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Real Time Economics
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Good morning. This is Jeff Sparshott with the latest on the economy. You can send questions, comments and suggestions by replying to this email.
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Why are companies still hiring when the economy is shrinking, inflation is high and there are growing fears of recession? Gross domestic product growth slipped into negative territory in the first half of the year. Borrowing costs have risen steeply as the Federal Reserve boosts interest rates in an attempt to reduce inflation. Even so, monthly payrolls have grown an average of 438,000 from January through August, nearly three times their 2019 prepandemic pace, Sarah Chaney Cambon reports.
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The problem: Many employers cut too many jobs in 2020, and still have too few people even with softening demand. “You can’t lay off what you didn’t hire,” said Ron Hetrick, senior economist at Lightcast, a labor-market analytics firm. Some economists say businesses will likely eliminate openings, which are at historic highs, before they resort to cutting jobs.
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U.S. consumer spending for August is expected to increase 0.3% from the prior month, and personal income is also forecast to increase 0.3%. Follow our coverage here. (8:30 a.m. ET)
The U.S. personal-consumption expenditures price index excluding food and energy for August is expected to rise 0.5% from one month earlier and 4.7% from one year earlier. (8:30 a.m. ET)
The Chicago purchasing managers index is expected to fall to 51.8 in September from 52.2 one month earlier. (9:45 a.m. ET)
The University of Michigan's consumer sentiment index is expected to hold at 59.5 in September, unchanged from a preliminary reading. (10 a.m. ET)
The Baker Hughes rig count is out at 1 p.m. ET.
Federal Reserve speakers: Vice Chair Lael Brainard on financial stability at 9 a.m. ET, governor Michelle Bowman on bank supervision at 11 a.m. ET, Richmond's Thomas Barkin on inflation at 12:30 p.m. ET, and New York's John Williams on financial stability at 4:15 p.m. ET.
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Variations on a Theme: Layoffs Down, Economy Contracts
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U.S. applications for unemployment benefits fell last week to the lowest level since the spring as many employers hesitate to lay off workers despite a slowing economy. Initial jobless claims, a proxy for layoffs, decreased to a seasonally adjusted 193,000 last week from 209,000 the previous week, the Labor Department said Thursday. The total was the lowest since late April and below the prepandemic average of 218,000 in 2019, Sarah Chaney Cambon reports.
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Mystery solved? In August, we flagged an historically large gap between gross domestic product and gross domestic income–the widest in records going back to 1947. A Commerce Department report out Thursday revised away much of that gap, and not in a good way. GDP measures the value of goods and services produced, GDI measures incomes earned and costs incurred in that production. They're two different ways of calculating economic activity and should be about equal. Earlier estimates of second-quarter economic growth showed a wide divergence, indicating that the government is having a hard time measuring the pandemic-era economy and offering a glimmer of hope to economists who thought GDI's +1.4% pace showed
output was stronger than it otherwise appeared. The latest estimate: GDP contracted at an unrevised 0.6% pace. GDI growth was revised down to +0.1%. They still don't align perfectly but much of the disparity was revised away in a way that suggests the economy did indeed shrink.
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CarMax posted a steep drop in profit for the recently ended quarter, as inflation and economic concerns weighed on Americans’ demand for buying used cars. Prices for preowned cars and trucks have ballooned in recent years amid a pandemic-related shortage of new vehicles. That has pushed many budget-conscious buyers out of the car market, stoking wider concerns about affordability and whether used prices might come crashing down after hitting a peak, Will Feuer reports.
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What goes up won't necessarily come down. Prices for some items, such as gasoline, rise and fall on a regular basis. Prices for some other items—such as education, public transportation and medical care—change more slowly, and mostly in one direction. WSJ's Julia Carpenter looks at "sticky prices" and why inflation can be so hard to stamp out.
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Mortgage rates rose to their highest level in more than 15 years, a new high since the 2008-09 financial crisis that adds pressure to the already cooling U.S. housing market. The average rate on a 30-year fixed mortgage climbed to 6.7%, according to a survey of lenders released Thursday by Freddie Mac. lt was the highest rate since July 2007 and marked the sixth week in a row of rising rates, Charley Grant reports.
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Record Eurozone Inflation
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The eurozone’s annual rate of inflation hit double digits in September as uncertainty about the currency area’s ability to make it through the winter without power cuts continued to keep energy prices elevated. The latest consumer-price data are likely to prompt the European Central Bank to raise its key interest rate again next month and will lead to further falls in household spending power that threaten to push the currency area’s economy into contraction. The European Union’s statistics agency on Friday said consumer prices across the eurozone were 10% higher than a year earlier, the highest inflation rate since records began in 1997. Records for individual countries go further back—Germany’s statistics agency on Thursday
said the country’s September inflation rate was the highest since late 1951, Paul Hannon reports.
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Thousands Protest in France Against Inflation, Macron’s Pension Plan
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As Yuan Hits New Lows, China Responds With Restraint
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Confronted by the relentless rise of the U.S. dollar, China’s central bank is seeking to slow, rather than halt, its currency’s decline, highlighting the difficulties of rowing against the powerful currents in the global economy that are propelling the dollar higher. The strategy also reflects the awkward policy trade-off between managing the yuan’s value and supporting economic growth that is confronting officials in the world’s second-largest economy. China’s currency has shed 11% of its value against the dollar so far this year, Jason Douglas reports.
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🎧 WSJ Podcast: The U.S. dollar is increasing in value. WSJ’s Julia-Ambra Verlaine explains what this means for the U.S. and other countries. Listen here.
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Real Time Economics offers 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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How are we doing? Please send us any questions, comments or suggestions by replying to this email. Thank you.
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