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Build Me Up Buttercup
U.S. home sales hit their high mark for the year in December, a sign that favorable mortgage rates and low unemployment are starting to lure more house hunters back into the market. After a slow start, the second half of 2019 showed a pickup in activity that brought total sales of previously owned homes to 5.34 million for the year, the same pace as in 2018. That is giving the housing market fresh momentum going into 2020, especially with the economy continuing to grow and borrowing rates remaining attractive, Will Parker and Sarah Chaney report.
The catch: There aren’t enough homes on the market. The inventory of existing homes for sale last month fell to the lowest level in records dating back to 1982, a potential stumbling block for homebuyers and catalyst for accelerating price gains. “Low inventory remains a problem, with first-time buyers affected the most,” said National Association of Realtors chief economist Lawrence Yun. There are, however, some encouraging signs that home building is picking up. Housing starts hit a 13-year high in December.
WHAT TO WATCH TODAY
The World Economic Forum in Davos, Switzerland, runs from Jan. 21-24. You can follow the WSJ’s coverage here.
The European Central Bank releases a policy statement at 7:45 a.m. ET, and ECB President Christine Lagarde holds a press conference at 8:30 a.m. ET.
U.S. jobless claims are expected to rise to 215,000 from 204,000 a week earlier. (8:30 a.m. ET)
The Conference Board’s leading economic index for December is expected to fall 0.2% from the prior month. (10 a.m. ET)
The Kansas City Fed’s manufacturing survey for January is out at 11 a.m. ET.
Japan’s consumer-price index for December is out at 6:30 p.m. ET.
TOP STORIES
Europe Girds for Battle
European politicians said they would retaliate against any American tariffs after President Trump set his sights on the continent as the next front in his global fight over trade. With a first-phase China deal in his pocket, Mr. Trump said he wants to reach an agreement with the European Union before the U.S. presidential election, and threatened to levy tariffs if talks failed. France’s finance minister, Bruno Le Maire quickly shot back: “If we were to be hit by American tariffs, we would have no choice but to retaliate.” One way Europe is less vulnerable to U.S. levies than China: The U.S. exports three times more to the EU than it does to China, giving Europe plenty of targets, Stephen Fidler and Greg Ip report.
Resetting the Clock
The “phase one” China-U.S. trade deal may turn out to be a watershed—the most forceful effort yet by the U.S. to reset the engagement clock and correct the flaws of China’s accession to the World Trade Organization in 2001. There are two plausible outcomes following the deal. The optimistic case is that China finally changes in the way American officials had hoped when it joined the WTO and takes a more Western-style approach to the economy and markets. The pessimistic case is that the integration of the Chinese and U.S. economies that followed accession comes undone, Greg Ip writes.
Next up: The U.S. is preparing for a longer and broader campaign to banish China’s Huawei Technologies from next-generation 5G cellular networks around the world amid pushback from allies. The Trump administration sees Britain and Germany as bellwethers that could prompt other nations to welcome Huawei, a giant maker of cellular equipment that the U.S. considers a spying threat, Stu Woo reports.
Labour of Love
The share of American workers in labor unions fell to a fresh record low last year. The fall in union membership reflects both the declining power of organized labor in the U.S. and slower employment growth in traditionally more unionized industries, such as manufacturing, transportation and utilities, compared with health care and other services. Economists point to the decline as a reason why wage growth has been relatively soft in recent years despite low unemployment and steady hiring. Median weekly pay for full-time union members was $1,095 last year versus $892 for nonmembers, Eric Morath reports.
Lockdown
Global stocks slumped Thursday as China grappled with a worsening viral outbreak, leading investors to reassess the potential economic fallout. The Chinese government on Thursday locked down Wuhan, where the new coronavirus originated, and two other cities in a dramatic escalation of efforts to contain the outbreak that has killed at least 17 people and infected more than 500 so far. Heard on the Street‘s Nathaniel Taplin writes that the latest outbreak could hit China’s economy harder than severe acute respiratory syndrome (SARS)—a similar virus that ultimately killed more than 700 people in the early 2000s. Why? China’s transport infrastructure—particularly high-speed rail—is far better than it was during the 2003 SARS epidemic, so the virus appears to be spreading quickly. China’s economy is also far more dependent on services and consumer spending than in the early 2000s. China’s economy is therefore more exposed now than when SARS hit.
WHAT ELSE WE’RE READING
Build more housing. “The case for increasing construction becomes more solid by the day. A new paper by economists Brian Asquith, Evan Mast and Davin Reed finds that building one large new market-rate apartment building in a low-income, gentrifying urban neighborhood tends to reduce rents within a 250-meter (800 feet) radius by 5% to 7%. This stands in sharp contrast to the theory that building new apartment buildings raises nearby rents by drawing high-income residents to the area. Instead, it looks as if new housing attracts relocating workers and prevents them from pricing out existing renters,” Noah Smith writes at Bloomberg Opinion.
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