Amara Omeokwe reports.

Consumers vs. Companies

U.S. consumers boosted spending as they headed into the end of the year, buoyed by a rise in income and confidence about the economy. That should help support growth. Forecasting firm Macroeconomic Advisers is tracking a 1.8% pace of growth in the fourth quarter, a modest deceleration from the third quarter. What could help kick the economy into higher gear? Business spending. Watch today’s durable-goods report for a key measure of business investment—it’s been weak so far this year, holding back the economy.

Underscoring weakness in the factory sector, United States Steel will idle most of a mill near Detroit. Layoff notices were issued to more than 1,500 employees last week. Despite Trump administration tariffs on foreign metal that were meant to bolster domestic producers by squeezing out cheap imports, profits at U.S. Steel and its competitors have been hurt lately by falling prices and demand from U.S. manufacturers.

There’s been one surprise exception to the global manufacturing slowdown: Greece. The Mediterranean nation has the world’s strongest manufacturing sector by one measure, offering a lesson in how a country’s economic makeup can be a curse at certain times but a blessing at others, Sarah Chaney and Soo Oh report.

Self-Fulfilling Prophecy

The Federal Reserve’s preferred inflation gauge in November was up 1.5% from a year earlier. Excluding volatile food and energy, prices advanced 1.6%. That’s well shy of the Fed’s 2% target. Persistently low inflation has entrenched consumer expectations for more of the same. The University of Michigan’s consumer sentiment survey for December showed over the next five years, Americans forecast an annual inflation rate of just 2.2%, the lowest level since this question was first introduced in the late 1970s. Fed officials closely follow inflation expectations on the theory they’re self-fulfilling.

China Slashes Tariffs

China will cut import tariffs for frozen pork, pharmaceuticals, some high-tech components and other goods starting Jan. 1. The plan lowers tariffs for all trading partners on more than 859 types of products, sometimes to zero. The announcement comes as China and the U.S. are close to signing a trade deal aimed at putting an end to a tit-for-tat tariff war that has lasted nearly two years. Monday’s tariffs cuts appear to pave the way for China to import more from the U.S. without violating international trading rules that ban managed trade, Grace Zhu and Chao Deng report.

Fed Confronts Lack of Diversity

The economics profession embarked this year on a soul-searching appraisal of perceived hostility to women and minorities in its ranks, and the Federal Reserve—the nation’s largest employer of Ph.D. economists—wants to get ahead of the curve. For the Fed, where three quarters of its research economists are men and most are white, facing up to the lack of women and minorities among these employees isn’t just a matter of appearances. A staff that better reflects the U.S. population could limit the potential for groupthink or blind spots that hinder the central bank’s assessment of how the economy is changing, Nick Timiraos reports.

WHAT ELSE WE’RE READING

The Trump administration has granted about $3.2 billion in tariff exemptions to favored importers. Another $12.8 billion could be on the way for the lucky few. “[A] murky exemption process favors some U.S. firms and disfavors others. Congress should not tolerate the opaque handout of billions of dollars in exemption tickets without public justification. At a minimum, the exemption process cries out for full explanations of grants and denials,” Gary Clyde Hufbauer and Zhiyao Lu write at the Peterson Institute for International Economics.

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