This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here.
Saudi Arabia and its OPEC allies are trying to get a handle on supply and demand dynamics in the oil market. That hasn’t been easy with U.S. shale producers pumping, global growth fading and Iran facing new American sanctions.
Good morning. Jeff Sparshott here to take you through the day’s key economic news. We’ll also look at how much the U.S. is spending to finance its growing debt, the mortgage market, holiday shopping, and runaway inflation in a dollar-denominated economy.
SAUDIS TO CUT OIL OUTPUT
OPEC is nearing a deal to cut oil output. Saudi representatives said that the kingdom would slash its exports unilaterally next month as the wider alliance debated its next move. Russia, the world’s largest producer, sent mixed signals on whether it would pull back on supply—after moving in lockstep on such matters with OPEC for more than two years, Summer Said, Christopher Alessi and Benoit Faucon report.
Saudi Arabia and Russia agreed to boost production at a meeting in June over fears U.S. sanctions on Iran would trigger shortages. Now, the worries are about plummeting prices and global oversupply. Three days after the sanctions went into effect on Nov. 5, U.S. oil entered a bear market.
OIL: IT’S COMPLICATED
Saudi Arabia’s plan to slash oil output sent prices higher. But oil prices ain’t what they used to be. Before the U.S. shale boom, more expensive crude squeezed consumers and tended to hurt the American economy. Now, the picture isn’t nearly so straightforward.
Consumer demand is the major driver of economic growth in the U.S. If oil prices stay relatively low, cheaper gasoline should help consumers spend elsewhere. Cheap oil also would be a check on inflation. But the energy sector is a major driver of business investment. Oil prices bottomed out in early 2016. As the industry caught up with rising prices and demand, spending soared. Since the start of 2017, investment in mining exploration, shafts and wells is up 53.2%. That blows away other business investment categories—software is next at 16.5%, overall investment is up a moderate 9.2%. With business investment already struggling, cheaper oil could dent a key engine of economic growth.
Have gasoline prices affected your spending on other goods and services? Write to Jeffrey Sparshott at firstname.lastname@example.org, tweet to @WSJecon and visit wsj.com/economy for the latest news. (Responses may be quoted in this newsletter.)
WHAT TO WATCH TODAY
The U.S. celebrates Veterans Day.
The San Francisco Fed’s Mary Daly speaks about the economic outlook at 2:30 p.m. ET.
IT’S ALL ABOUT THE BENJAMINS
The U.S. is on course to spend more on debt than defense. In 2017, interest costs on federal debt of $263 billion accounted for 6.6% of all government spending. The Congressional Budget Office estimates interest spending will rise to 13% of all outlays by 2028. Milestones: The government will spend more on interest than it spends on Medicaid in 2020; more than it spends on national defense in 2023; and more than it spends on all nondefense discretionary programs combined in 2025, Kate Davidson and Daniel Kruger write.
In the past decade, U.S. debt held by the public has risen to $15.9 trillion from $5.1 trillion, but financing hasn’t been a problem. Low inflation and strong global demand for U.S. Treasury bonds held the government’s interest costs down. That’s changing as interest rates rise and debt piles up. Financing it could crowd out other government spending priorities and ultimately rattle markets.
FANNIE, FREDDIE & FRIENDS
The White House is expected to consider steps in the coming months that could reduce the government’s footprint in backstopping the housing market through mortgage-finance giants Fannie Mae and Freddie Mac, which have been under government control since the 2008 crisis. The changes under consideration could make it tougher and more expensive for people to get new loans, Andrew Ackerman reports.
There are limits on what the administration can do without legislation from Congress. But the Federal Housing Finance Agency has the authority to raise fees on lenders and adjust the size of loans Fannie and Freddie can buy, among other things. The president is expected to nominate a successor to the agency’s Obama-appointed director in the coming weeks.
Walmart, Home Depot, Macy’s and J.C. Penney report results this week. Look for clues about the all-important holiday shopping season when the companies start talking. Here’s one positive sign: Consumer confidence has been running high. The University of Michigan on Friday said its consumer sentiment index was 98.3 in November, down only slightly from 98.6 in October. Sentiment this year is the highest since the turn of the century.
Zimbabwe ditched its own currency to help get rid of hyperinflation. The U.S. dollar is now dominant. Still, prices are again skyrocketing: In October, the cost of certain items—including cooking oil, alcoholic drinks and flu medication—jumped as much as 400%, Bernard Mpofu and Gabriele Steinhauser report.
What happened? Zimbabwe now effectively runs on two types of dollars—ones that exist digitally in bank accounts or mobile money and actual cash dollars, which trade at a hefty premium. Since November 2016, the central bank has also been printing so-called bond notes, an alternative form of payment that is officially on par with the dollar, but is now trading at a rate of three to one on the black market. Getting cash dollars through bank transfers or mobile money is even more expensive, with informal currency traders in the capital Harare charging as much as $350 for a $100 bill this month.
QUOTE OF THE DAY
If Wall Street is involved and continues to insinuate itself in these negotiations, there will be a stench around any deal that’s consummated because it will have the imprimatur of Goldman Sachs and Wall Street.—White House senior trade adviser Peter Navarro, speaking about trade talks with China
TWEET OF THE DAY
[wsj-responsive-sandbox id = “0” ]
WHAT ELSE WE’RE READING
Perhaps it’s better to have no parent than a bad parent. “This paper provides evidence that parental incarceration increases children’s educational attainment,” UCLA’s Carolina Arteaga writes in a job market paper. “I find that conditional on conviction, parental incarceration increases education by 0.8 years for children whose parents are on the margin of incarceration. This positive effect is larger for boys, violent crimes, and cases in which the incarcerated parent is the mother.”
Immigration can be good for the economy, but not for everyone. “Migration has propelled the most productive regions forward, but these benefits have not been widely diffused. The result has been widening regional disparities. It is hard to make the case for the virtues of migration to an ex-industrial worker in Wisconsin on the basis of benefits accrued to Silicon Valley–or of the benefits to dynamic cities such as London to people who cannot afford to live in them,” Ian Goldin and Benjamin Nabarro write at the Center for Economic Policy Research.
UP NEXT: TUESDAY
The National Federation of Independent Business small business survey for October is out at 6 a.m. ET.
U.S. budget figures for October, the first month of the new fiscal year, are out at 2 p.m. ET. In fiscal 2018, the U.S. government ran its largest budget deficit in six years.
There’s a lot of Fed chatter Tuesday. Minneapolis’s Neel Kashkari speaks at a regional economics conference at 10 a.m. ET, governor Lael Brainard speaks about artificial intelligence and the financial landscape at 10 a.m. ET, Philadelphia’s Patrick Harker speaks at a fintech conference at 2:20 p.m. ET, and San Francisco’s Mary Daly speaks at Boise State University at 5 p.m. ET.
Japan’s gross domestic product for the third quarter is out at 6:50 p.m. ET. The economy is expected to have shrunk 1.0% on an annualized basis.
China releases October business activity data at 9 p.m. ET. The retail sales, industrial output and fixed-asset investment data will offer the latest look at how the country’s economy is faring as Beijing works to offset the effects of trade tensions with the U.S.
Read more: blogs.wsj.com