Republicans got another economic headline to crow about Tuesday: The Labor Department reported workers enjoyed their biggest pay raise in a decade over the 12 months that ended in June.

Here was President Trump: 

And House Speaker Paul Ryan (R-Wis.): 

But the result is mostly a wash for workers. Rising consumer prices are all but wiping out the gains in their paychecks. The quarterly report — known as the employment cost index — measures trends in both wages and benefits by tracking about 6,600 private businesses and 1,400 state and local governments. It rose 2.8 percent over the previous year, the biggest such increase since the third quarter of 2008. 

Yet inflation is also heating up, meaning that workers noting bumps in their paychecks will also find their money isn’t going as far. Indeed, the consumer price index rose 2.9 percent in June from a year earlier, a six-year high. (The Federal Reserve’s preferred measure of inflation — the core PCE price index, which excludes volatile food and energy prices — climbed 1.9 percent in June on a year-on-year basis.)

“There’s a little bit of good news here, but we should be careful not to exaggerate it,” says Harry Holzer, a Georgetown University professor of public policy and former chief economist for the Labor Department. “We’re seeing a slow, upward creep in these numbers. On the other hand, they’re just barely ahead of the inflation rate right now, and that’s not what you’d expect with unemployment at 4 percent.” 

Here was former Obama administration economist Jared Bernstein’s look at the latest data, using the top-line consumer price index to measure inflation:

The results suggest that an economy firing on most cylinders is still failing to produce the kind of broad-based gains that Republicans have pledged to deliver through a sweeping tax cut and deregulation. 

That could change: Some see more meaningful wage gains ahead as whatever slack that remains in the labor market works its way out. Tuesday’s report offered “another sign that the labor markets are tightening and that compensation is going up as employers compete for workers,” says Douglas Holtz-Eakin, president of the American Action Forum. 

Gary Burtless, an economist at the Brookings Institution, says the steady pickup in employment present a brighter picture than relatively meager wage gains. “The main thing is it’s easier to find a job,” he says. “So if you don’t like the job you have, you can quit, and the penalty is much lower than you would have faced seven or eight years ago when you might have had a long search for the next one.”

And Holtz-Eakin says it is too soon to judge whether last year’s tax cut has yielded the kind of business investment that improves productivity, which measures worker efficiency. Productivity growth has lagged since the recession, for reasons economists don’t entirely understand. But most consider improving it a key to unlocking stronger wage growth: For most of the last century, the two climbed in tandem. Republicans pushed their tax cuts in part by arguing businesses would plow the money they saved into new technology, equipment, and training, laying the foundation for a productivity surge that would spread prosperity widely.    

The early record suggests that’s not happening. Instead, companies are directing much if not most of their tax-cut windfalls to executives and shareholders. As Politico noted this week, public companies announced more than $600 billion in stock repurchases in the first half of the year, more than in any entire year prior.

It continues a recent trend. A new study by the National Employment Law Project found from 2015 to 2017, the restaurant industry spent 140 percent of its profits on buybacks, “meaning that it borrowed or dipped into its cash allowances to purchase the shares,” The Atlantic’s Annie Lowrey reports. “How much might workers have benefited if companies had devoted their financial resources to them rather than to shareholders? Lowe’s, CVS, and Home Depot could have provided each of their workers a raise of $18,000 a year, the report found. Starbucks could have given each of its employees $7,000 a year, and McDonald’s could have given $4,000 to each of its nearly 2 million employees.”

At the moment, workers in some industries are faring better than others. Andrew Chamberlain, an economist at recruiting site Glassdoor, tells me those in tech jobs are seeing faster wage gains, as are those in lower-end retail jobs, perhaps surprisingly considering the sector’s struggles. “Employers are just running out of people to hire, and it’s almost impossible to get people to move for those jobs,” he says. Those in manufacturing, telecom, and media are seeing some of the weakest pay raises, Glassdoor data shows.

Pay bumps are also stronger in big coastal cities — San Francisco, Seattle, Los Angeles and New York — than in other top metro areas, Chamberlain says. But true to the trend, sharply rising costs of living in those places are swamping the gains.



— Trump eyes major escalation with China. The Washington Post's Damian Paletta: “Trump is considering a plan to impose a 25 percent tariff on $200 billion in Chinese imports, more than double what he had initially proposed ... The deliberations could be a sign that Trump is looking to intensify pressure in the trade standoff with Beijing even if it could significantly drive up costs on a wide range of products for American consumers. A final decision has not been made, and a number of Trump’s threats toward China have been designed more to bring Chinese President Xi Jinping to the negotiating table than to fundamentally change U.S. economic policy ... If Trump follows through with the plan, it could significantly raise prices on televisions, clothing, bedsheets, air conditioners and other consumer products.”

China vows to retaliate. "U.S. pressure and blackmail won’t have an effect," Chinese Foreign Ministry spokesman Geng Shuang told reporters Wednesday, per Reuters. "If the United States takes further escalatory steps, China will inevitably take countermeasures and we will resolutely protect our legitimate rights."

Both sides want to talk. Bloomberg News's Jenny Leonard, Peter Martin, Saleha Mohsin and Jennifer Jacobs: “The U.S. and China are trying to restart talks aimed at averting a full-blown trade war between the world’s two largest economies, two people familiar with the effort said. Representatives of U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He are having private conversations as they look for ways to reengage in negotiations... A specific timetable, the issues to be discussed and the format for talks aren’t finalized, but [there was] agreement among the principals that more discussions need to take place. Negotiations to resolve the dispute have been stalled for weeks, with both sides refusing to budge. High-level U.S. talks on the Trump administration’s trade posture toward China are taking place this week.”

China acknowledges pain. The Wall Street Journal: “China’s leadership pledged to ensure economic stability as its trade fight with the U.S. started to pinch growth, signaling that a bigger stimulus could be on the horizon. A Tuesday meeting of the Politburo, whose members are China’s top arbiters of power, highlighted the external challenges faced by the world’s second-largest economy. Without specifically mentioning the trade conflict with the U.S., a statement issued after the meeting by state media made clear the brawl is a big threat to growth and stability, trumping issues such as debt control. The Chinese economy 'faces some new problems and new challenges,' the statement said. 'There are obvious changes in the external environment.' The meeting came as official data showed early Tuesday that China’s business activities faltered in July — the first official data to reflect the impact of U.S. tariffs — adding to signs that trade tensions have started to dent economic growth.”

— Lighthizer snubs Canada. Bloomberg News's Jenny Leonard and Eric Martin: “Canada has been rebuffed in recent attempts to engage on Nafta with U.S. Trade Representative Robert Lighthizer amid talks between the Trump administration and Mexico... The Canadian negotiating team, led by Foreign Minister Chrystia Freeland, has been told that Lighthizer is focusing on negotiations with Mexico and isn’t interested in engaging with Canada at the moment... Freeland traveled to Mexico last week, and the trip was motivated in part by the U.S. decision to isolate Canada from the talks... While Mexico and Canada have repeatedly emphasized the need to keep the deal between all three countries, negotiating with Mexico and then Canada would be in keeping with [Trump’s] preference for striking bilateral agreements.”

But Mexico is bullish. Reuters: "Mexican negotiators are optimistic about the possibility of getting a NAFTA deal and are hopeful of progress in coming days, the country’s deputy economy minister said ahead of a second ministerial meeting in Washington later this week. 'You are going to see hopefully news coming out of Washington in the next few days. There is optimism,' Juan Carlos Baker, deputy economy minister and member of the NAFTA negotiating team, said on Tuesday."

Car exporters weigh response. Bloomberg's Bryce Baschuk: "Trade officials from the world’s top car-exporting nations agreed to respond if President Donald Trump slaps new U.S. tariffs on autos and auto parts. Deputy trade ministers from the European Union, Canada, Mexico, Japan and South Korea are concerned that Trump may impose tariffs on foreign imports of cars and auto parts if the U.S. Commerce Department finds that they pose a threat to national security. Participants at the meeting in Geneva on Tuesday said they are considering an array of options, including an appeal to the World Trade Organization’s dispute settlement system and the imposition of retaliatory tariffs against U.S. goods. 'It’s fair to say we all share the same concern that should Section 232 be applied, countries will consider their options,' Mexico’s Undersecretary of Foreign Trade Juan Carlos Baker said in an interview following the meeting."


— Kelly to stay. The Post's Philip Rucker: “John F. Kelly plans to remain as White House chief of staff through President Trump’s 2020 reelection campaign, a White House official confirmed Tuesday, quieting speculation that Kelly was nearing the exits because of tensions with the president. Kelly, who on Monday celebrated his first anniversary as chief of staff, told West Wing staff that he will be staying in his post at Trump’s request through the remainder of the president’s first term. Kelly, a retired four-star Marine Corps general, has had a rocky tenure in the West Wing and was widely expected to leave his job this summer.”


Fed likely steady. WSJ's Nick Timiraos: "Federal Reserve officials are likely to keep interest rates steady at their two-day policy meeting that concludes Wednesday. Their debate could center on where to set rates once they’ve lifted them to a more neutral setting that neither spurs nor slows economic growth. Officials may also discuss how to set rates—a technical issue separate from the question of how high to move them—and how much to let the central bank’s bond portfolio shrink. Fed Chairman Jerome Powell won’t hold a press conference after the meeting. The Fed has indicated it won’t be swayed by President Trump’s recent criticism of central-bank rate rises. Officials aren’t releasing new economic projections. The new policy statement, to be released at 2 p.m. EDT, will likely provide few clues about these long-running debates."

Companies warn on currency swings. WSJ's Nina Trentmann: "Multinational companies say billions of dollars in revenue and profit are at risk from recent currency fluctuations triggered by escalating tensions between the U.S. and its trading partners. The Chinese yuan last week touched a new one-year low against the U.S. dollar... These market moves are now playing out in corporate earnings. Facebook Inc., which last week surprised investors with slower-than-expected growth, attributed the miss in part to currency swings and expects exchange rates to act as a headwind in the second half of the year, said Chief Financial Officer Dave Wehner... Nearly two thirds of the 200 finance chiefs in a July survey said their earnings got hit by unprotected exposure to foreign currencies."

— Consumer confidence rises. The Associated Press's Paul Wiseman: “Americans were a bit more confident about the economy in July, but their expectations for the near future dimmed slightly. The Conference Board, a business research group, said Tuesday that its consumer confidence index rose to 127.4 this month from 127.1 in June. The index measures both consumers’ assessment of current economic conditions and expectations for the future. Their view of current conditions in July was the rosiest since March 2001; 43.1 percent said jobs were 'plentiful,' the most since March 2001.”


— Facebook uncovers disinformation campaign. The Post's Elizabeth Dwoskin and Tony Romm: “Facebook said Tuesday that it had discovered a sophisticated coordinated disinformation operation on its platform involving 32 false pages and profiles engaging in divisive messaging ahead of the U.S. midterm elections. The social media company said that it couldn’t tie the activity to Russia, which interfered on its platform around the 2016 presidential election. But Facebook said the profiles shared a pattern of behavior with the previous Russian disinformation campaign, which was led by a group with Kremlin ties called the Internet Research Agency. Facebook briefed congressional aides this week. A congressional aide said that there’s no evidence that political candidates were targeted in the new disinformation effort but that pages and accounts sought to spread politically divisive content around social issues.”

— Apple inches toward $1 trillion. The Post's Hayley Tsukayama: “Apple shrugged off lower-than-expected sales for the iPhone on Tuesday as shares rose sharply after the market’s close, when investors got a glimpse of a far more important number: the company’s sales projection for next quarter. The company projected that it would make $60 billion to $62 billion next quarter, exceeding analysts' expectations of $59.6 billion. The forecast is a measure of how well Apple thinks it can fare in a market where consumer interest in having the latest and greatest continues to wane. Apple, which makes about 56 percent of its revenue from the iPhone, has had to deal with slowing sales growth for its biggest product. Apple reported $11.5 billion in profit, up from $8.7 billion in the third quarter of 2017... Shares rose nearly 3 percent in after-hours trading, from a $190.29 per share close — edging the company closer to its pursuit of a $1 trillion market value.”

— Tesla scrambles. The Post's Drew Harwell: “At the Tesla Factory one day last week, the robotic city of Elon Musk’s dreams looked like a madhouse, a tangle of red machines and car skeletons and industrial presses, firing welding sparks and pounding steel. ... The Silicon Valley giant on Wednesday will report earnings that analysts expect could include $900 million of losses in the second quarter, a time of factory disasters and internal paranoia that Musk, Tesla’s billionaire chief, has described as 'the most excruciating, hellish several months I’ve maybe ever had.' ... The famously unpredictable company still has legions of fans and plenty of reasons to stay upbeat. Its newest car, the Model 3, has debuted to massive fanfare and raves from reviewers calling it a 'modern marvel,' 'highway assassin' and 'pure jungle cat.' The company in early July celebrated a long-delayed production milestone, building 5,000 of the cars a week; sustained production could pleasantly surprise investors and, as Musk likes to say, prove the haters wrong. Such quarterly earnings announcements are for most companies typically clinical affairs, but Tesla’s are known for their fireworks. During the last call, in May, Musk berated analysts for asking questions he called 'boring,' 'bonehead,' 'so dry' and 'not cool.' Tesla’s stock this week is down 20 percent from its June peak.”

— Lloyd's of London is soul searching. Reuters's Carolyn Cohn and Jonathan Saul: “Lloyd’s of London is reviewing all aspects of its business, including its centuries-old structure, to ensure it is cost-competitive and responsive to both clients and members, especially after Britain leaves the EU, industry sources said. The review, coming after a 2-billion-pound ($2.64-billion) loss last year and the news in June that CEO Inga Beale will step down, goes to the core of the institution’s hybrid personality, senior insurers and other officials in London’s financial services sector said. Lloyd’s has been holding board and other internal meetings and separate discussions with broader market participants on the best way forward, the officials said. Precise details of the review have not been disclosed, they said.”


— Conflicting signals on capital gains. Bloomberg News's Margaret Talev, Jennifer Jacobs, and Lynnley Browning: “The White House isn’t actively considering the Treasury Department’s push to issue a rule that would slash tax bills for investors who have investment income ... Mnuchin told the New York Times earlier this month that his agency was looking at whether it could sidestep Congress to allow capital gains to be indexed to inflation. The change has appeal to some segments of [Trump’s] base, but White House officials are aware it would face an immediate legal challenge and has a narrow chance of being sustained ... In another sign that the effort was largely confined to Treasury, White House Chief of Staff John Kelly wasn’t actively seeking the change as of Monday, a White House official said.”

Key Congressional Republicans approve. The Hill's Naomi Jagoda: "Congressional Republicans are rallying behind potential executive action by the Treasury Department to reduce capital gains unilaterally. With Congress unlikely to pass related legislation anytime soon, GOP lawmakers expressed interest in having the Treasury Department take the lead... 'There’s no question it’s good policy economically,' said Sen. Pat Toomey(R-Pa.), who has co-sponsored legislation on the topic... House Ways and Means Committee Chairman Kevin Brady (R-Texas) told reporters last week that he hasn’t fully researched the issue of whether Treasury can unilaterally implement a capital gains tax cut, but said he thinks 'we ought to look at not penalizing Americans for inflation.'”

Trump feud with Kochs exposes GOP rift. The Post's Bob Costa and Sean Sullivan: "Trump’s tight grip on the Republican Party is being openly challenged by the powerful network of ideological conservatives linked to billionaire industrialist Charles Koch, splaying out long-simmering tensions over the party’s future just months before the midterm elections. Trump on Tuesday dismissed the mounting criticism of his trade and immigration policies from Koch and his allies as the battle cry of a faction that has 'become a total joke in real Republican circles.' 'I don’t need their money or bad ideas,' Trump wrote on Twitter, adding, 'I have beaten them at every turn.' The Koch network pointedly declined to endorse Trump as a presidential candidate in 2016. But this latest feud — following last weekend’s gathering at which Koch-affiliated officials sought to distance their operation from Trump — has exposed the rift between a president pushing his party toward populism, and establishment Republicans espousing the long-standing policy of free trade."

— Congress extends flood insurance program. The Post's Mike DeBonis: “The Senate on Tuesday passed a short-term extension of the federal flood insurance program, sending it to President Trump for his signature hours before an Aug. 1 deadline. The 86-to-12 vote preserves access to flood insurance for U.S. homeowners, but it again punts on reforms to a program that now covers more than 5 million households and collects more than $3 billion in premiums yearly. The bill extends the authorization for the program and its ability to borrow funds through Nov. 30. Lawmakers have been unable to move forward on changes to the program nearly a year after a string of hurricanes — Harvey, Irma and Maria — highlighted the fiscal stress on the program.”


Treasury calls for sweeping fintech changes. Politico's Colin Wilhelm: "The Treasury Department on Tuesday released its blueprint for regulating financial technology, a sweeping document that could influence policy in the emerging industry for years to come. The recommendations include the endorsement of so-called regulatory sandboxes, which would allow companies to experiment with new services that push the boundaries of current law.  Treasury also called for the end of the Consumer Financial Protection Bureau's small-dollar lending rule, increased control for consumers over their data, and a national data breach notification standard."

Sen. Sherrod Brown (D-Ohio) blasted the recommendations: "As if it weren’t bad enough the Administration wants to give payday lenders a free pass to trap people in debt, now it is actively undermining Ohio’s efforts to protect working people from these predators,” the top Democrat on the Senate Banking Committee said in a statement. “The Administration should be working to raise pay for working Ohioans, not making it easier for payday lenders to saddle them with triple-digit interest rates.”

Fintech firms can seek federal charter. Reuters's Michelle Price and Pete Schroeder: "A U.S. bank regulator said on Tuesday it would start accepting national charter applications from financial technology companies, giving so-called fintech firms a path to federal oversight for the first time. The move by the U.S. Office of the Comptroller of the Currency will be cheered by the likes of OnDeck Capital Inc, Kabbage and LendingClub Corp because it opens the door to operating nationwide under a single licensing and regulatory regime instead of a patchwork of state licenses. The decision came hours after the Treasury Department endorsed the approach. Effective immediately, the OCC will accept applications from non-depository fintech companies for a special purpose national bank charter."



Coming soon


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