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Nov 20, 2018

Real Time Economics I WSJ

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Real Time Economics
U.S. housing starts may rebound a little in October but that won't signal liftoff for the housing industry. The sector has been a drag on the economy and is likely to stay that way. Commerce releases the latest numbers at 8:30 a.m. ET.
Good morning. Jeff Sparshott here to take you through the day's top economic news. We'll also look at fake "Made in the U.S.A." labels, why states shouldn't depend on coal's comeback, Brexit, and how Apple and cable TV are coping with weaker-than-expected demand. Share your thoughts by responding to this email. 
 

What's Wrong With the Housing Market?

The housing industry has been a drag on the overall economy in five of the last six quarters. That doesn't seem likely to change much. Builder sentiment fell sharply this month amid worries about affordability. Prices have been climbing faster than incomes for years, in part because there aren't enough homes on the market to meet demand. Now with a new tax law that that reduces incentives for homeownership and the Federal Reserve raising interest rates, ownership is even more of a stretch.

Worst-case scenario: The housing market helps drive furniture sales, building-materials purchases and construction employment. If it falters further, it could become an even bigger drag on the economy. But this isn't 2005 or 2006, when housing accounted for as much as 6.7% of gross domestic product, households were severely overstretched with mortgage debt and the market flamed out. Housing is less than 4% of GDP now, mortgage-debt-to-income is well below its 2007 peak and the rest of the economy appears solid. Strong job creation, rising incomes and steady household formation should keep housing from anything like a free fall.

What to Watch Today

U.S. housing starts for October, out at 8:30 a.m. ET, are expected to rise to an annual pace of 1.23 million from 1.201 million a month earlier. Permits are expected to rise to 1.27 million from 1.241 million.
Keep an eye on markets, where volatility is the new normal. The Nasdaq Composite Index closed near a seven-month low and tech-giant Alphabet slipped into bear-market territory Monday. On Tuesday, stocks around the world followed the U.S. selloff.

Top Stories

Born in the U.S.A.

Manufacturers of U.S.-made products, hoping to capitalize on President Trump’s aggressive stance on China, are calling for tougher action against companies that make bogus “Made in the USA” claims. The Alliance for American Manufacturing wants the Federal Trade Commission to get companies to pay restitution, or at least admit fault, the first time they falsely label products as American-made. The FTC’s longstanding policy has been to only seek money after a second violation, Heidi Vogt reports.
Fraudulently labeled products have been a longstanding irritant for U.S. manufacturers, who see a “Made in America” label as a competitive advantage and a source of pride. Many of the falsely labeled products are made in China, and American manufacturers now see a chance to leverage Mr. Trump’s sympathies as Washington and Beijing remain locked in a bitter trade dispute.

The Coal Industry Isn't Back

Many states are experiencing rapid labor-force gains as the economic expansion hums along. In Wyoming and West Virginia, the situation couldn’t be more different. Since the recession ended in June 2009, Wyoming’s labor force has contracted by 5.1%, the biggest drop of any state in the nation. West Virginia is next at 4.5%, Sarah Chaney reports. One big reason: A hefty reliance on coal.
“When you have that dependence on just a few commodity industries and you don’t have a high-skilled workforce, that makes it difficult for the state to attract high-wage businesses, high-wage jobs,” said Maria Cosma, an economist at Moody’s Analytics who specializes in Wyoming economics. “If people can’t find good job opportunities at home, they will move elsewhere.” 

Success Is Not Final, Failure Is Not Fatal

Prime Minister Theresa May has a deal to extract the U.K. from the European Union. Will the British Parliament go for it?
Mrs. May’s Conservative Party doesn’t command a majority in the House of Commons and many of her own lawmakers virulently oppose her plans to leave the EU. So Brexit comes down to votes from members of Parliament who don’t support her and never wanted to leave the EU. If lawmakers revolt, Parliament could order Mrs. May to go back and negotiate tweaks for the deal—or even vote for a second Brexit referendum, Max Colchester reports.

Supply Outstrips Demand: iPhones

Lower-than-expected demand for Apple Inc.’s new iPhones and the company’s decision to offer more models have created turmoil along its supply chain and made it harder for Apple to predict the number of components and phones it needs. Apple slashed production orders for all three of the iPhone models it unveiled in September in recent weeks.
Forecasts have been especially problematic for the iPhone XR, Apple’s new lower-price model. Around late October, Apple slashed its production plan by up to a third of the approximately 70 million units it had asked some suppliers to assemble between September and February, Yoko Kubota, Takashi Mochizuki and Tripp Mickle report. 

Supply Outstrips Demand: Cable TV

More than 1 million consumers canceled their cable-TV or satellite subscriptions in the past quarter, one of the largest seasonal drops ever. The pay-TV decline comes as many U.S. households are turning to the internet for entertainment and canceling their traditional subscriptions, a phenomenon called cord-cutting. A growing share of Americans, known as cord-nevers, are forgoing pay-TV altogether, Drew FitzGerald and Benjamin Mullin report.
Unlike Apple, cable providers seem unlikely to voluntarily dial back supply. So if demand is dropping like a stone, will price follow? 
 

Quote of the Day

“Gold! Gold! It’s always worth the same or more, never less.”
Venezuela President Nicolás Maduro, in a speech encouraging gold mining to help offset to plummeting oil revenue

What Else We're Reading

Build that wall? There's already about 658 miles of fencing along the U.S.-Mexico border, most of it built between 2007 and 2010. "At a construction cost of approximately $7 per person in the United States, we estimate that the border wall expansion harmed Mexican workers and high-skill U.S. workers, but benefited U.S. low-skill workers, who achieved gains equivalent to an increase in per capita income of $0.36. In contrast, a counterfactual policy which instead reduced trade costs between the United States and Mexico by 25% would have resulted in both greater declines in Mexico to United States migration and substantial welfare gains for all workers," Treb Allen, Cauê de Castro Dobbin and Melanie Morten write in a National Bureau of Economic Research working paper.
Really nasty weather could get you a pay raise—possibly because it chases other workers away. "Violent tornadoes in directly affected counties result in opposing effects on labor supply and labor demand. This is evident from the persistently higher wages per worker and insignificant change in employment two years after the event. These results suggest that the state of the labor market two years after the tornado is better than its pre-tornado state due to persistently higher wages per worker," the University of Kentucky's Kara Riesing writes in a job market paper.
 

Up Next: Wednesday

Note: Some U.S. indicators arrive early this week because of the Thanksgiving holiday.
The OECD's economic outlook report is out at 5 a.m. ET. It's previous report was cautious: "The expansion may now have peaked."
U.S. durable goods orders for October, out at 8:30 a.m. ET, are expected to fall 2.6% from the prior month.
U.S. jobless claims, out at 8:30 a.m. ET, are expected to inch down to 214,000.
U.S. existing-home sales for October, out at 10 a.m. ET, are expected to rise to an annual pace of 5.19 million.
The University of Michigan consumer sentiment index for November, out at 10 a.m. ET, is expected to register at 98.2, little changed from its preliminary reading.
The Conference Board's leading economic index for October, out at 10 a.m. ET, is expected to be unchanged.
Japan's consumer-price index for October is out at 6:30 p.m. ET.

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