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Newsletter: Uncertainty, Upheaval and the Economy



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

What’s Goin’ On

Investors and executives are facing a fresh wave of political uncertainty. The U.S.-China trade war, Brexit and impeachment proceedings in the U.S. are just some of the major political obstacles. Add to the mix the Turkish military operation in Syria, attacks on Saudi oil production and social unrest spanning from Hong Kong to Barcelona. To capture just how much recent flare-ups around the world compare with previous levels of political upheaval, professors at Northwestern University, Stanford University and the University of Chicago created a variety of indexes. One rose in August to its highest level on record in data that go back to 1997. It was even more extreme than after previous events such as the 9/11 terrorist attacks, the European debt crisis and the 2016 U.S. presidential election. Stanford’s Nick Bloom, one of the creators of the indexes, said a “toxic combination” of low growth and rising income inequality has contributed to more extreme political uncertainty, Steven Russolillo reports.

So what? Research shows that if you’re an investor, greater uncertainty is associated with stock price volatility. If you care about the economy, it foreshadows declines in investment, output and employment.


Federal Reserve officials enter a quiet period ahead of their Oct. 29-30 meeting. That leaves the focus this week on Tuesday’s U.S. existing-home sales, Thursday’s eurozone purchasing managers indexes, U.S. durable goods orders and European Central Bank meeting, and geopolitical developments.


Soft Spots

The nationwide unemployment rate fell to a 50-year low in September. But in a handful of states, joblessness is on the rise. In Mississippi, Kentucky, Wisconsin, Nebraska and Delaware the unemployment rate rose by at least 0.2 percentage point in September from the average rate recorded in the first half of the year, according to Labor Department data. Mississippi’s 5.4% rate was the second-highest in the nation in September and was up a half percentage point from the first half average. Wisconsin had the tenth-lowest unemployment rate in the country in the first half of 2019, at 2.9%. The rate edged up to 3.2% in September, 18th lowest.

Of particular concern for Wisconsin is that the unemployment rate is increasing at a time when slightly fewer people have or want jobs. The state’s labor force declined by 3,900 in September relative to its first half average, suggesting the unemployment rate rise reflects cautious employers.

In Mississippi, the labor force grew by about 18,000 during the summer, indicating increase unemployment could in part reflect a solid economy drawing workers off the sidelines.

—Eric Morath

They Have the Plant, but We Have the Power

With the strike at General Motors stretching into a second month, the impact is intensifying across the Midwest economy, hitting more businesses and auto-parts suppliers reliant on GM’s U.S. factories for work, Ben Foldy reports.

  • The United Auto Workers struck a tentative labor agreement with GM last week, but union leaders decided to continue picketing until workers approve the deal. The move likely extends the nationwide walkout through Friday.
  • The financial toll is mounting for both the company and states where GM has a concentration of unionized workers. Economists say the cascading effect of lost wages, production and employment will likely linger even if the strike ends, weighing on regional economies already straining from the tariff dispute with China.
  • The strike has idled more than 30 GM factories across the U.S., suspended work at an additional two dozen company-owned parts warehouses and distribution centers and led to temporary layoffs of nearly 10,000 GM factory workers not represented by the UAW in the U.S., Canada and Mexico.


The UAW strike is adding to weakness in the manufacturing sector. But it’s not the only problem. The walkout came too late to affect September jobs data. Nevertheless, nationwide manufacturing employment growth has been decelerating this year. In states like Michigan, Wisconsin and Pennsylvania, manufacturing employment was in outright contraction before the strike.

If at First You Don’t Succeed

U.K. Prime Minister Boris Johnson is bringing his Brexit deal back before lawmakers this week—and possibly as early as today—after they forced him to ask the European Union for another delay, Stephen Fidler reports.

  • Mr. Johnson is very close to securing the votes he needs to win approval this week. But even if he does, lawmakers could in coming weeks pass amendments that would impose conditions—such as a referendum confirming public backing for the deal.
  • If he fails, the whole Brexit process is plunged again into uncertainty.


Around the World

Japan’s exports declined for the 10th straight month in September. Exports dropped 5.2% from a year earlier as demand continued to slow in the nation’s major trade partners such as the U.S. and China, Megumi Fujikawa reports.

India is making a push to get Apple and other big brands to switch production there as the risks of manufacturing in China rise along with trade tensions. Prime Minister Narendra Modi’s government has been trying to transform the country’s image as a difficult place to do business, promising a more predictable and open regulatory regime, a simpler corporate tax structure and incentives for targeted industries, Eric Bellman and Rajesh Roy report.

Bets on rising U.S. oil prices have hit a nine-month low, underscoring investors’ concerns that a slowing economy will dent demand for crude while the U.S. and other suppliers continue to pump out oil, Sarah Toy reports.


“Market stability should not be the subject of a tweet here or a tweet there. It requires consideration, thinking, quiet and measured and rational decisions.” —Christine Lagarde, the departing head of the International Monetary Fund


Kids these days. “The direct cost of college (tuition payments net of grants and scholarships) more than doubled, from $3,628 to $8,624.3 [from the early 1980s through the early 2000s]. … The younger cohort had to rely more heavily on parental transfers, work more while in college and accumulate more student debt. Student earnings appear to be the least responsive source of revenue, according to percentage growth. It should be noted that students were earning roughly the same amount per hour in both time periods. The increase is mostly due to students working more hours,” the St. Louis Fed’s Oksana Leukhina writes in a blog post.

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Market Talk – July 6, 2020




China has warned the UK not to interfere with Hong Kong following Beijing’s imposition of a sweeping new national security law. Ambassador Liu Xiaoming said the UK’s offer of a path to citizenship for up to three million Hong Kongers amounted to “gross interference.” British Foreign Secretary Dominic Raab rejected the accusation. Earlier, a spokesman for Prime Minister Boris Johnson urged China not to interfere if Hong Kongers sought to come to the UK.

The Indian government is reviewing around 50 investment proposals involving Chinese companies under a new screening policy, Reuters reported. Under new rules announced by India in April, all investments by entities based in neighboring countries need to be approved by the Indian government, whether for new or additional funding. China is the biggest of these investors and the rules drew criticism from Chinese investors and Beijing, which called the policy discriminatory.

Indian bank loans rose 6.2% in the two weeks to June 19 from a year earlier, while deposits rose 11%, according to India’s central bank, The Reserve Bank of India’s weekly statistical supplement showed on Friday. Outstanding loans rose 16.79 billion rupees ($224.95 million) to 102.45 trillion rupees in the two weeks to June 19. Bank deposits fell 732.67 billion rupees to 138.67 trillion rupees in the two weeks to June 19.

India has withdrawn a planned reopening of the Taj Mahal, citing the risk of new coronavirus infections spreading in the northern city of Agra from visitors flocking to see the 17th century monument of love.

The major Asian stock markets had a mixed day today:

  • NIKKEI 225 increased 407.96 points or 1.83% to 22,714.44
  • Shanghai increased 180.07 points or 5.71% to 3,332.88
  • Hang Seng increased 966.04 points or 3.81% to 26,339.16
  • ASX 200 decreased 43.30 points or -0.71% to 6,014.60
  • Kospi increased 35.52 points or 1.65% to 2,187.93
  • SENSEX increased 465.86 points or 1.29% to 36,487.28
  • Nifty50 increased 156.30 points or 1.47% to 10,763.65

The major Asian currency markets had a mixed day today:

  • AUDUSD increased 0.00358 or 0.52% to 0.69715
  • NZDUSD increased 0.00471 or 0.72% to 0.65638
  • USDJPY decreased 0.19 or -0.18% to 107.31
  • USDCNY decreased 0.05279 or -0.75% to 7.01446

Precious Metals:

  • Gold increased 10.27 USD/t oz. or 0.58% to 1,785.40
  • Silver increased 0.24 USD/t. oz or 1.31% to 18.2765

Some economic news from last night:

Hong Kong:

Manufacturing PMI (Jun) increased from 43.9 to 49.6


MI Inflation Gauge (MoM) increased from -1.2% to 0.6%

ANZ Job Advertisements (MoM) increased from -0.3% to 42.0%

New Zealand:

ANZ Commodity Price Index (MoM) decrease from 1.1% to -0.7%

Some economic news from today:


Consumer Confidence (Jun) increased from 77.8 to 83.8


The UK on Monday announced economic sanctions against individuals and organizations from Russia, Saudi Arabia, Myanmar, and North Korea under new UK powers to punish human rights offenders. Foreign Secretary Dominic Raab said the sanctions targeted those behind “some of the notorious human rights violations in recent years.”

The UK announced USD 2 billion rescue package for cultural and heritage institutions. Boris Johnson described this as a “world-leading” rescue package that will give a lifeline to Britain’s arts sector, which largely shuttered since March because of the pandemic and was on the verge of an imminent collapse. The organizations will be handed 1.57 billion pounds, about $2 billion, the culture ministry said on Sunday evening.

Despite the efforts, Germany’s hospitality sector has struggled to pick up speed, highlighting the difficulties facing Europe’s top economy as it confronts the steepest recession since World War II. Two months after Germany lifted its lockdowns, the small Asian restaurant, like so many others, is struggling to attract customers as coronavirus fears linger. Chancellor Angela Merkel’s government, which has pledged over a trillion euros in stimulus spending to cushion the coronavirus blow, and is hoping for an economic rebound in the second half of 2020.

France’s new prime minister, Jean Castex, has made few major changes to the cabinet after President Emmanuel Macron gambled on a reshuffle to reboot his presidency and tighten his grip on government before seeking re-election in 2022. Health minister Olivier Véran, who helped lead France’s response to the pandemic, also kept his job, as did Florence Parly at defense.

The major Europe stock markets had a green day:

  • CAC 40 increased 74.37 points or 1.49% to 5,081.51
  • FTSE 100 increased 128.64 points or 2.09% to 6,285.94
  • DAX 30 increased 205.27 points or 1.64% to 12,733.45

The major Europe currency markets had a mixed day today:

  • EURUSD increased 0.00665 or 0.59% to 1.13113
  • GBPUSD increased 0.00094 or 0.08% to 1.24927
  • USDCHF decreased 0.00184 or -0.19% to 0.94185

Some economic news from Europe today:


German Factory Orders (MoM) (May) increased from -26.2% to 10.4%

IHS Markit Construction PMI (Jun) increased from 40.1 to 41.3


Spanish Industrial Production (YoY) (May) increased from -34.1% to -24.5%

Spanish Consumer Confidence increased from 52.9 to 60.7


Construction PMI (Jun) increased from 28.9 to 55.3

Housing Equity Withdrawal (QoQ) decreased from -5.0B to -5.1B

Euro Zone:

Sentix Investor Confidence (Jul) increased from -24.8 to -18.2

Retail Sales (MoM) (May) increased from -12.1% to 17.8%

Retail Sales (YoY) (May) increased from -19.6% to -5.1%


Nonmanufacturing companies made their biggest one-month increase this June after advancing 11.7% to 57.1%. Fourteen of the 18 service industries rose in June due to restrictions lifted and state economies beginning to reopen. Although encouraging, states are beginning to reimplement restrictions slowly and ongoing growth is not expected to continue in a linear fashion.

Florida Governor Ron DeSantis signed House Bill 1189 last week, making Florida the first US state to enact DNA privacy laws. Disability, life and long-term care insurance companies are now prohibited from using personal DNA information, such as what is derived from services like 23andMe or AncestryDNA, and sharing that data with other service providers. Prior to this law, insurers could legally access health-related DNA information provided by third parties and use that information to limit coverage.

The UK will begin to ease restrictions for travelers from around 50 countries this Friday; however, the US is not on that list. The European Union also banned travels from the US from entering Europe. Mexico ramped up efforts to prevent Americans from crossing the border over the Fourth of July weekend. At the time of this writing, the US has experienced 2.93 million confirmed COVID-19 cases, with 879,000 people making full recoveries and 132,000 deaths.

Prime Minister Justin Trudeau said Canada stands in solidarity with Hong Kong, and has suspended its extradition treaty with Hong Kong over China’s new national security laws. Over 300,000 Canadians currently live in Hong Kong. The Canadian government is hoping the new measures will encourage Hong Kong residents to relocate to Canada to boost the economy.

US Market Closings:

  • Dow advanced 459.67 points or 1.78% to 26,287.03
  • S&P 500 advanced 49.71 points or 1.59% to 3,179.72
  • Nasdaq advanced 226.02 points or 2.21% to 10,433.65
  • Russell 2000 advanced 11.02 points or 0.77% to 1,442.88

Canada Market Closings:

  • TSX Composite advanced 79.92 points or 0.47% to 15,669.67
  • TSX 60 advanced 2.89 points or 0.31% to 942.24

Brazil Market Closing:

  • Bovespa advanced 2,172.31 points or 2.24% to 98,937.16


The oil markets had a mixed day today:

  • Crude Oil increased 0.31 USD/BBL or 0.77% to 40.6300
  • Brent increased 0.28 USD/BBL or 0.65% to 43.0800
  • Natural gas increased 0.10 USD/MMBtu or 5.92% to 1.8240
  • Gasoline decreased 0.00 USD/GAL or -0.11% to 1.2416
  • Heating oil increased 0.02 USD/GAL or 1.67% to 1.2452

The above data was collected around 15.18 EST on Monday.

  • Top commodity gainers: Natural Gas (5.92%), Lumber (2.68%), Canola (4.29%), and Orange Juice (2.06%)
  • Top commodity losers: Coffee (-6.16%), Cotton (-1.59%), Cocoa (-1.22%), and Sugar (-2.37%)

The above data was collected around 15:25 EST on Monday.


Japan 0.05%(+2bp), US 2’s 0.16% (+1bps), US 10’s 0.69%(+2bps); US 30’s 1.45%(+2bps), Bunds -0.43% (+4bp), France -0.12% (-1bp), Italy 1.31% (-2bp), Turkey 11.93% (+9bp), Greece 1.19% (+4bp), Portugal 0.44% (-1bp); Spain 0.45% (+7bp) and UK Gilts 0.20% (+1bp).

  • US 3-Month Bill Auction remain the same at 0.150%
  • US 6-Month Bill Auction remain the same at 0.165%
  • French 3-Month BTF Auction decreased from -0.523% to -0.551%
  • French 6-Month BTF Auction decreased from -0.531% to -0.557%
  • French 12-Month BTF Auction decreased from -0.530% to -0.559%


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What to watch on jobs day: A false start to the recovery



The latest jobs data for June released this Thursday will likely show some improvements in the labor market. We should remember that these improvements come at a cost: increased spread of COVID-19. In the states that have lifted restrictions ahead of others, there are measurable increases in coronavirus cases. Given the likelihood that states may have to re-shutter parts of their economies with the rise in cases, the job gains we saw last month may not last. So, even if we continue to see job gains in this week’s jobs report, the losses this spring were mammoth and, given recent trends on the health front plus the upcoming fiscal cliff, the economic pain will certainly be long lasting.

On Thursday morning, we will also get the latest data on unemployment insurance claims for the week ending June 27. Later that day the Congressional Budget Office will be releasing their economic forecasts, which provide their estimates of future economic growth and the unemployment rate, among other key economic indicators. (At the end of the blog post, I list reminders on what information we get from each labor market data release.) Unfortunately, these releases will show enormous economic hardship that will last for a long time.

As I see it, policymakers have three primary objectives with regard to the labor market: First, make sure those who have to go to work are given adequate compensation and a safe work environment, which means, at a minimum, guaranteeing health and safety protections for workers so that they are able to protect themselves and members of their families from contracting COVID. Second, make it possible for workers who are unable to find a safe job to stay home without becoming financially devastated by delivering sufficient earnings replacement through the unemployment insurance system. Third, ensure the economy can fully recover when we get on the other side of the pandemic.

Unfortunately, workers facing health risks on the job are not proportionately receiving extra compensation or safety protections. More needs to be done to ensure that those working can continue providing for the economic and physical well-being of themselves and their families. On the second front, the $600 weekly supplement to regular unemployment insurance benefits is due to expire July 25 and its expiration will come at a huge economic cost to workers, their families, and the recovery. Further, too little is being done to provide aid to state and local governments, which will be key to a speedy and healthy recovery.

In the last jobs report for May, payroll employment increased, but the labor market was still left with a shortfall of nearly 20 million jobs. As these jobs return—again, not unambiguously a positive move as exposure to COVID-19 continues—it is important to track whether the recovery will be broad based. Between April and May, the employment gains were uneven: white workers saw a significant drop in their unemployment rate between April and May, while Black workers did not, adding insult to injury given their already disproportionate economic and health devastation from COVID-19. When it’s finally safe to fully re-open the economy, I hope the economic gains will occur across all groups. Unfortunately, if history is any indication, this is unlikely to be the case and the experience in May suggests the recovery is on its way to being deeply inequitable.

Another indicator to watch in the June report is public sector employment. We’ve seen large reductions in state and local public sector employment over the last few months. Given that a significant share of these are in public education and that they happened at a time of year when they wouldn’t usually occur, it’s possible we will see an artificial uptick in jobs in those sectors in June (and possibly more so in July since some school districts don’t end their school year until mid-June) when the seasonal adjustment would have smoothed out the end of the school year. So, I’d warn data watchers to consider any gains with a grain of salt, and to look at the overall changes from February (pre-COVID-19) to June. Federal policymakers need to act now to provide massive fiscal relief to state and local governments so they can continue to provide necessary services and prevent unnecessary cuts to their budgets as their revenue falls. In fact, they could do one better and increase public sector employment through the hiring of additional public health workers and contact tracers. And, with hybrid school openings planned, there will need to be more public education staff, not less, in coming months. Further, schools and day care centers are essential for the true re-opening of the economy, allowing parents to go to work, knowing their children are safe and well-cared for.

Key labor market indicators:

  • The monthly employment situation usually comes out on the first Friday of every month (this month it will be Thursday, July 2). Among other things, it gives the total number of jobs added or lost in the economy between roughly the mid-points of the prior two months (so on Thursday, we will learn how many jobs were gained or lost between mid-May and mid-June). One detail that is often brushed over about the monthly jobs number is that it is actually the net number of jobs added or lost. The net change in jobs is affected by gross changes in many things—the number of hires, the number of layoffs where people applied for UI, the number of job losses where people didn’t apply for UI, voluntary quits, and worker deaths. All of those components are moving right now.
  • The weekly unemployment insurance (UI) claims data come out every Thursday morning. They tell us how many people applied for UI in the prior week. The UI claims data provide crucial, but limited, information because there are a lot of moving parts in the labor market aside from people who lost jobs and applied for UI. The data that comes out this Thursday will provide information on UI claims through June 27.
  • The monthly Job Openings and Labor Turnover Survey (JOLTS) is typically released early-to-mid-month. JOLTS provides information on the moving parts that go into the net change in the number of jobs—job openings, hires, layoffs, voluntary quits, and other separations (which includes worker deaths). The next JOLTS release will be Tuesday, July 7 and it will cover labor market changes between the end of April and the end of May (so even after that release, the JOLTS data will be roughly two weeks behind the monthly employment data in terms of coverage, which will cover through mid-June).

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2020 hindsight



James Fallows has a very good article in the Atlantic, documenting the many failures in the US government response to the Covid-19 epidemic. While I don’t contest his specific points, some of which document appalling lapses in intelligence gathering and processing, I do not accept his framing of the problem.  The failure here went well beyond government incompetence—there was a major failure of imagination.

Here’s Fallows:

By the middle of March, Trump had switched to blasting the “Chinese virus,” which he continued doing through much of the month. On March 11, he gave a poorly received national address from the Oval Office, in which he bungled the announcement of an upcoming ban on most (or maybe all; it wasn’t clear) air travel to the U.S. from Europe. Several people who have dealt with past disease outbreaks told me that, in a normal administration, one option for mid-January would have been a temporary, but total, ban on all inbound international flights to the United States. “A serious option in all contingency planning would be total closure of the airspace,” a former senior official with experience in pandemic response told me. “We learned from the bird flu that as long as the airspace was open, we were completely vulnerable as a population. It is a draconian approach that could strand thousands of people. But as we look back—when taking early intelligence into serious consideration from the start—this one option would be an early choice for the president to make. It would be followed immediately by humanitarian support, and then transitioned through hubs to permit a measured flow of people to key locations. Follow-on screening would also take place prior to any further travel.”

Hindsight is 20-20.  It’s very unlikely that a “normal administration” would have imposed a travel ban in mid-January.  The first European travel ban was January 31st, the same day as the US ban.   Fallows underestimates just how deep the failure of imagination actually was.

On January 23rd, 2020, I knew that Covid-19 was a major problem.  I knew that it was transmittable between humans.  I knew that some experts suggested that it could become a worldwide pandemic.  I knew that the Chinese government was so concerned that they took the unprecedented step of locking down an entire province of 60 million people.   The US government also knew this.  The Canadian and European governments knew this.  The media knew this.  The Democrats knew this.  The Taiwanese knew this.

Unfortunately, all of those groups (except the Taiwanese) didn’t take the threat seriously.  We didn’t even ban flights from China until January 31st, and some people even opposed that ban.  A ban on flights from Europe did not occur until mid-March, by which time large numbers of infected people had flown from Europe to the East Coast.

In my view, this was a failure of imagination.  My initial view was that “this is another SARS”.  I’m pretty sure that most other people felt the same way at the time—despite having all the relevant facts that we have today. Only when it began to spread widely in the West did we start taking it seriously, but by that time it was too late to stop.

So yes, in retrospect a total ban on all inbound flights in mid-January would have been ideal.  That might have allowed the US to achieve a much lower death total (albeit only with effective follow-up steps).  But there was almost no support for such a move at the time because Westerners were unable to imagine how bad it would get.  We had the facts (by January 23rd at the latest, but actually earlier); we simply refused to believe the doomsday predictions that were being made by a few epidemiologists.

There is no bureaucratic fix for a failure of imagination, just as there is no bureaucratic fix for the failures of imagination that led to 9/11 or Pearl Harbor.  All we can do is learn from our mistakes.

The next 10 times this occurs we’ll almost certainly overreact, just as we overreacted to later 9/11 and Pearl Harbor type threats.  Most of those next 10 virus outbreaks will be less severe—more like the first SARS epidemic than the Covid-19 epidemic.  But having seen what happened in 2020, we’ll react more like Taiwan did this time, if not even more vigorously.

That’s just how the world works (horse, barn door).  People don’t have enough imagination to take steps to prevent disasters until they’ve seen the effects of a disaster.  After our electrical system gets knocked out for months by a huge solar flare, then we’ll start stocking up on some extra transformers.  We’ll have arms control after the next accidental nuclear war.  It’s not that we don’t understand the risks at an intellectual level, it’s that we can’t really imagine the worst-case outcome.

HT:  David Beckworth, Matt Yglesias


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