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The GOP convention’s rosy economic glasses — Throughout the GOP convention, top speakers including President Donald Trump last night lauded how strongly the economy is rebounding and bragged about how great it was before Covid-19. “Within three short years, we built the strongest economy in the history of the world,” Trump said in accepting the nomination. This is not true. It was not even close to the strongest economy even in the recent history the U.S..
You might not have known by listening to the convention that the jobless rate is over 10 percent, tens of millions of people are getting some kind of unemployment assistance and the U.S. just came off the biggest quarterly economic crash in recorded history. A million people a week are still filing new jobless claims, a number that every seven days smashes the record of close to 700,000 hit during the Great Recession of 2009.
The goal is obvious: Get people to feel optimistic again about the economy, an issue that’s usually been among the incumbent president’s strongest. But the serious political risk is sounding completely out of touch with what is actually going on in the country and describing a world that for many simply doesn’t exist. And many convention speakers including Trump touted numbers that while technically true are extremely misleading taken out of context.
Harvard economist Megan Greene: “There were a lot of lies in there but also a bunch of truths … It’s true we could have the best quarterly growth ever and the most ever jobs created in a short time. But that’s because it’s coming off an incredibly low base. In the end I think it could just leave people feeling really confused.”
Kudlow says we may not need more stimulus — NEC Director Larry Kudlow told me the economy might be able to scrape by without another big stimulus package, another indication that no deal is near. And may never arrive.
“There has to be a limit,” he told me at our virtual convention event. …. “Much of the price tag on the other side of the aisle was not related to Covid … At least a third, if not more — so that’s not what we call smart spending.” Kudlow did not acknowledge that Covid-19 is not over, nor are the economic struggles of many Americans. “That doesn’t mean the hardships are over — they’re not … We’re not home yet, there’s no question.”
Kudlow also told me the White House was largely agnostic on who winds up buying the U.S. operations of Chinese company TikTok: “We don’t have a view on who’s better or who’s worse on that. Let the best company win.”
GOOD FRIDAY MORNING — We made it through the conventions! Congrats. See you all in a week! Email me on [email protected] and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on [email protected] and follow her on Twitter @AubreeEWeaver.
Personal income and spending at 8:30 a.m. expected to drop 0.4% and rise 1.3 percent, respectively … Univ. of Michigan Consumer Sentiment at 10:00 a.m. expected to be unchanged at 72.8.
ALSO TODAY — Via release: “To commemorate the 100th anniversary of the founding of the Negro Leagues and Jackie Robinson Day, Bank of America, ESPN and Boys & Girls Clubs of America are partnering to host a courageous conversation on racial equality with America’s next generation”
CHAMBER TO ENDORSE DEMS — Our Alex Isenstadt: “The U.S. Chamber of Commerce is poised to endorse nearly two dozen freshmen House Democrats for reelection, triggering a revolt within the right-leaning organization and drawing fierce pushback from the group’s powerful GOP donors
“The decision represents a sharp departure for the traditionally conservative Chamber, which has spent over $100 million backing Republican candidates during the past decade, and it threatens to further complicate the party’s prospects in the November election while driving a split in the business community.”
McHENRY SAYS REAPPOINT POWELL — Also from my event, via our Zachary Warmbrodt: “Rep. Patrick McHenry , the top Republican on the House Financial Services Committee, called on … Trump or former Vice President Joe Biden to give Federal Reserve Chair Jerome Powell a second term leading the central bank, no matter who wins in November.
“In an interview with POLITICO’s Ben White, the North Carolina lawmaker praised Powell’s performance as Fed chair, arguing that he ‘deserves’ another term. ‘He’s done a fantastic, very smart job,’ McHenry said He applauded a major monetary policy shift that Powell unveiled this morning in which the Fed will tolerate a greater risk of rising inflation as it strives to boost employment.”
WHAT THE FED DID — Our Victoria Guida: “The Federal Reserve announced … that it will push for more inflation as the pandemic stifles economic activity, a change in longstanding policy that’s aimed at boosting employment as much as possible.
“Essentially, the Fed is pledging not to raise interest rates until prices begin to rise more rapidly, which will likely allow the unemployment rate to drop lower than it otherwise would be able to. The pivot — for now it will aim for inflation above its long-term target of 2 percent — could also eventually give the Fed more ammunition to fight a future recession.”
Mohamed A. El-Erian on Bloomberg View: Powell “did more than consolidate and extend a shift in monetary policy approach that has been gaining momentum in the past few years. He also set a new formal milestone in global central banking that is certain to fuel much debate that will not be resolved for some time.”
JOBLES CLAIMS DIP (A LITTLE) — Our Rebecca Rainey: “New unemployment applications dropped slightly to 1 million last week … The labor market has now weathered more than five consecutive months of historic layoffs. An additional 608,000 laid-off workers sought jobless aid through the Pandemic Unemployment Assistance program, created for those not traditionally eligible for unemployment benefits like the self-employed and gig workers. In total, 27 million workers are unemployed, according to DOL.”
S&P, DOW CLOSE HIGHER — Reuters’ Stephen Culp: “The S&P 500 and the Dow advanced but the Nasdaq closed lower on Thursday as investors digested the U.S. Federal Reserve’s new strategy to adopt an average inflation target and restore the United States to full employment, as well as a promising development in the fight to contain the coronavirus pandemic. The Fed’s new strategy sent Treasury yields higher, which gave a lift to interest rate-sensitive financials.”
U.S. ECONOMY STRUGGLES TO SUSTAIN RECOVERY — AP’s Paul Wiseman: “Home sales are booming. Stocks are setting record highs. Industrial production is clambering out of the ditch it fell into early this year. And yet the U.S. economy is nowhere close to regaining the health it achieved, with low unemployment, free-spending consumers and booming travel, before the coronavirus paralyzed the country in March. Not while the viral outbreak still rages and Congress remains deadlocked over providing more relief to tens of millions of people thrown out of work and to state and local governments whose revenue has withered.”
In fact, the economy plunged an annualized 31.7 percent in Q2 — AP’s Josh Boak: “The U.S. economy shrank at an alarming annual rate of 31.7 percent during the April-June quarter as it struggled under the weight of the viral pandemic, the government estimated Thursday. It was the sharpest quarterly drop on record. The Commerce Department downgraded its earlier estimate of the U.S. gross domestic product last quarter, finding that the devastation was slightly less than the 32.9 percent annualized contraction it had estimated at the end of July.”
POWELL SETS STAGE FOR LONGER PERIODS OF LOWER RATES — NYT’s Jeanna Smialek: “Jerome H. Powell, the chair of the Federal Reserve, announced a major shift in how the central bank guides the economy, signaling it will make job growth pre-eminent and will not raise interest rates to guard against coming inflation just because the unemployment rate is low.
“In emphasizing the importance of a strong labor market and saying the Fed will tolerate slightly faster price gains, Mr. Powell and his colleagues laid the groundwork for years of low interest rates. That could translate into long periods of cheap mortgages and business loans that foster strong demand and a solid job market.”
Job seekers, homebuyers and stock investors will benefit — WSJ’s Paul Kiernan and Sam Goldfarb: “The Federal Reserve’s new strategy means that interest rates are likely to stay exceptionally low for a longer — a boon to people looking for work, buying a home or investing in stocks. … The Fed’s new strategy won’t be welcome news to savers relying on interest income. But among the biggest beneficiaries are likely to be people seeking employment—especially low-income and minority groups that have been hardest hit by the coronavirus pandemic.”
LABOR CHANGES METHODOLOGY FOR JOBLESS CLAIMS DATA — Reuters: “The U.S. Labor Department said on Thursday it was changing the methodology used to address seasonal fluctuations in its weekly unemployment claims data, which economists complained was less reliable because of the economic upheaval caused by COVID-19. The department said in a statement that starting next Thursday, it would use additive factors to seasonally adjust the initial claims and continued claims data instead of multiplicative factors.”
WORLD BANK DELAYS REPORT ON NATIONAL COMPETITIVENESS RANKINGS — WSJ’s Josh Zumbrun: “The World Bank on Thursday said it is halting publication of its flagship report on business competitiveness to investigate data irregularities. Data about four countries — China, Azerbaijan, the United Arab Emirates and Saudi Arabia — appeared to have been inappropriately altered, according to a person with knowledge of the decision. The move renewed concerns first raised two years ago by the World Bank’s chief economist that the report, called ‘Doing Business,’ was vulnerable to manipulation.”