Newsletter: Can the Market Absorb 21 Million Homes?


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Good morning. Jeff Sparshott here with the latest on housing, consumer confidence, business investment, investor euphoria and bitcoin. Please send any questions or comments by replying to this email.
OK Boomer, Who’s Going to Buy Your 21 Million Homes?
The U.S. is at the beginning of a tidal wave of homes hitting the market on the scale of the housing bubble in the mid-2000s. This time it won’t be driven by overbuilding, easy credit or irrational exuberance, but by an inevitable fact of life: the passing of the baby boomer generation, Laura Kusisto reports.

Baby boomers are getting ready to sell one-quarter of America’s homes: By 2037, roughly 21 million will be vacated by seniors.
The problem? The buyers coming behind the boomers, the Gen Xers, are a smaller and more financially precarious generation with different preferences. And the bulk of the supply won’t necessarily be in places where these new buyers want to live—in cities or suburbs in major metropolitan areas.

The Dallas Fed’s manufacturing survey for November is out at 10:30 a.m. ET.
Federal Reserve Chairman Jerome Powell delivers a speech titled ‘Building on the Gains from the Long Expansion’ in Providence, R.I., at 7 p.m. ET. 
Red Economy vs. Blue Economy
How’s the economy doing? The answer depends on your politics. The University of Michigan’s consumer sentiment survey is starkly divided by political affiliation. “One side anticipates a recession, while the other side expects an uninterrupted expansion in the year ahead,” says survey director Richard Curtin.

So what? The divide calls into question consumer surveys and behavior: Are individuals becoming more responsive to political rather than economic developments?
It might also highlight more than pure rah-rah partisanship. Wage stagnation and income inequality, for example, have emerged as key issues for many. “Consumer expectations are likely to continue to be influenced by partisan views based on distributional concerns,” Mr. Curtin wrote in a 2018 paper describing the widening divide.

Businesses Pull Back
Big U.S. companies—including Harley Davidson, AT&T and Target—are moderating their spending on equipment and other capital investment. That could pose a continuing drag on economic growth. The pullback began as trade tensions escalated last fall, leaving companies unsure about their supply chains, pricing and profits. It has continued amid signs of slowing global growth and increasing consumer concerns about the future. Some companies have warned it could continue into next year, when the presidential and congressional election is expected to add even more uncertainty to business decision-making, Theo Francis and Thomas Gryta report.

Bad News Bulls
Investors are looking past weak data and trade snags that would have roiled markets just months ago, convinced that easing by central banks and a deal between the U.S. and China will keep stocks marching higher. In recent sessions, markets have shrugged off the biggest drop in U.S. industrial production in nearly a year and a half, a dismal fourth-quarter economic outlook from the Federal Reserve Bank of Atlanta, disappointing data from Europe and Asia, and reports that the U.S. and China are unlikely to reach a trade deal before year-end. The result: The S&P 500 is up more than 9% in the past three months, Ira Iosebashvili reports.

Counterpoint: Some recent news has been decent, at least for the U.S. Data company IHS Markit on Friday said its composite Purchasing Managers Index for the U.S., a measure of business activity, reached a four-month high in November. “The worst of the economy’s recent soft patch may be behind us,” said IHS Markit economist Chris Williamson. The rest of the world? Meh.

Today’s catalyst: China over the weekend said it would step up intellectual property protection and enforcement, one of the key concerns for U.S. negotiators on a trade deal.
When Chinese leader Xi Jinping touted blockchain technology in October, the price of bitcoin surged, searches for “blockchain” on one of China’s biggest search engines soared and shares of related companies jumped. A month later, the euphoria is over. Bitcoin slumped below $7,000 over the weekend, dropping to a six-month low as China reaffirmed its tough stance on companies involved in cryptocurrency trading and fundraising, Steven Russolillo and Stella Yifan Xie report.

Slow Lane
No country on the planet makes more automobiles relative to the size of its population than Slovakia, a mark of the giant strides the country has made since throwing off the shackles of communism three decades ago. But as with many countries in central and eastern Europe, that reliance on auto making to drive growth may become a problem as the industry slows globally and faces big changes in demand and technology. In the immediate future, the impact of a weakened industry on central and eastern Europe will be slower economic growth, fewer new jobs, and less buoyant exports. Longer term, it may be time for countries in the region to look to new industries, Paul Hannon reports.
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More fodder for the minimum-wage debate. “This paper provides empirical evidence that manufacturing plants substitute capital for labor when wage rates increase. The estimation results imply that when the hourly wage of production workers increases by 10% (roughly $0.90 in an average establishment), an average establishment reduces the total hours worked by production workers by 7.2%, and increases capital expenditures on machines and equipment by 24.3%,” the University of Illinois at Urbana-Champaign’s Yuci Chen writes in a Center for Economic Studies 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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