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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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Southwestern cotton growers are abandoning millions of parched acres that they planted in spring, prompting forecasts for the weakest U.S. harvest in more than a decade and sending prices sharply higher. U.S. agricultural forecasters expect drought-struck farmers to walk away from more than 40% of the 12.5 million acres they sowed with cotton and harvest the smallest area since Reconstruction. Back then, in 1868, yields per acre were less than a fifth of what they are today, but the market for cotton was vastly smaller too. December cotton futures, the most-traded contract, rose Tuesday for the sixth straight trading session to close at $1.169 a pound. Last week, futures gained about 13%, the sharpest weekly climb since March
2011, when prices were on their way to a record of $2.141 a pound, Ryan Dezember reports.
A severe drought and some of the hottest weather on record have scorched fields and driven a historically high level of abandonment in the Southwest.
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The federal government has declared an unprecedented new stage to the water shortage afflicting the Colorado River, triggering cutbacks likely to deepen economic damage to the Southwest driven by a long-running drought. Bureau of Reclamation officials said they were prepared to impose additional cuts if cooperative efforts to achieve savings to prop up two of the river’s biggest reservoirs, Lake Mead and Lake Powell, don’t work. As of Tuesday, Lake Mead stood at an elevation of 1042.4 feet, the lowest since Hoover Dam was completed in 1936 to form the reservoir, Jim Carlton reports.
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U.S. retail sales for July are expected to increase 0.1% from the prior month. (8:30 a.m. ET)
U.S. business inventories for June are expected to increase 1.4% from the prior month. (10 a.m. ET)
The Federal Reserve releases minutes from its July 26-27 meeting at 2 p.m. ET.
Fed governor Michelle Bowman speaks on financial services at 9:30 a.m. ET, and on Covid-19 and the role of women in the economy at 2:20 p.m. ET. (Livestream)
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Consumers Pay More for Less
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Economists estimate that Americans slowed retail spending in July as gasoline prices fell and took pressure off household budgets. Retail sales—a measure of spending at stores, online and in restaurants—rose a seasonally adjusted 0.1% in July from the previous month, according to a Wall Street Journal survey of economists. That would mark a slowdown from the 1% month-over-month increase recorded in June. The Commerce Department will release data on July retail sales at 8:30 a.m. ET on Wednesday, Harriet Torry reports.
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Walmart and Home Depot reported stronger revenue in the most recent quarter, signs that Americans are spending even as they pay more for fewer products and are shifting their purchases to mitigate the effects of inflation. Walmart said revenue rose 8.4% to $152.86 billion in the July quarter, helped by consumers paying more for items, market-share gains in its grocery business and more visits from shoppers. Company executives expect inflation and consumer spending to stay steady throughout the year. Home-improvement retailer Home Depot also reported higher quarterly sales despite a decline in the number of transactions from a year ago, Sarah Nassauer reports.
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The U.K.’s annual rate of inflation moved into double digits in July and is set to rise even higher by the end of the year, heaping greater pressure on stretched household budgets and threatening a lengthy economic contraction. The U.K.’s Office for National Statistics Wednesday said consumer prices were 10.1% higher in July than a year earlier, up from 9.4% in June. That was the U.K.’s highest rate of inflation in more than four decades. Economists at JPMorgan see increasing signs that global inflation is set to ease, though Europe faces ongoing pressure from surging energy prices as Russia withholds supplies of natural gas, Paul Hannon reports.
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House construction in the U.S. continued to slow in July, as high inflation and higher mortgage rates make it more expensive to build and buy property. Housing starts in July fell 9.6% from the month before to a seasonally adjusted annual rate of 1.45 million, the Commerce Department said Tuesday, down from a revised 1.60 million the prior month. Building permits declined 1.3% to 1.7 million. The declines come amid moves by the Federal Reserve to raise interest rates to combat inflation and cool the economy, Austen Hufford reports.
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If there's a silver lining for buyers, it's that the pipeline for homes coming on the market appears strong. The number of homes under construction is near the highest on record in data reaching back to 1969 (though that is partly because the time it takes to complete a home has increased as builders navigate supply shortages and sometimes struggle to hire enough workers). The number of housing units authorized by permits but not yet started also hit a record in data reaching back to 1999.
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China’s Measures to Boost Economy Don’t Match Past Efforts
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For the past two decades, China has conditioned global companies and markets to anticipate big government spending at any hint of an economic slowdown. Now, as growth sputters, Beijing is taking only small steps toward boosting its ailing economy. On Monday, China’s central bank cut two key interest rates, as fresh economic data showed a range of economic activity slowing in July. Unlike in the U.S., interest rates in China have a limited effect, and economists said the move would likely do little to encourage further borrowing by households and businesses. The absence of more-powerful stimulus measures from Chinese leaders this time in part suggests that Beijing is more keenly aware of the unsustainable nature of the
country’s traditional approach to supporting the economy by borrowing to spend big on infrastructure, Stella Yifan Xie and James T. Areddy report.
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🎥 WSJ video: As China’s economy stalls, protests have broken out over frozen bank accounts and mortgage payments for unfinished homes. WSJ explains the reasons behind the simmering discontent and how Beijing authorities are trying to keep a lid on it. Photo Composite: WSJ
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