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Economy

Newsletter: Global Business Activity Steadying

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

Off Target

China broke with more than a quarter-century of tradition by not issuing an economic growth target for 2020, a stark acknowledgment of the challenges facing the world’s second-largest economy. The unusual move—it’s the first time a formal target has been omitted since the practice began in 1994—suggests Beijing’s leaders aren’t eager to unleash a large-scale stimulus after China’s sharpest contraction in four decades. It foreshadows more economic pain for a world that has become increasingly reliant on China as an engine of growth, Jonathan Cheng reports.

WHAT TO WATCH TODAY

The European Central Bank releases minutes from its April 29-30 meeting at 7:30 a.m. ET.

The Baker Hughes rig count is out at 1 p.m. ET.

Note: Real Time Economics is off Monday for Memorial Day. We’ll be back May 26. For news and analysis over the long weekend, visit wsj.com/economy.

TOP STORIES

Jump Around

U.S. and global business activity and labor markets suffered a little less in May than in prior months, offering signs that damage to the global economy from the coronavirus pandemic is easing. Surveys of purchasing managers showed private-sector activity in the U.S., Europe and Japan fell for the third straight month—though not as sharply as in April, Paul Hannon and Sarah Chaney report.

In the U.S., workers filed another 2.4 million claims for unemployment insurance last week, down significantly from a peak of nearly 7 million at the end of March. While layoffs appear to have subsided, the number of people without work remains at record-high levels: The number of people receiving benefits—a proxy for overall levels of unemployment—increased to 25.1 million.

Separate surveys from the New York Fed and Philadelphia Fed tell a similar story: It’s bad but the worst may be over. Even so, recovery will likely take some time as continued job cuts and a rise in unemployment cause households to cut back on spending.

Closing Time

Sales of previously owned homes in April posted their biggest monthly decline since 2010. Stay-at-home orders prevented real-estate agents from showing homes in person in some states, and widespread job losses and tightening credit requirements have made it more difficult for buyers to qualify for loans. While the number of transactions declined, prices continued to rise. The median existing-home price rose 7.4% from a year earlier to $286,800, Nicole Friedman reports.

In another sign the worst may be past, U.S. applications for mortgages to purchase a home have risen for five weeks straight, according to a Mortgage Bankers Association survey. That’s no guarantee the market will continue to gain ground, but it does suggest activity has stabilized.

Close to Home

Facebook CEO Mark Zuckerberg announced plans to enable up to half of its 45,000 employees to work from home. Twitter last week said it would allow employees to work from home indefinitely. E-commerce company Shopify also said it plans to let most employees work remotely in the future. From the open office to agile development, trends in the tech sector have a way of percolating into the broader corporate world. Some companies outside tech are following suit in the move to permanent remote work, Angus Loten reports.

Expedia dropped a small nugget of hope for the travel industry. The travel website said business in May has been looking “considerably better” than late March and early April, citing “really markedly better” performance in its homestay business, Vrbo. Families looking to get out of densely populated cities for the summer—driving, not flying—may be behind the trend, Laura Forman writes.

The Covid Surcharge

Companies from major retailers and package carriers to local restaurants and hair salons are awakening to a new economic reality in the age of the new coronavirus: Being open for business is almost as hard as being closed. Facing higher costs to keep workers and customers safe and an indefinite period of suppressed demand, businesses are navigating an ever-narrower path to profitability. To make the math work, some businesses are cutting services and jobs. Others are raising prices, including imposing coronavirus-related fees aimed at getting customers to share some of the expenses, Matt Grossman reports.

British retail sales in April recorded their biggest monthly drop on record. Sales at clothing stores, household goods stores and department stores tumbled between 25% and 50%. Online sales grew 18% as Britons stocked up at home for a lockdown that’s still in force. Alcohol sales also rose, Jason Douglas reports.

WHAT ELSE WE’RE READING

Don’t stand so close to me. “To gain insight into the economic impact of the pandemic, the Dallas Fed developed a Social Distancing Index based on geolocation data collected from a large sample of mobile devices. Our Social Distancing Index (SDI)…spiked dramatically in mid-March, coinciding with a large drop in economic activity. Recently, the index has started to decline, even prior to the relaxation of stay-at-home orders. The drop suggests economic activity may have bottomed out and could begin to improve,” Dallas Fed economists write.

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Economy

Police Are Killing Fewer People In Big Cities, But More In Suburban And Rural America 

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Six years after nationwide protests against police violence captured the country’s attention, the recent killings of Breonna Taylor and George Floyd have put the issue of police violence back into national focus. Many are left asking what, if anything, has really changed?

In the absence of comprehensive federal data, databases such as Fatal Encounters, Mapping Police Violence and The Washington Post’s Fatal Force project have tracked these killings year after year. And the data produced by these projects suggests that police, at least on a national level, are killing people as often now as they were before Michael Brown’s death in Ferguson, Missouri, sparked widespread protests in 2014.

But these numbers don’t tell the whole story. While the nationwide total of people killed by police nationwide has remained steady, the numbers have dropped significantly in America’s largest cities, likely due to reforms to use-of-force policies implemented in the wake of high-profile deaths. Those decreases, however, have been offset by increases in police killings in more suburban and rural areas. It seems that solutions that can reduce police killings exist, in other words — the issue may be whether an area has the political will to enact them.

Indeed, looking only at the 30 most populous cities in the country,1 you see a substantial decrease in the number of people killed by police in recent years.

Police departments in America’s 30 largest cities killed 30 percent fewer people in 2019 than in 2013, the year before the Ferguson protests began, according to the Mapping Police Violence database. Similarly, The Washington Post’s database shows 17 percent fewer killings by these agencies in 2019 compared to 2015, the earliest year it tracks.

This data isn’t perfect. The databases have slightly different methodologies for collecting and including police killings. And not everyone who’s shot winds up dying, which means some people who are shot by police don’t end up in one of these tracking projects. So to better test and understand the progress made in these big cities, I compiled an expanded database of all fatal and nonfatal police shootings by these departments, which expands our view of any changes in police behavior. Based on data published on police departments’ websites and reported in local media databases, I found data covering police shootings in 2013-2019 for 23 of the 30 departments.2 An analysis of this data shows that police shootings in these departments dropped 37 percent from 2013 to 2019.

So why haven’t these trends resulted in fewer people killed by police nationwide?

Examining the geography of police killings based on population density (a methodology developed by the real estate site Trulia, which was featured in a previous FiveThirtyEight article), police killings in suburban and rural areas appear to have increased during this time period — offsetting reductions in big cities.

This shift mirrors other trends within the criminal justice system. For example, since 2013, the number of people in jail per capita in urban areas has fallen by 22 percent, while rates have increased by 26 percent in rural areas, according to a study by the Vera Institute of Justice.

Similarly, arrest rates have declined in major cities at a faster pace than arrest rates in suburban and rural areas. Fewer arrests means fewer police encounters that could escalate to deadly force — police are substantially more likely to use force when making an arrest than in other interactions with the public — so falling arrest numbers could have a marked effect on police killings. Comparing police shootings data to the arrests data each department reported in the FBI Uniform Crime Report shows that departments that reported larger reductions in arrests from 2013-20183 also reported larger reductions in police shootings. Specifically, cities that reduced police shootings also made 35 percent fewer arrests in 2018 than 2013, compared to only a 4 percent drop in arrests in cities where police shootings increased or remained constant. These declining arrest rates have been attributed, in part, to reforms reducing enforcement of low-level offenses such as marijuana possession, disorderly conduct, loitering and prostitution.

Other reforms may be making a difference as well. Police shootings dropped in Philadelphia, San Francisco and Baltimore after the cities began reforming their use-of-force policies to match recommendations from the Department of Justice. In Chicago, police shootings dropped following protests over the shooting of Laquan McDonald and fell further after the city adopted more restrictive use-of-force policies and a new police accountability system. Denver also adopted more restrictive use-of-force policies in 2017, requiring de-escalation as an alternative to force. Los Angeles police shootings reportedly declined to the lowest number in 30 years in 2019, which officials attribute to new policies requiring officers to use de-escalation and alternatives to deadly force. Shootings dropped precipitously in Phoenix a year after public scrutiny led the department to evaluate its practices and implement changes to its use-of-force policy. And, in response to local protests over the 2012 killing of James Harper, Dallas implemented a range of policies to emphasize de-escalation, which local authorities credit with producing a sustained decline in police shootings.

This suggests that reforms may be working in the places that have implemented them. Many of these reforms were initiated in response to protests and public outcry over high-profile deaths at the hands of police — most notably in Baltimore following the police killing of Freddie Gray, in San Francisco following the killing of Mario Woods, and in Chicago and Dallas following the deaths of Laquan McDonald and James Harper. This suggests that protests and public pressure may have played an important role in producing policy changes that reduced police shootings, at least in some cities.

Of course, that’s a double-edged finding. The absence of reforms in more suburban and rural cities and towns could explain why police killings haven’t decreased in those areas — though it may not explain why they increased. There’s still a lot we need to investigate about how policing is changing in rural and suburban areas. More Latinos are being killed by police in suburban areas than before, according to Mapping Police Violence data, while more white people are being killed in rural areas than before. Some of this might reflect demographic shifts (though killings have dropped in urban areas across all races) or other changes in the criminal justice system — for example, the share of the population that’s in jail awaiting trial has been increasing in rural areas. Gun-related suicides and gun deaths in general appear to be increasing in rural areas, which might also be spilling over into policing practices and responses.

Still, if we know that certain policies reduce police violence, adapting those reforms to smaller cities, suburban and rural communities could be a pathway to reducing police violence in the U.S. overall. But that would take political willpower at the local level, and the country’s growing urban-rural political divide might make that difficult.

FiveThirtyEight Politics Podcast: The data behind police violence



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Economy

Newsletter: 30 Million Jobs Lost

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

Measure for Measure

Friday’s U.S. jobs report is expected to show U.S. employers shed nearly 30 million positions from payrolls this spring due to the coronavirus pandemic and related shutdowns. Nonfarm payrolls fell by a combined 21.4 million in March and April, the Labor Department said. Economists surveyed by The Wall Street Journal expect the May employment report will show that another 8 million jobs were lost last month, Eric Morath reports.

That is just one of several varying estimates of job destruction: Other data suggest layoffs may have topped 40 million, while another count shows only about 20 million are tapping unemployment benefits. No matter the measure, job loss due to pandemic is historically high and likely to leave a lasting mark on the U.S. economy.

WHAT TO WATCH TODAY

The ADP employment report for May is expected to show a loss of 8.75 million jobs from a month earlier. (8:15 a.m. ET)

IHS Markit’s U.S. services index for May is expected to rise to 37.5 from a preliminary reading of 36.9. (9:45 a.m. ET)

The Institute for Supply Management nonmanufacturing index for May is expected to rise to 44.0 from 41.8 a month earlier. (10 a.m. ET)

U.S. factory orders for April are expected to fall 12.5% from a month earlier. (10 a.m. ET)

The Bank of Canada releases a policy statement at 10 a.m. ET.

TOP STORIES

Jobs, Income and Inequality

In the decade before Covid-19, African-Americans’ economic circumstances, crushed during the 2007-09 recession, had slowly but steadily improved. Then lockdowns crashed the economy, and last week the death of a black man, George Floyd, at the hands of police touched off a wave of angry and at times violent protests. The events have highlighted painful inequities that continue to weigh on African-Americans, in their health, their incomes and their treatment by the justice system, Greg Ip writes.

Between 2011 and February, the share of working-age people who are employed, reached 59% in February for black Americans, less than 2 percentage points below that of whites—near the narrowest such gap since at least 1972. Wage gains for black Americans had also started to accelerate.

But differences in income and wealth barely changed. And while all racial groups saw their wealth devastated by the 2008 financial crisis, blacks’ has been much slower to recover.

Don’t Call it a Comeback

A private gauge of China’s service sector activity rebounded sharply to a nearly 10-year high in May as domestic demand recovered amid government measures to buoy economic growth. While activity is improving, the economy still isn’t back to pre-coronavirus levels. “In general, the improvement in supply and demand was still not able to fully offset the fallout from the pandemic, and more time is needed for the economy to get back to normal,” said Wang Zhe, a senior economist at Caixin Insight Group.

Elsewhere, the picture wasn’t as bright. Service-sector indexes for Japan, India, Australia, the eurozone and elsewhere improved but remained deep into contractionary territory, suggesting steep economic losses and a long road to recovery.

It’s a Long Way to the Top

The developed world’s longest ongoing economic expansion is about to go bust. Australia’s 28-year growth streak survived a regional economic crisis in the 1990s, a global economic crisis in the 2000s, and a boom-bust cycle in its core commodity sector in the 2010s. Now, a recession looms after catastrophic bush fires and restrictions to slow the spread of the new coronavirus took a heavy toll. Australia’s gross domestic product contracted by 0.3% in the first three months of this year and economists expect a steeper drop in activity in the three months through June, James Glynn and Alice Uribe report.

Tariff Time

The Trump administration is taking the initial step to prepare tariffs against a range of trading partners unless they back off proposals to impose taxes that would fall heavily on major American internet companies. Tuesday’s announcement is a replay of an aggressive tactic pursued against France last year in which the U.S. ultimately threatened that country with tariffs on $2.4 billion of goods. Though the French tax was ostensibly designed to target digital services in general, French officials often referred to the measure as the “GAFA tax” which stands Google, Apple, Facebook and Amazon.com—the American companies on whom such a tax would heavily fall, Josh Zumbrun reports.

“President Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies.” —U.S. Trade Representative Robert Lighthizer

Price Check

A cold war with China would be expensive. U.S. dependence on China isn’t just about buying masks or iPhones. China’s companies are major customers for U.S. high technology and its students help fund America’s universities and paper over decades of underinvestment in basic science and math education. If “decoupling” proceeds, then much more federal funding for basic research—and for U.S. science and math education—may be needed to plug the gap. That probably means higher taxes and a more welcoming immigration policy for foreign talent from India and other nations to offset a potential Chinese brain drain. Finally, American consumers need to be prepared to pay more for the luxury of a secure and diversified supply chain, Nathaniel Taplin writes.

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Economy

Hoist by his own petard

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There is genuine anger at the behaviour of Dominic Cummings not just among the usual suspects but among some Tory MPs such as Roger Gale and Douglas Ross. It's worth exploring why this should be the case.

It's because of cultural evolution. Early humans worked out (or stumbled upon) an important fact, that we often thrive best when we cooperate. As Axelrod and Hamilton showed in a classic paper (pdf):

Cooperation based on reciprocity can get started in a predominantly noncooperative world, can thrive in a variegated environment, and can defend itself once fully established.

Or as Ken Binmore put it in Natural Justice:

We don't need to pretend that we are all Dr Jekylls in order to explain how we manage to get on with each other fairly well most of the time. Even a society of Mr Hydes can eventually learn to coordinate on an efficient equilibrium in an indefinitely repeated game.

This cooperation takes the form of the Golden Rule, or do as you would be done by. As Binmore shows, pretty much all societies have some version of this principle. I agree to obey rules – even at a cost to myself – because I expect you to do so.

But how are such norms enforced? By punishing defectors, that's how. In Axelrod and Hamilton's formal scheme, this takes the form of tit-for-tat strategies. Less formally, we use mockery, ostracism and even violence: "snitches get stitches."

Most of us have internalized these norms. We know this from experiments with the ultimatum game, wherein one player is given some money and can split it with another, with the other choosing to accept or reject the offer. Purely selfish offerers would offer the lowest amount possible, and purely selfish receivers would accept. But this is not what happens. Offers of less than 30-40% are only occasionally made, and often rejected when they are.

This shows that we have a norm of fairness. Offerers don't make unfair offers even if they'd benefit from doing so, and receivers reject such offers even if they'd be financially better off accepting. Both sides do so because the norm of fairness over-rides short-term financial gains.

It's for a similar reason that people leave tips even in restaurants they'll not return to. We feel bad not tipping; we don't want to be thought badly of; and we want to uphold incentives for good service because we'd expect visitors to our regular restaurants to do the same for us.

This, I think explains the anger towards Cummings. It's because people think he has broken one of the oldest social norms, of thinking the rules that apply to us don't apply to him. Millennial of cultural evolution mean this norm is now viscerally internalized. Hence the power of the charge "one rule for them, one for us".

In this context, it is pointless to wiggle about claiming that Cummings observed the letter of the rules. Such legalistic pedantry misses the point – that it is the spirit of the rules that matter.

This also explains Conservatives' disquiet. Some of them genuinely believe in the rule of law – the principle that laws apply to us all, which is part of the Golden Rule. For them, Cummings has broken a core moral principle.

One irony here is that Cummings should have been aware of all this. As he himself wrote:

Most of our politics is still conducted with the morality and the language of the simple primitive hunter-gatherer tribe…Our ‘chimp politics’ has an evolutionary logic: our powerful evolved instinct to conform to a group view is a flip-side of our evolved in-group solidarity.

Binmore points out that it was in tough times that norms of conformity were most strongly enforced, because it's then that survival requires them. Or as Marshall Sahlins put it:

During lean food seasons the incidence of generalized exchange should rise above average…Survival depends now upon a double-barrelled quickening of social solidarity and economic cooperation. The social and economic consolidation could conceivably progress to the maximum: normal reciprocal relations between households are suspended in favour of pooling of resources for the duration of emergency. (Stone Age Economics, p213-4)

Stone Age man's greater emphasis upon community and solidarity in hard times has a strong echo today. Because we're all suffering from the lockdown, we even more than usual expect everyone to muck in together and so are hostile to defectors.

But it has for decades had another echo. As Ben Friedman showed, in recessions we become more intolerant of outsiders, as solidarity with our tribe increases.

Which leads to an exquisite irony. Having exploited that atavistic sense of heightened solidarity so well during the Brexit campaign, Mr Cummings is now a victim of it. He is being hoist by his own petard. It takes a heart of stone not to laugh.



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