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Real Time Economics |The Middle Class Is Shrinking
Real Time Economics
A new study links economic stagnation
and political instability, the U.S. Treasury secretary sees a
breakthrough in trade talks and the Fed doesn't expect to change its
benchmark interest rate this year. Good
morning. Jeff Sparshott here to take you through key developments in
the global economy. Send us your questions, comments and suggestions by
replying to this email.
The middle class is shrinking and its economic power diminishing
in the U.S. and other rich countries. A report by the Organization for
Economic Cooperation and Development said the loss of middle-class
economic power has been driven by “dismal” income growth and rapidly
rising costs for many of the goods and services that are key to
middle-class lifestyles, especially housing, Paul Hannon reports.
Middle-income households are carrying more debt and feeling less secure
in their status, and younger generations are less likely to join the
group at all. “Political
instability is an important channel through which a squeezed middle
class may upset economic investment and growth,” the OECD warned.
...And Staying Home
In the U.S., young women are living at
home at the highest rate on record and men aren't far behind. American
University economist Gray Kimbrough sliced up Census and American
Community Survey data on 25-year-olds living with a parent. The chart
below shows a steady decline after World War II, a gentle resurgence
after 1970 and a sharp rise following the 2001 recession. Mr.
Kimbrough's theory on the cause: "housing costs combined with cratering
economic growth and significantly deteriorated labor market conditions
for young adults."
What to Watch Today
U.S. jobless claims are expected to rise to 210,000 from a near half-century low of 202,000 a week earlier. (8:30 a.m. ET)
The U.S. producer-price index for March is expected to rise 0.3% from a month earlier. (8:30 a.m. ET)
International Monetary Fund
Managing Director Christine Lagarde kicks IMF/World Bank spring
meetings into high gear with a press conference at 9:30 a.m. ET.
The WSJ’s survey of economists is out at 10 a.m. ET.
Fed Vice Chairman Richard Clarida speaks on the economic outlook and monetary policy at 9:30 a.m. ET, the New York Fed’s John Williams speaks at an Association for Neighborhood and Housing Development conference at 9:35 a.m. ET, the St. Louis Fed’s James Bullard speaks on the economy and monetary policy at 9:40 a.m. ET, the Minneapolis Fed's Neel Kashkari holds a Q&A on Twitter at 2 p.m. ET, and governor Michelle Bowman speaks on community banking at 4:00 p.m. ET.
Two Steps Forward...
China sweetened an offer to open its cloud-computing sector to foreign companies.
In face-to-face talks in Washington last week, Chinese negotiators
revised an earlier offer on cloud-computing access, proposing to issue
more licenses that businesses need to operate data centers and to lift
the 50% equity cap that limits ownership for certain foreign
cloud-service providers, Yoko Kubota and Lingling Wei report. U.S.
negotiators rejected an earlier proposal as inadequate and both sides
continue to haggle over the issues this week via videoconference. The
fresh concessions are aimed at reaching a compromise as both sides work
toward a trade deal.
Treasury Secretary Steven Mnuchin said the U.S. and China have agreed on an enforcement mechanism
for their potential trade deal, suggesting one of the key stumbling
blocks had been cleared. “We’ve agreed that both sides will establish
enforcement offices that will deal with the ongoing matters,” Mr.
Mnuchin said on CNBC.
...Six Months Back
European Union leaders agreed to postpone Brexit until Oct. 31.
The extension avoids an outcome leaders on both sides of the English
Channel feared: the U.K. crashing out of the EU on Friday without a
separation agreement. But it does little for businesses looking for
clarity over Brexit, and offers no clear path toward getting a deal
through Britain's House of Commons, Laurence Norman and Max Colchester
The new date gives British Prime Minister Theresa May more time to try
to get the U.K.’s Parliament to approve a Brexit deal. She returns to
the U.K. Thursday to continue discussions with the Labour Party on a
Ready to Spring Into Action
European Central Bank President Mario Draghi signaled the bank could take fresh action to shore up the eurozone’s faltering economy
if the outlook darkens. At a news conference, Mr. Draghi said Europe’s
economic slowdown would continue this year, in part because of the
uncertainty facing businesses as a result of U.S. threats to raise
tariffs on automobiles and other imports from Europe. The ECB’s caution
echoes that of the Federal Reserve, which stepped back from further
interest-rate hikes in recent months, Tom Fairless and Paul Hannon
We already knew Federal Reserve officials
voted to hold rates steady at their March 19-20 meeting. Minutes from
the gathering add key details: The Fed has set a high bar to raising rates again
because of greater risks to the U.S. economy from a global growth
slowdown, and after a muted inflation reading took officials by
surprise. But the minutes also show officials didn’t see any need to cut
their benchmark rate absent a broad deterioration in the economy, Nick
Key quote: “A majority of participants expected that the evolution of the economic outlook and risks
to the outlook would likely warrant leaving the target range unchanged for the remainder of the year.”
Searching for Inflation
Low inflation readings have puzzled
central bankers around the world—and are one reason the Fed is in a
holding pattern. The latest data provide little urgency for higher
U.S. consumer prices
rose 1.9% from a year earlier in March, compared with a 1.5% annual
gain in February. Volatile oil prices drove the latest increase.
Excluding food and energy, so-called core prices rose 2% on the year, the slowest annual gain since early 2018. Overall, the numbers suggest inflation pressures remain tame, Sarah Chaney reports.
Germany’s inflation rate eased in March on the back of a slowdown in food prices. The annual inflation rate slipped to 1.4% from 1.7% in February, the Federal Statistical Office said Thursday.
China's consumer prices accelerated last month. March’s consumer-price index
rose 2.3% from a year earlier, compared with a 1.5% gain in February. A
hefty increase in pork prices and more expensive oil led the way, Grace
The U.S. budget gap widened
in the first half of the fiscal year as spending rose faster than
revenue. The $691 billion deficit from October through March is 15%
higher than during the same period a year earlier despite relatively
strong economic growth. The Treasury estimated the full-year deficit
will top $1 trillion in fiscal 2019, the first time breaching that level
What Else We're Reading
President Trump, looking to discourage migrants, recently said "our country is full."Bloomberg Opinion's
Noah Smith writes that, actually, "the population problem in the U.S.
is highly location-specific. Instead of keeping immigrants out of the
country, the government should focus on sending them to places where the
population is stagnant or declining and the economy needs shoring up."
The 17th century Republic of Venice has a lesson for today’s world.
"The picture that we reconstruct suggests that from around 1600 or
1650, the Italian domains of the Republic of
Venice were characterised at the same time by economic stagnation,
growth in economic inequality, and low (and worsening) rates of
social-economic mobility. This picture corresponds quite closely to the
situation being faced by Italy and by other parts of southern Europe
since the onset of the Great Recession in 2008–which is definitely not a
very encouraging scenario," Guido Alfani writes on the Economic History Society's blog.