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Good morning. Today we look at the intersection of politics and the economy, Nafta talks, the increasingly elusive American Dream, where to park an unfinished Boeing 737, stock markets in September, and why blue-collar workers gain weight when they work fewer hours.
IT'S THE ECONOMY, STUPID
The economy is booming! Except where it's not. That could shape midterm elections in the U.S. A sizable number of competitive districts—almost all currently Republican—are vulnerable to new tariffs, a new cap on deductions for state and local income taxes, or a jobs picture worse than the national average, Siobhan Hughes and Dante Chinni write. The performance of the economy across congressional districts is especially important this year—in no midterm election in recent decades has consumer confidence been so high while the president’s approval rating is so low.
Maybe not just the economy: For many voters, health care, the economy, and immigration, are the most important issues at stake in the midterms, according to a July Wall Street Journal/NBC News poll.
You know who is feeling better about the economy? Older Americans. Consumer confidence for those age 55 and over hit close to an 18-year high in August. That is helping close the gap in sentiment with Americans under the age of 35, who have long held cheerier views of the economy. While one factor underpinning their enthusiasm could be stock-market gains, a more compelling explanation is likely partisanship. Republicans have shown growing confidence since the election of President Donald Trump in 2016. Age is correlated with political party affiliation, so it would make sense that older Americans, who tend to be more Republican, are expressing more economic optimism than their younger, more Democratic counterparts. -Sarah Chaney
Will the economy's performance affect your vote in November? Write to Jeffrey Sparshott at [email protected], tweet to @WSJecon and visit wsj.com/economy for the latest news. (Please include your full name and hometown, or a title and company. Responses may be quoted in this newsletter.)
WHAT TO WATCH TODAY
The Bank of England’s Mark Carney and other officials testify at a Treasury Select Committee hearing in Parliament at 8:15 a.m. ET.
Markit's U.S. manufacturing PMI for August is out at 9:45 a.m. ET.
The Institute for Supply Management manufacturing index for August, out at 10 a.m. ET, is expected to slip to 57.5 from 58.1 the prior month. A reading above 50 signals expansion for the sector.
U.S. construction spending for July, out at 10 a.m. ET, is expected to rise 0.5% from the prior month.
U.S. auto sales for August are expected to hold roughly steady at a 16.8 million annual pace.
DROP THE GLOVES
President Trump this week will put his bare-knuckles negotiating strategy to a new test: Persuade Canada to sign on to his vision for overhauling the North American Free Trade Agreement. Talks are slated to reopen on Wednesday. Over the holiday weekend, Mr. Trump threatened Ottawa with expulsion from the bloc and attacked two U.S. groups whose support he needs to enact a new Nafta: Congress and organized labor, Jacob M. Schlesinger and Paul Vieira report.
“If we don’t make a fair deal for the U.S. after decades of abuse, Canada will be out,” Mr. Trump tweeted Saturday morning. “Congress should not interfere w/ these negotiations or I will simply terminate NAFTA entirely & we will be far better off.”
One of the big sticking points in U.S.-Canada talks: dairy. The U.S. ran a $418 million trade surplus in the category last year. But the Trump administration says U.S. farmers are treated unfairly by the complex “supply management” system that governs Canada’s dairy market. As part of this system, Canada limits dairy imports and imposes steep tariffs of more than 200% on products that exceed those limits, Heather Haddon and Paul Vieira report. President Trump has allies on this one, including New York Gov. Andrew Cuomo. But this issue won't be easy to resolve: Canada's 11,000 commercial farms hold considerable political sway.
The American Dream is becoming wishful thinking for many. Just over half of Americans born in the 1980s have ended up with better jobs than their parents, according to an article by New York University's Michael Hout. That’s down from two-thirds of people born in the 1940s. “Your circumstances at birth—specifically, what your parents do for a living—are an even bigger factor in how far you get in life than we had previously realized,” Mr. Hout said.
Fading upward mobility may reflect slower economic growth in recent decades and less structural change in the U.S. economy, which rapidly industrialized in the 20th century and then transitioned to services. In effect, this meant that more white-collar jobs were available to Americans born in the 1940s than to the largely blue-collar generation that preceded them, Paul Kiernan writes.
SUPPLY BALL AND CHAIN
Boeing Co. is facing a problem as it races to meet demand for single-aisle, fuel-efficient jets: where to store unfinished 737s piling up at a factory near Seattle. Boeing delivered just 29 of the 737s in July, though more than 50 mostly-finished jets roll off the production line each month. The delays are due largely to two suppliers: engine maker CFM International, a joint venture between General Electric and Safran, and fuselage manufacturer Spirit AeroSystems Holdings, Andrew Tangel and Doug Cameron report. One temporary fix: Boeing secured a 90-day agreement with Renton, Wash., that allows it to park four 737 airliners on a taxiway at the city's small airport.
UP, UP AND AWAY
The stock market isn't the economy. But both markets and underlying fundamentals are looking pretty good at the moment. Will it last? U.S. stocks are back at all-time highs after a dizzying August rally, prompting some investors to fear a reckoning heading into what historically has been a weak stretch for markets. On the plus side: Inflation has proven benign. Corporate earnings are growing at the second fastest pace since 2010. The threat of a trade war has dimmed in recent weeks. Yet many investors, burned by previous snapbacks, view September with a degree of apprehension, Akane Otani writes. One apparent risk: politics. Midterms, more trade talks and a Sept. 30 deadline for a federal budget loom.
TWEET OF THE DAY
WHAT ELSE WE'RE READING
Blue-collar workers tend to put on weight when their hours are cut. "Against the hypothesis of health investment effects, we find that reduced working times increase overweight among blue collar workers and exert no effect on the rest," Joan Costa-i-Font and Belen Saenz de Miera Juarez write in a CESifo working paper. Possible reasons: they use the extra time for childcare rather than exercise, and work-related physical activity is their primary form of exercise.
Deal or no deal? A "chaotic Brexit–where the UK fails to sign a withdrawal agreement–would generate short-term uncertainties including the disappearance, without replacement, of many of the rules underpinning the UK’s economic and regulatory structures," academic think tank The UK in a Changing Europe writes. The result could be a short-term recession, and almost certainly means slower long-term economic growth.
UP NEXT: WEDNESDAY
The U.S. trade deficit for July, out at 8:30 a.m. ET, is expected to widen to $49.2 billion from $46.35 billion the prior month. "Wednesday’s release of the July U.S. trade balance should garner plenty of attention, especially as the U.S. administration is set to unleash another $200 billion in trade tariffs on Chinese imports as soon as this Friday," economists at Wells Fargo said.
The Bank of Canada releases a policy statement at 10 a.m. ET.
The St. Louis Fed's James Bullard speaks on the U.S. economy and monetary policy at 9:20 a.m. ET, the Minneapolis Fed's Neel Kashkari speaks at Montana State University at 4 p.m. ET., and the Atlanta Fed's Raphael Bostic speaks on the economic outlook and monetary policy at 6:30 p.m. ET.