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Apr 23, 2019

Real Time Economics | Housing Sputters, Social Security to Tap Trust Fund, Oil Prices Surge

The Wall Street Journal.
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Real Time Economics
The housing market isn't heating up for spring, Social Security costs are poised to exceed income, oil prices are rising and coffee prices falling. Good morning. Jeff Sparshott here to take you through key developments in the global economy.

What's Wrong With the Housing Market?

Sales of previously owned U.S. homes sputtered in March despite lower mortgage rates and a strong job market. U.S. existing-home sales dropped 5.4% from a year ago, marking 13 straight months of annual declines, Laura Kusisto reports.

The housing market has been beset by a host of challenges: Home prices have risen faster than wages for years, mortgage rates had been climbing and inventory falling. All those trends moderated or reversed in recent months, raising hopes that buyers would return to the market. But they haven't, though some analysts suggested that March data may not fully take into account recent positive trends—existing-home sales reflect contracts signed in prior months.
U.S. new-home sales for March are expected to fall to an annual pace of 650,000 from 667,000 a month earlier, offering little evidence of a rebound for the market. The data is out at 10 a.m. ET.

What to Watch Today

U.S. new-home sales for March are expected to fall to an annual pace of 650,000 from 667,000 a month earlier. (10 a.m. ET)
The Richmond Fed manufacturing survey for April is out at 10 a.m. ET.
Eurozone consumer confidence for April is out at 10 a.m. ET.

Top Stories

Social Security to Dip Into Trust Fund

Social Security’s costs are expected to exceed its income in 2020 for the first time since 1982 as retiring baby boomers increase the number of beneficiaries. That will force the program to dip into its nearly $3 trillion trust fund. By 2035, the trust funds for both Social Security and Medicare will be depleted, and Social Security will no longer be able to pay its full scheduled benefits unless Congress steps in to shore up the program, Kate Davidson reports. The last time Social Security was forced to dip into its trust fund, Congress responded with bipartisan measures to improve the program’s financial footing, including raising payroll-tax collections and delaying cost-of-living adjustments.

Call Me Maybe

Here's a problem for policy makers: Households and businesses are growing less likely to participate in surveys because of rising fears over privacy and changes in the ways people use phones and mail. That makes it harder to measure unemployment, inflation, poverty or other trends that inform government policy, Janet Adamy and Josh Zumbrun report.  
Q&A: In 1990, when Americans were asked to participate in the Labor Department’s population survey, which is used to calculate the monthly unemployment rate, 4% declined. As of 2018, the nonresponse rate nearly quadrupled, to 15.2%.

Spin Cycle

President Trump’s tariffs on imported washing machines raised the price of washing machines by 12%. The prices of dryers, which weren’t subject to the tariffs, rose about the same amount, according to new research by Aaron Flaaen, a Federal Reserve economist; Ali Hortaçsu and Felix Tintelnot, both of the University of Chicago. Why dryers? Mr. Tintelnot said vendors preferred to spread out the full cost increase over both items since washers and dryers are frequently sold in a bundle, David Harrison reports.

Cleaning Up

Whirlpool increased its profit in the first quarter by selling fewer appliances at higher prices. The Benton Harbor, Mich.-based company lobbied for—and won—tariffs on foreign-made washers but was also hurt by separate tariffs on imported steel and aluminum, both major components in its machines, Austen Hufford and Micah Maidenberg report. Whirlpool said it sold 7% fewer machines in North America in its latest quarter but posted a 0.7% rise in revenue in the region due to higher prices.

Oil Prices Surge

Oil prices surged to a nearly six-month high after the Trump administration said it would end waivers that allow countries to import Iranian oil, part of a U.S. campaign to deprive Iran of a major source of revenue. Higher oil prices are a mixed bag for the U.S.: More expensive gasoline eats into consumers' disposable income but costlier crude supports investment across the energy sector.

Shale to the Rescue?

The Trump administration hopes U.S. oil producers can fill in some gaps from lost Iranian supply. But while American energy production is ramping up, U.S. producers are being mindful of costs and haven’t reacted much to this year’s price rally. Barclays estimates spending in North America will be down 1% in 2019, which could crimp growth, Lauren Silva Laughlin writes.

Cain Bows Out

Herman Cain withdrew from consideration for the Federal Reserve Board. His stated reason: the job's $183,100 annual salary was too big of a pay cut, he told the WSJ's Paul Kiernan. The former GOP presidential candidate and restaurant executive bowed out less than three weeks after Mr. Trump picked him to fill one of two remaining vacancies on the Fed board. The choice drew criticism on both Wall Street and Capitol Hill because of Mr. Cain’s strong partisanship and allegations of sexual harassment, which he has denied.

Coffee Buzz

Global coffee consumption is expected to hit a new high this year. Global coffee prices are at their lowest point in over a decade. It's all about supply. Prices have sagged under the weight of what is expected to be another surplus coffee crop this year, David Hodari reports. Thank or blame Brazil. “The root causes of the low dollar coffee prices are the high productivity of Brazilian production, the strong dollar and the weak Brazilian real,” said Columbia University’s Jeffrey Sachs. “Basically, Brazil is undercutting global costs.”

What Else We're Reading

CEOs are worried about capitalism—maybe even enough to press for preemptive reforms. "Why now, 10 years on from the global financial crisis, after seeing stock markets and profits hit new highs and a Republican president cut corporate tax rates and regulations at their urging, do America’s leading capitalists sound so uneasy? One answer, according to some in the thick of the debate, is fear," Andrew Edgecliffe-Johnson writes in the Financial Times.
Nobel Prize winner Joseph Stiglitz thinks capitalism should get more progressive. "The neoliberal fantasy that unfettered markets will deliver prosperity to everyone should be put to rest. It is as fatally flawed as the notion after the fall of the Iron Curtain that we were seeing 'the end of history' and that we would all soon be liberal democracies with capitalist economies," he writes in the New York Times.

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