Thursday, March 30, 2023

Newsletter: Deep Contraction, Hurricane Hit and Millennial Power


This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here.

Long Road to Recovery

The world’s rich economies experienced the deepest contraction in at least six decades in the spring, while continuing outbreaks of the novel coronavirus mean their path back to pre-pandemic levels of output likely will be fraught. The Organization for Economic Cooperation and Development Wednesday said the combined economic output of its 37 members—most of which are wealthy—was 9.8% lower in the second quarter than it was in the first, the largest decline since records began in 1960. The previous largest fall in output during a single quarter was a 2.3% drop recorded in 2009, at the height of the global financial crisis, Paul Hannon reports.

Surveys and other data indicate that economic activity began to recover as early as May, when a number of countries lifted some of the restrictions designed to contain the virus. Economists expect to see a strong rebound in the quarter that runs through September. But there are already signs that resurgent infection rates and the freshly imposed restrictions designed to contain them are weighing on growth, and will continue to do so until a vaccine becomes widely available.


U.S. jobless claims for the week ending Aug. 22 are expected to tick down to 1 million from 1.106 million a week earlier. Follow our coverage here. (8:30 a.m. ET)

U.S. gross domestic product is expected to fall at a 32.4% annual pace in the second quarter, revised up slightly from an earlier estimate of minus 32.9%. (8:30 a.m. ET)

Federal Reserve Chairman Jerome Powell headlines a Kansas City Fed virtual retreat for global central bankers. Mr. Powell speaks at 9:10 a.m. ET.

U.S. pending-home sales are expected to rise 3.5% in July from a month earlier. (10 a.m. ET)

The Kansas City Fed’s manufacturing survey for August is out at 11 a.m. ET.

Japan’s Tokyo consumer-price index for August is out at 7:30 p.m. ET, and provisional trade statistics for August are out at 7:50 p.m. ET.


Full Tank

Hurricane Laura barreled ashore near the Texas-Louisiana border in the early hours on Thursday, threatening what forecasters described as lethal flooding and widespread wind damage. More than 20% of U.S. refining capacity, capable of processing roughly four million barrels of oil a day, is located within the storm’s potential path. But the reaction so far has been muted: Energy markets are still glutted, with the coronavirus pandemic sapping demand for transportation fuels, and inventories of oil and gasoline remain relatively high.

Durable Recovery

Orders for long-lasting factory goods rose for a third straight month in July as manufacturers boosted output and the economy continued its climb back from disruptions related to the coronavirus pandemic. Military aircraft and motor vehicles led the gains in durable goods orders. Underlying figures were more muted but showed that demand had nearly returned to prepandemic levels in core industries. A closely watched gauge of business investment—new orders for nondefense capital goods excluding aircraft—was barely shy of February’s level. “The recovery in business equipment investment looks pretty V-shaped to us,” said Michael Pearce, senior U.S. economist at Capital Economics.

Won’t You Be My Neighbor?

Millennials, long viewed as perennial renters who were reluctant or unable to buy a home, are emerging as a driving force in the housing market’s recent recovery. The generation that had been slow to enter the U.S. housing market reached a milestone early last year when it first accounted for more than half of all new home loans, and it consistently held above that level in the first months of this year, Nicole Friedman reports.

Another housing trend: Bigger is better. An analysis of sales data by Redfin shows sales grew nearly 10 times faster for large homes than small homes in July. More people are looking for space for work and leisure, even—or especially—if that means living farther from city centers. Prices, however, are still growing faster for smaller homes, showing the importance of affordability and the consequence of limited supplies for buyers, Redfin said.

New Central Bank Mandates

Federal Reserve Chairman Jerome Powell this morning is expected to lay out a new framework for meeting the central bank’s often-elusive goal of 2% inflation. When he’s done, he should keep his jacket on, because a proliferation of other missions await. In recent years the Fed has been asked to prevent financial crises, shrink the trade deficit, tackle climate change and, now, eliminate racial economic disparities. Mission creep poses real risks. The Fed is being asked to meet goals for which its tools are poorly suited and often in conflict, Greg Ip writes.

Open and Shut Case

South Korea has fared better than nearly every other wealthy country during the pandemic because it never resorted to mandatory lockdowns. Its Covid-19 strategy hinged on citizens voluntarily wearing masks and staying indoors, plus widespread testing and quick contact tracing. Most businesses stayed open. But now with cases rising, South Korea sits at a crossroad: impose the closest thing to a lockdown the country has ever faced or miss a chance to nip a sustained outbreak in its bud, Dasl Yoon reports.

Germany is beefing up its already formidable stimulus package to prop up its economy through the Covid-19 pandemic, brushing away concerns from some economists that the state is keeping insolvent businesses afloat artificially. Germany’s stimulus package measured against the size of its economy already dwarfs the support other governments have unleashed to counter the economic fallout from the pandemic. Now this gap is set to expand, Bertrand Benoit and Tom Fairless report.


Hurricane Maria slammed Puerto Rico in September 2017, causing the deaths of about 3,000 people, battering the economy and leading to an exodus of workers—many to Orlando, Fla. “We find that employment in Orlando increased, especially in construction and retail, and find positive aggregate labor market effects for non-Hispanic and less-educated workers. While we find that earnings for these workers decreased slightly in construction, this was balanced by earnings growth in retail and hospitality. These results are consistent with small negative impacts on earnings in sectors exposed to a labor supply shock, offset by positive effects in sectors impacted by an associated positive consumer demand shock,” University of California, Davis’s Giovanni Peri, Derek Rury and Justin Wiltshire write in a working paper.


Real Time Economics has launched a downloadable calendar with concise previews forecasts and analysis of major U.S. data releases. To add to your calendar please click here.


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