Newsletter: The Longest Expansion on Record Is Going to Get Even Longer

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

Time Bomb

The U.S. has had two longstanding demographic advantages over other countries: higher fertility and immigration. Both are eroding, Greg Ip writes.

• The demographic threat: While jobs are growing faster than expected, population is growing more slowly.
• Aging doesn’t spell economic doom: Germany’s population is flat and Japan’s is falling, yet both boast lower unemployment than the U.S. But in the long run, job creation is constrained by the number of people of working age, which is why the International Monetary Fund puts Germany’s long-run growth rate at 1.3% and Japan’s at 0.6%, both lower than the U.S. at 1.9%.

WHAT TO WATCH TODAY

The Bank of England releases a policy statement at 7 a.m. ET.

U.S. jobless claims are expected to fall to 227,000 from 252,000 a week earlier. (8:30 a.m. ET)

The Philadelphia Fed’s manufacturing survey for December is expected to fall to 8.0 from 10.4 a month earlier. (8:30 a.m. ET)

The U.S. current account deficit in the third quarter is expected to narrow to $121.9 billion from $128.19 billion the prior quarter. (8:30 a.m. ET)

U.S. existing-home sales for November are expected to fall to an annual pace of 5.44 million from 5.46 million a month earlier. (10 a.m. ET)

The Conference Board’s leading economic index for November is expected to rise 0.1% from the prior month. (10 a.m. ET)

Japan’s consumer-price index for November is out at 6:30 p.m. ET.

TOP STORIES

It Keeps Going and Going and Going

The U.S. expansion, now in its 11th year, will continue through the 2020 presidential election, backed by a healthy labor market, economists say. The panel of 57 economists who participated in The Wall Street Journal’s December economic survey offered a relatively optimistic outlook for 2020 growth, Harriet Torry writes.

• On average, they expect U.S. economic growth to slow slightly in 2020, to a year-over-year rate of 1.8% in the fourth quarter from an estimated 2.2% in 2019.
• Forecasters expect the labor market to remain strong with monthly job growth of around 157,000 in the first half of the year, and about 104,000 a month in the second half of 2020. The unemployment rate is expected to rise slightly to 3.7% in December 2020.

Last to First

The lowest-paid U.S. workers are getting some of the biggest raises, likely a result of low unemployment and the longest stretch of job creation on record. The November jobs report hinted at the disparity, showing that average hourly earnings for nonsupervisory workers grew 3.7% from a year earlier, while wages for all workers were up a more modest 3.1%. The implication: rank-and-file workers are getting bigger raises than their better-paid bosses.

The Atlanta Fed’s wage growth tracker underscores the trend: Hourly pay was up by 4.5% for the lowest-paid workers and 2.9% for the highest paid. Breaking down by industry, some of the heftiest year-over-year gains are going to the lowest-paid sectors, including temp and admin services, leisure and hospitality, and retail. Why? A nearly decade-long stretch of continuous payroll gains appears to have finally limited the supply of workers available to take lower-skilled jobs. “A strong labor market makes the bargaining power of lower-paid workers more like the labor market higher-wage workers experience during good times and bad,” says Indeed Hiring Lab’s Nick Bunker.

Losing Interest

The Trump administration is considering ways to help Americans with their student-loan debt, including by refinancing loans at lower interest rates and eliminating debt in bankruptcy. The plan would counter student-debt-forgiveness proposals by some Democratic presidential contenders. Student debt soared during the recession and in the expansion, driven by escalating tuition costs and a surge in college and graduate-school enrollments, Josh Mitchell and Andrew Restuccia report.

Buy Canadian

The Trump administration is moving forward on a plan to allow the importation of cheaper drugs from Canada and other countries. Opening up U.S. markets to imported drugs is a central plank of the administration’s effort to reduce drug prices, and federal officials say it would let Americans attain the same cost savings as consumers in other countries, Stephanie Armour and Thomas M. Burton report.

Accentuate the Positive, Eliminate the Negative

Sweden’s central bank, one of the pioneers in wielding negative interest rates, became the first to end that policy. On Thursday, the Riksbank raised its key rate to zero. The reasons: A majority of its policy makers expect inflation to be close to the bank’s 2% target over the coming years. Some policy makers have also become more concerned that a longer period of negative interest rates could lead businesses and households to take on too much debt, or force banks to charge to accept deposits, which could lead to a rush into cash, Paul Hannon reports.

Chile’s Economy Paralyzed by Protests

One of Latin America’s most prosperous nations is suffering its sharpest economic contraction in a decade. Few expect a quick recovery. Two months of mass protests have paralyzed Chile’s economy: Output will hit just 1% this year, down from 4% in 2018. While protests have dissipated, the economic fallout is just beginning. Chile is now embroiled in political uncertainty after its government agreed to hold a referendum in April on a new constitution. Leftist activists seek to overturn the nation’s free-market economic model. That is having an impact on business plans—a December poll by Cadem found that 85% of business leaders have put investments on hold, Ryan Dube reports.

WHAT ELSE WE’RE READING

Maybe the longest economic expansion on record ain’t all that. “Despite a decade of steady economic growth since the Great Recession, America has done remarkably little to address underlying structural weaknesses in the country’s economy and society. Surveys of [Harvard Business School] alumni worldwide, HBS MBA students, and members of the U.S. public show the disappointing trajectory of U.S. competitiveness, the dysfunction in America’s political system that has contributed to the trajectory, the role of business in political dysfunction, the unfinished business of U.S. tax reform, and America’s faltering system for attracting global talent,” Harvard’s Michael Porter, Jan Rivkin, Mihir Desai, Katherine Gehl, William Kerr and Manjari Raman write in a new report.

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