Monday, January 27, 2020

Newsletter: Coronavirus vs. the Economy

This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here.

Coronavirus vs. Consumer Spending

China was counting on consumers to underpin its already slowing economy. Now, authorities are advising people to stay home, and many residents are too frightened anyway to eat out, shop, see movies or travel since the deadly coronavirus emerged from the central Chinese city of Wuhan. That adds risks to what was already expected to be a very challenging year for the economy. Many services core to China’s consumer boom are grinding to a halt as people forgo plans to spend money during the country’s biggest annual holiday, the Lunar New Year that began Saturday. Local authorities in some parts of China have ordered theaters, museums and other venues to shut down. Wuhan halted public transportation in, out and around the city, and more than a dozen other cities in central China have since followed suit, James T. Areddy reports.

Hong Kong could be especially hard hit. The city banned visitors from Wuhan, threatening more misery for an economy already in recession after months of protests battered tourism and retail sales. Disneyland shuttered, Lunar New Year festivities were scrapped and schools will remain closed until Feb. 17.

Stocks and crude oil tumbled this morning as the detection of infected patients in the U.S., Australia and France led to escalating concerns about the containment and how the outbreak threatens China’s economy.

WHAT TO WATCH TODAY

U.S. new-home sales for December are expected to rise to an annual pace of 730,000 from 719,000 a month earlier. (10 a.m. ET)

The Dallas Fed manufacturing survey for January is out at 10:30 a.m. ET.

TOP STORIES

Synchronized Sliding

Another risk to the world economy: a synchronized housing slowdown. Across 23 countries, an index of inflation-adjusted home prices compiled by the Federal Reserve Bank of Dallas grew 1.8% in the third quarter of 2019 from a year earlier, down from a recent peak of 4.3% in 2016, according to an Oxford Economics analysis. In 18 large economies, world-wide residential investment dropped on a year-over-year basis for four consecutive quarters, the longest stretch of declines since the 2008-09 crisis, Sarah Chaney reports. “It matters because…the housing market is a big asset market which has quite large potential impacts on consumer spending,” said Adam Slater, an economist at Oxford Economics. “It tends to be a sector when it booms, it booms; when it busts, it busts.”

The U.S. real estate market is undergoing its own reshuffle after the 2017 federal tax overhaul made it costlier to own a house in many high-price, high-tax areas of the U.S. The changes have the biggest impact on a sliver of the population who have high incomes and live in expensive areas. They tend to have white-collar jobs and the ability to pick up and move. The result? Two years after President Trump signed the tax law, its effects are rippling through local economies and pushing some people to move from high-tax states. Parts of Florida, for example, are getting an influx of buyers from states such as New York, New Jersey and Illinois, Ben Eisen and Laura Kusisto report.

Disaster Planning

As part of their contingency planning for the next recession, Federal Reserve officials are looking at a stimulus scheme the U.S. last used during and after World War II. From 1942 until 1951, the Fed capped yields on Treasury securities—first on short-term bills and later on longer-term bonds—to help finance war spending and the recovery. At issue is how the central bank should manage a faltering economy when short-term interest rates are already low. In the past three downturns, the Fed cut its benchmark rate by around 5 percentage points. The rate today is in a range between 1.5% and 1.75%, leaving less room to counteract a downturn, Nick Timiraos reports.

Second Chance

In one of the tightest labor markets in decades, more employers are willing to give ex-convicts a chance, trying to marry business needs and good intentions. Hiring people with a criminal past can pay dividends for companies, such as closer community ties and a loyal workforce. But keeping them on the job can be a struggle. Cincinnati-based Nehemiah Manufacturing started hiring workers with a criminal record in 2011 at the request of a local nonprofit. The experiment got off to a rocky start. Many workers continued to struggle with substance abuse or mental illness; some were homeless. Since, the company has become more deliberate about identifying candidates who are likely to be reliable employees and has developed a more formal system for providing them with support. Now, workers with criminal records make up around 80% of the company’s roughly 180 employees, Ruth Simon reports.

Special Relationship

The U.K. is scheduled to leave the European Union on Friday. Treasury Secretary Steven Mnuchin said the U.S. hopes to complete a new trade agreement with the country by the end of this year. “The U.S. and the U.K. have very similar economies. I think this will be a very important relationship,” Mr. Mnuchin said.

QUOTE OF THE DAY

“You can make more as a dog walker in New York City than as an infant-toddler caregiver. It’s scary.” —Shael Polakow-Suransky, president of Bank Street College

WHAT ELSE WE’RE READING

Stay in school. “The share of job vacancies requiring a bachelor’s degree increased by more than 60% between 2007 and 2019, with faster growth in professional occupations and high-wage cities. … This suggests that employer skill upgrading is probably here to stay, and that many more job candidates will have to obtain a four-year college degree to compete in the labor market of the 21st century,” Harvard’s Peter Blair and David Deming write in a National Bureau of Economic Research working paper.

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