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Here’s the good news: Americans are richer than ever. The stock market closed at a record high on Thursday. Filings for unemployment benefits just fell to a 48-year low. Consumer confidence is soaring. The poverty rate is extending a three-year slide.
The income disparity between the classes is growing, as advances by upper-income households outpace those of the middle and lower tiers. Earnings by the typical American household remain mired around where they were before the recession. Wages are inching up, despite a tight labor market, and inflation is all but wiping out those gains.
It's a tale of two economies. The strength reflected in the headline numbers remains the GOP's best defense against a midterm wipeout. But lurking just beneath them are reminders that the recovery remains patchy, and its gains have been unevenly distributed.
“The aggregates often disguise the dirt in the details,” says Diane Swonk, chief economist at accounting and consulting firm Grant Thornton LLP. “Wealth has gone up, most notably in the equity markets, but there’s a greater concentration of it in fewer households.”
Thursday offered fresh insights into how the phenomenon is playing out. A new Fed report showed combined U.S. household wealth hit a record $107 trillion in the second quarter of this year.
A rising stock market contributed $800 billion, a major chunk of the gains over the three-month period. Stocks have climbed since, with the Dow Jones industrial average on Thursday closing above a record it set back in January, as the S&P 500 also set a new high.
But as the Associated Press’s Christopher Rugaber notes, “Stock market wealth has been flowing disproportionately — and increasingly — to the most affluent households. The richest one-tenth of Americans own about 84 percent of the value of stocks.”
Zooming out, Moody’s Analytics chief economist Mark Zandi notes that “only half of households own any stocks, and only a quarter of households own stock of any consequence.” Stock market participation is climbing again, but Swonk notes it still has a ways to go before matching the peak it hit before the Great Recession, when 66 percent of households counted themselves investors.
It’s a similar story with home equity, the other major contributor to the growing pile of aggregate household wealth. Per Zandi, fewer than two-thirds of Americans own their homes, and fewer than a third own “significant equity.” Older homeowners have fared the best, more than recovering what they lost in the recession, Swonk says. But the overall effect has “very uneven. Foreclosures are down to almost nothing, which is great. But many people aren’t able to buy back in because of affordability: Home values have gone up much more rapidly than incomes.”
The yawning gap between the top and everybody else is evident in income disparities, too. From the AP last week: “Income growth was strongest for the richest 5 percent of households, rising 3 percent to $237,034. For the poorest one-fifth of the population, incomes rose just 0.5 percent.”
“On average, it looks great. We’re as wealthy as we’ve ever been,” Zandi says. “But that’s not representative of many, many American households. The very skewed distribution of wealth is as skewed today as it was five years ago.”
Troublingly for the Republicans, voters appear to have concluded their signature policy achievement — the tax cut package President Trump signed into law at the end of last year — only exacerbates the problem. By 61 percent to 30 percent, respondents to a private Republican National Committee poll say the measure benefits “large corporations and rich Americans” over “middle class families,” Bloomberg’s Sahil Kapur and Joshua Green write. An RNC report on the poll concludes the party has “lost the messaging battle on the issue.”
The tax cut is supplying fiscal stimulus that’s adding fuel to economic growth this year. It contributed to GDP hitting 4.2 percent in the second quarter, its strongest performance in four years. But economists expect the effects of the measure — and a massive government spending package this year that has supplied extra adrenaline — to begin fading next year.
“We have an economy that’s strong, that’s well supported in terms of economic fundamentals, and that’s boosted by a fairly large fiscal stimulus package,” says Gregory Daco, head of U.S. economics at Oxford Economics. “One thing we have to note is this may be as good as it gets. Looking further out, we don’t expect as many positive tail winds as we’ve seen for the last few quarters.”
That is, if the gulf between the haves and have-lesses isn't narrowing meaningfully now, it won’t soon. Or, as Zandi puts it, “It took us two generations to get into this mess. We won’t get out of quickly.”
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— Trumps scolds China. Bloomberg News's Mike Dorning, Jenny Leonard and Mark Niquette: “Trump continued to hit out at China days after announcing another round of tariffs, signaling the trade war won’t end any time soon. ‘It’s time to take a stand on China,’ Trump said in an interview late Thursday with Fox News. ‘We have no choice. It’s been a long time. They’re hurting us.’ ... Adding to frictions, China on Friday demanded the U.S. withdraw penalties it placed on a defense agency and its director for purchasing Russian weapons in violation of American sanctions or ‘bear the consequences.’”
Larry Fink warns on fallout. CNBC's Jeff Cox: “The U.S. is winning the trade war with China in the short term but stands to lose significantly over the long term, BlackRock CEO Larry Fink said Thursday. Basing his view on recent travels through Europe, Fink said his clients worry that over time the damage could be as severe as companies choosing China over the U.S. as a place to build and the dollar losing its status as the world's reserve currency to the Chinese yuan.’”
— Lighthizer is riding high. U.S. Trade Representative Robert Lighthizer gets the profile treatment from Bloomberg's Shawn Donnan, who calls him "the official increasingly in charge of translating the president’s often vague and impulsive protectionism into a battle plan."
More: "If Trump’s attitude toward trade is instinctual, Lighthizer’s is the result of a forensic reading of history and years of going against the Republican grain on the issue... Lighthizer also shares Trump’s belief that the U.S. trade deficit in manufactured goods, which has grown steadily since 1975, is a symptom of things having gone very wrong. Yet while Trump has fingered a number of countries as culprits, Lighthizer heaps the blame predominantly on China, which he accuses of gaming a global trading system that failed to cope with the nation’s rise."
— No NAFTA deal in sight. Reuters's David Ljunggren: "Canada and the United States showed scant sign on Thursday of closing a deal to revamp NAFTA, and Canadian officials made clear Washington needed to withdraw a threat of possible autos tariffs... While multiple deadlines have passed during the more than year-long negotiations to renew NAFTA, pressure on Canada to agree to a deal is growing, partly to push it through the U.S. Congress before Mexico’s new government takes office on Dec. 1. Canada says it does not feel bound by the latest deadline. Asked whether time was running out, [Canadian Foreign Minister Chrystia] Freeland said her focus was getting a deal that was good for Canadians."
Collapse would hurt Canada. Bloomberg News's Greg Quinn: “Canada’s economic growth could be pared by about a quarter next year if the North American Free Trade Agreement collapses, and the drag will be extended if an automobile trade war emerges, according to a new Conference Board forecast. Failing to renew the trade pact, currently the subject of intense negotiations between the U.S. and Canada in Washington, would cut growth by 0.5 percentage points next year before the economy recovers in 2020."
— U.S. pressure on Japan continues. Reuters's Leika Kihara: “Japanese Prime Minister Shinzo Abe will meet [Trump] next week as fears grow in Tokyo that Washington could demand that Japan curb its car exports to the United States. Japan is hoping to avert any import curbs and potentially steeper U.S. import tariffs on its cars, and fend off U.S. demands for a bilateral free trade agreement.
"Abe and Trump will hold a summit meeting on Sept. 26 on the sidelines of a United Nations General Assembly meeting in New York, Japan’s top government spokesman said on Friday. ... Trump has made clear he is unhappy with Japan’s $69 billion trade surplus with the United States, nearly two-thirds from auto exports, and wants a two-way agreement to address it.”
— Powell's squeeze: Ignore the yield curve, or the tight job market? Reuters's Howard Schneider: "Unemployment near a 20-year low screams at the U.S. Federal Reserve to raise interest rates or risk a too-hot economy. The bond market, not far from a state that typically precedes a recession, says not so fast. The decision of which to heed looms large when the Fed’s interest-rate setters meet next week. Which path they follow will begin to define whether Chairman Jerome Powell engineers a sustained, recession-free era of full employment, or spoils the party with interest rate increases that prove too much for the economy to swallow. New Fed staff research and Powell’s own remarks seem to put more weight on the risks of super-tight labor markets, which could mean a shift up in the Fed’s rate outlook and a tougher tone in its rhetoric."
— Investors drop the dollar. Bloomberg News: “As global risk assets regain momentum, investors are driving Treasury yields toward seven-year highs and dumping the dollar at the same time. The greenback fell as much as 0.6 percent Thursday even as benchmark 10-year yields touched 3.09 percent, the highest level since May, and U.S. stocks rose to fresh records.
"While rising rates typically buoy the currency, a renewed appetite for risk is pulling that relationship apart. The message is simple according to Deutsche Bank AG’s Alan Ruskin: while strong U.S. and global equity markets are supporting yields, demand for emerging-market currencies and other risk assets is hurting the dollar. ‘Put the two together and you get a weaker dollar associated with higher dollar yields,’ Ruskin, global co-head of foreign-exchange research, wrote in a note.”
— Wells Fargo: No plan to replace CEO. American Banker's Kevin Wack: “Wells Fargo’s board of directors is denying reports that it has considered replacing CEO Tim Sloan. Board chair Elizabeth ‘Betsy’ Duke said in a statement late Wednesday that Sloan has the board’s full support and that she and other directors have not reached out to potential CEO candidates. Her comments came in response to an anonymously sourced story published Wednesday in the New York Post, which sparked speculation about Sloan’s job security.”
But plans to chop its workforce. AP's Ken Sweet reports the bank will cut 10 percent of its workers over the next three years, "which will result in thousands of job losses for employees of the nation’s third-largest bank. [Sloan] made the announcement to employees on Thursday. The bank currently employs roughly 265,000 workers, and plans to cut its headcount through both attrition and layoffs."
— Goldman executive to leave. WSJ's Liz Hoffman: “Goldman Sachs Group Inc.’s stock-trading chief is leaving the firm, the first senior departure as incoming Chief Executive David Solomon sets priorities and puts his own team in place. Paul Russo, who has run Goldman’s equities business since 2012, is negotiating his exit and is likely to depart in the coming weeks . . . The firm is likely to give additional responsibilities to three executives — Brian Levine, Jeff Nedelman and Phil Berlinski — while Mr. Russo’s counterpart, Michael Daffey, continues to head the business globally from London . . . The change comes at a tough time for the equities business across Wall Street and, in particular, at Goldman, which has ceded ground to rivals in recent years.”
— Airlines want to keep revenue from fees. WSJ's Andrew Tangel: “U.S. airlines are fighting to keep control of the nearly $3 billion passengers pay annually to change their flights. House and Senate lawmakers are negotiating a bill to reauthorize the Federal Aviation Administration’s operations ahead of a Sept. 30 deadline. Within it, some lawmakers want to include a provision that could limit fees passengers pay to change flight reservations . . . Some senators want to include a provision that would allow the U.S. Department of Transportation to determine whether change fees are reasonable and proportionate to the cost of the service provided. Industry experts say it would mark one of the most significant checks on airline pricing since the industry was deregulated during the Carter administration.”
— Prosecutors weigh charges for Chinese billionaire. The Post's Danielle Paquette: “Minneapolis police on Thursday finished their investigation into an allegation of rape against Chinese billionaire Richard Qiangdong Liu and passed the high-profile case on to prosecutors, who are now studying the evidence before deciding whether to bring charges. Liu, chief executive of JD.com, one of China’s largest online retailers, could face up to 30 years in prison if he is charged and convicted of the felony crime. His lawyers in Minnesota and e-commerce company in Beijing have maintained that Liu is innocent as JD.com stock, which is listed in the United States, has tumbled 4 percent. ... Liu has since returned to China. ... The technology mogul, 45, was arrested Aug. 31 after a Chinese student at University of Minnesota told authorities he had sexually assaulted her, according to the Wall Street Journal.”
— Trump blasts spending bill for lacking border wall funding. The Post's Damian Paletta and John Wagner: "Trump lashed out at congressional Republicans on Thursday, questioning their strategy of pushing off a messy fight over border wall funding until after the midterm elections in November. His outburst could raise fresh questions about whether Trump will force a government shutdown in just 10 days, when funding for numerous programs expires.
"His top advisers have assured congressional leaders that Trump would not do this, but lawmakers have remained wary because Trump has openly toyed with the idea of shutting down the government numerous times. This is the second time in recent days Trump has suggested Republican leaders are being duped by Democrats when it comes to wall funding, openly questioning the GOP’s calculated strategy to avoid a shutdown."
— SEC: Judge our enforcement by quality, not quantity. WSJ's Dave Michaels: "Wall Street shouldn’t relax its standards just because its regulator looks less muscular these days, according to a top federal official. The Securities and Exchange Commission is still policing wrongdoers, even if the volume of its enforcement actions and dollar amount of its fines drop this year, Stephanie Avakian said Thursday in remarks prepared for a conference in Dallas.
"The SEC rejects the premise 'that numbers—standing alone —can adequately measure the success or impact of an enforcement program,' said Ms. Avakian, the SEC’s co-director of enforcement... The SEC hasn’t revealed its enforcement statistics for fiscal year 2018, which ends on Sept. 30. Total fines ordered through SEC enforcement activity fell 7.2% in 2017 to about $3.8 billion, the lowest total since 2013, according to SEC figures."
— AT&T attacks DOJ appeal in Time Warner case. WSJ's Brent Kendall: " AT&T Inc. on Thursday defended a court ruling that allowed it to buy Time Warner, arguing that both the law and current industry realities showed the acquisition wouldn’t harm competition. The telecom giant made its case for the deal in a 59-page brief filed with a Washington, D.C., federal appeals court, which is considering the Justice Department’s ongoing challenge to the merger… 'In the crucible of litigation, DOJ’s claims were exposed as both narrow and fragile,' AT&T said in its new brief."
— Fortune 500 CEOs are overwhelmingly men. The Post's Philip Bump: “Yes, the number of women serving as corporate CEOs is up over the past 20 years. But the increase has been more modest than in any other powerful group.”
- House Financial Services subcommittee hearing on “oversight of the SEC’s Division of Investment Management” on Wednesday.
- House Energy subcommittee hearing on “jobs and growth in the manufacturing sector” on Wednesday.
- Joint Economic Committee hearing on “the rise of American earnings and living standards” on Wednesday.
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