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Good morning. Today we look at the U.S. labor market, inflation, homeownership in America, a two-year low for China manufacturing activity, and warnings on tariffs.
BREAK ON THROUGH
U.S. workers’ wages are poised to break through a 3% annual growth ceiling that’s held firm for nearly a decade when the Labor Department releases the October jobs report on Friday. Economists project that average hourly earnings advanced 0.2% on the month in October. That roughly 5-cent-an-hour gain would result in wages advancing 3.1% from a year earlier.
Wages haven’t exceed 3% year-over-year growth since April 2009. (At that time, wages were growing because employers we’re letting go of less-experienced, lower-paid workers, leaving higher-earning workers on payrolls.) The strong annual gain in October in part reflects that wages declined, on a monthly basis, in October 2017. Still, the broader trend is one of improving pay for workers. It’s a sign that after years of sluggish growth, a historically tight labor market is delivering raises for many workers.—Eric Morath
VIDEO DIDN’T KILL ANYTHING
One labor-market question that’s lingered: Have young Americans dropped out of the job market to play video games? Some economists have asked if the quality of games has gotten so good that adults increasingly value leisure more than work. Young men are certainly gaming more. But in a working paper, American University’s Gray Kimbrough finds that it’s often a shift away from other activities and for a limited category of people: “My hypothesis is that these men aren’t changing their basic preferences for labor and leisure (and therefore dropping out of the labor force). Instead, because gaming is more socially acceptable or available, they are shifting other electronics time (mostly TV) to gaming time. This shift appears to be more pronounced for certain groups, like men living with parents, students, and unemployed men.”
WHAT TO WATCH TODAY
The ADP jobs report for October, out at 8:15 a.m. ET, is expected to show a net gain of 180,000 for private-sector payrolls.
The U.S. employment cost index for the third quarter, out at 8:30 a.m. ET, is expected to post a 0.8% increase, a pickup from the prior quarter’s 0.6% rise.
IF CREDIT’S WHAT MATTERS I’LL TAKE CREDIT
In addition to a bump in wages, economists expect a net gain of 188,000 jobs and an unemployment rate of 3.7% for October, matching the lowest level since 1969. Republicans and Democrats argue about who gets credit for the strong job market. But it might not matter all that much for upcoming midterm elections because the jobless rate alone shows little connection to who wins and loses when voters go to the polls. The WSJ’s Soo Oh digs into the data here.
U.S. companies are raising prices on everything from plane tickets to paint, passing on higher costs for fuel, metal and food to their customers after years of low inflation. Top airlines, manufacturers and food makers have announced price hikes over the past week, Austen Hufford and Annie Gasparro.
It’s a tricky moment for the U.S. economy. Unemployment is at the lowest point in decades, economic growth is strong and inflation is near the Federal Reserve’s 2% target. So far, there’s no sign the economy is overheating, but price pressure could rise if companies start passing on higher costs for labor (the job market is tight) and materials (tariffs aren’t helping).
3 THINGS ABOUT THE U.S. HOUSING MARKET
Annual home-price gains fell below 6% for the first time in a year in August, the latest sign that the slowdown in the housing market is likely to persist. August marked the fifth straight month of decelerating price gains, Laura Kusisto reports.
But homeownership is once again on the rise, a rare bright spot for a sector suffering from weaker sales and soft construction starts. Young buyers—those 35 and under—are driving the gains.
Another bright spot: household formation has been fairly strong in recent quarters. That’s been mostly driven by home buyers, not renters. It’s not clear how sustainable that is amid rising interest rates and limited supplies of homes for sale.
CHINA’S ECONOMY SHOWS CRACKS
An official gauge of activity in China’s manufacturing sector slipped to a more than two-year low in October, as worries about an escalating trade dispute with the U.S. compounded concerns about a slowdown in the Chinese economy. The official manufacturing purchasing managers index dropped to 50.2 in October from 50.8 in September. Though readings above 50 still indicate an expansion in activity, a broad array of recent data have shown that the Chinese economy is slipping faster than many officials expected, spurring the government to move to support growth and talk up the stock markets, Liyan Qi reports.
The Bank of Japan kept its ultra-easy monetary policy in place as concerns grow about the impact of U.S.-China trade tensions on the Japanese economy. The BOJ said the U.K.’s exit from the European Union and “the consequences of protectionist moves” were risk factors for the Japanese economy, Megumi Fujikawa reports.
HIGH COST OF RISING TARIFFS
International Monetary Fund economists analyzed data from 151 nations between 1963 and 2014, looking for what occurred when tariffs rose by about 3.6 percentage points—small potatoes compared with the tariffs the U.S. is imposing on China, steel producers and others. The result: slower growth, more unemployment, higher inequality, exchange rate appreciation–and no improvement in the trade balance, which President Trump has said is his main measure of U.S. trade health.
Why the negative effects? Mainly because tariffs block competition, and reduce efficiency and productivity. Less productive economies prosper less, Bob Davis reports.
REVERSAL OF FORTUNE
In the third quarter of 2017, the Swiss National Bank ran a profit of 32.5 billion francs ($32.3 billion), aided by strong global equity markets, low bond yields and a weaker Swiss franc. Last quarter, the SNB posted a loss of 12.9 billion francs as those favorable factors mostly went in reverse. That 45 billion franc swing—a huge amount for a relatively small economy—reflects the risks the SNB has taken in order to weaken the Swiss franc. It built up hundreds of billions of francs in foreign reserves, mostly foreign stocks and bonds, through years of currency interventions. That makes it vulnerable to swings in financial markets. After posting a record 54 billion profit last year, the SNB is on track for a loss this year.
These are paper losses and the central bank isn’t going to be selling its foreign assets anytime soon, so it can ride out the volatility and almost certainly pay its annual dividend to the Swiss government. But this all highlights how complicated things still are for central banks 10 years after the financial crisis.–Brian Blackstone
QUOTE OF THE DAY
On the possible massive slowdown, right now, what we have been saying is that the confidence level from the private sector, from the entrepreneurs, are not that high.—Robin Li, chief executive of China’s Baidu Inc., in a call with investors
TWEET OF THE DAY
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WHAT ELSE WE’RE READING
Higher minimum wages affect Grubhub and Yelp reviews for restaurants—with poorly reviewed spots getting worse and higher-rated joints getting better. “These results suggest that lower quality firms may decrease output quality in response to a minimum wage increase. However, a minimum wage may act as an efficiency wage in higher quality restaurants, or higher quality restaurants may be able to substitute toward higher quality workers,” the University of Iowa’s Chelsea Crain writes in a job market paper.
When TV news heavily features violent crime, viewers get more worried about violent crime. “We focus on crime perceptions and, combining channel-specific viewership and content data, we show that the reduced exposure to channels characterized by high levels of crime reporting decreases individual concerns about crime. The effect is driven by individuals aged 50 and over, who turn out to be more exposed to television while using other sources of information less frequently,” Nicola Mastrorocco and Luigi Minale write in the Journal of Public Economics.
UP NEXT: THURSDAY
The Bank of England releases a policy statement at 8 a.m. ET, followed by a press conference at 8:30 a.m. ET.
U.S. jobless claims, out at 8:30 a.m. ET, are expected to remain at a low level.
U.S. productivity for the third quarter, out at 8:30 a.m. ET, is expected to rise at a 2.3% pace.
Markit’s manufacturing purchasing managers index for October, out at 9:45 a.m. ET, is expected to tick down to 55.8 from 55.9.
The Institute for Supply Management’s manufacturing PMI for October, out at 10 a.m. ET, is expected to slip to 59.0 from 59.8 a month earlier.
U.S. construction spending for September, out at 10 a.m. ET, is expected to rise 0.1%.
U.S. auto sales for October are expected to decline to a 17.1 million annual pace from 17.4 million a month earlier.
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