DC politics getting murkier:
Trump Stuns GOP by Dealing With Democrats on Debt, Harvey Aid President Trump stunned fellow Republicans, as he sided with Democrats on a proposal to attach emergency aid for Hurricane Harvey victims to measures to keep the government funded and its borrowing limit suspended until mid-December.
(…) If approved by Congress, the agreement would defer the threat of a partial government shutdown and a default on the country’s debt until Dec. 15 and dispatch the first $7.85 billion installment of Harvey relief, clearing the three most pressing items from the crowded September legislative agenda. (…)
Just hours earlier, House Speaker Paul Ryan (R., Wis.) had called Democrats’ proposal to combine Harvey aid and a three-month debt limit increase “ridiculous” and “unworkable.”
(…) The Republican president’s move Wednesday raised questions about whether he will now turn to Democrats to reach deals on tax reform and immigration. (…)
Although Mr. McConnell said he would vote for the combined package, other GOP senators said Wednesday they weren’t sure whether they would support it, even after Vice President Mike Pence and Budget Director Mick Mulvaney explained the deal to Senate Republicans at their weekly closed-door lunch. Mr. Mnuchin fully supported the president’s decision once it was made, a senior Treasury official said. (…)
The deal will be a tough sell among House Republicans. House Rules Committee Chairman Pete Sessions (R., Texas) said it was going to take work for the GOP leadership to sell the deal to rank and file. (…)
Today’s WSJ editorial:
The Pelosi-Schumer-Trump Congress The Republican gang that can’t even shoot at each other straight.
(…) What really happened is that Mr. Trump overruled his Treasury Secretary and GOP leaders who wanted a debt-ceiling increase to run past the 2018 election. Mr. Trump instead gave Democrats exactly what they want, which is to set up an even steeper fiscal cliff on debt and spending in December when Republicans hope to be focusing on tax reform.
Republicans will now have to take at least two difficult votes to raise the debt ceiling, while Democratic leverage will increase when the day of reckoning comes. The chances of a government shutdown in December have now risen sharply, or at least they have if Mr. Trump wants to pass something with more than a few Republican votes.
Mr. Trump may not like GOP leaders Paul Ryan and Mitch McConnell, but is he trying to elect Speaker Pelosi? As Nebraska Sen. Ben Sasse put it in a press release: “The Pelosi-Schumer-Trump deal is bad.”
Part of the problem is that Congressional Republicans once again helped put themselves in this box. Congress can’t let the U.S. default on its debt, so the majority party has to raise the debt ceiling whether it likes it or not. The smart GOP play was to attach a long-term debt increase to some other must-pass legislation and get it over with. One and done.
In familiar self-defeating fashion, the usual House suspects refused, insisting that the debt ceiling get a stand-alone vote. House Freedom Caucus Chairman Mark Meadows and Republican Study Committee leader Mark Walker also claim to be miffed that the debt-limit increase won’t include spending cuts.
Yet most of these same Members won’t vote to raise the borrowing limit no matter what they’re offered. They find the actual work of governance beneath their dignity. Their mutiny means that Mr. Ryan lacked a GOP majority to raise the debt ceiling, which meant he had to go hat in hand to Mrs. Pelosi for Democratic votes. She and Mr. Schumer came up with their three-month gambit, which Mr. Ryan immediately labeled “ridiculous” and “unworkable,” only to be sandbagged by Mr. Trump.
This may all sound like inside baseball, but it’s politically relevant because it illustrates the Republican inability to govern. The Senate killed health-care reform. The House can’t pass a budget resolution that is essential for tax reform. Mr. Trump is sore that Republican leaders failed on health care, so he now undermines their fiscal strategy and all but hands the gavels to Democrats. Readers might take note and hold off on spending that tax cut.
Fed’s analysis getting murkier:
Hurricanes Push Fed off Course Economic slowdown caused by Hurricanes Harvey and Irma will be enough to keep central bank from raising rates as expected in December
- From the Beige Book:
Employment growth slowed some on balance, ranging from a slight to a modest rate in most Districts. Labor markets were widely characterized as tight. There were reports of worker shortages in numerous industries, most notably in manufacturing and construction. Firms in the Atlanta, St. Louis, and Minneapolis Districts said that they had turned down business because they could not find the necessary workers. Many Districts indicated that businesses were having difficulty filling openings at all skill levels. In spite of the tight labor market, the majority of Districts reported limited wage pressures and modest to moderate wage growth. That said, there were reports from firms in the Dallas and San Francisco Districts that labor shortages were pushing up wages.
A number of Districts indicated that pass-through to downstream prices was limited, with increases in input prices exceeding gains in selling prices.
Opioid Epidemic May Be Keeping Prime-Age Americans Out of the Workforce New research from Princeton economist Alan Krueger suggests a significant portion of the decline in labor-force participation among Americans in their prime working years could be linked to the opioid epidemic.
From July 20 Daily Edge:
An estimated 2.7 million adults over the age of 26 were misusing painkillers as of 2015, while another 236,000 currently used heroin, based on test Substance Abuse and Mental Health Administration data. While opioid abusers account for a tiny sliver in a workforce of 160 million, they probably make up a great share of the 7 million who are unemployed.
Bank of Canada Surprises With Another Rate Rise The Bank of Canada raised its benchmark interest rate by a quarter-percentage point to 1%, saying stronger-than-anticipated growth—highlighted by a blockbuster performance in the second quarter—warrants the removal of “considerable” stimulus from the economy.
(…) Recent indicators, such as a report showing economic growth surged by a strong 4.5% annualized rate in second quarter, support “the bank’s view that growth in Canada is becoming more broadly based and self-sustaining,” the Bank of Canada said in a statement explaining its decision. “Given the stronger-than-expected economic performance, [the bank] judges that the removal of some of the considerable monetary policy stimulus is warranted.”
(…) the central bank said it would pay “close attention” to how the economy responds to higher borrowing costs, given households have accumulated record levels of debt. (…)
In its statement, the Bank of Canada said there had been “widespread strength” in exports and business investment. (…)
Yuan’s Sharp Rise Muddles China’s Growth Picture A recent surge in the value of the yuan has blindsided Wall Street and stands to complicate China’s efforts to simultaneously manage a slowdown in growth while deepening its ties to global markets.
Western multinationals are fighting harder to hold on to their margins in China because of overcapacity and an improvement in the quality of Chinese-made products.
Companies including Merck MKKGY 1.52% KGaA, United Technologies Corp. UTX -1.44%and Honeywell International Inc. HON 0.03% are responding in myriad ways, from slashing costs to improving customer service. Still, several companies concede margins will stall long-term due to local competition.
“Our margins have been on a downward trend for over five years now,” said Philipp Baechtold, general manager at Eftec China Ltd., a Swiss chemicals company that produces glues and coatings for the car industry. (…)
Honeywell International, an industrials firm, in recent years also noticed a change in the quality of Chinese products. “Chinese companies are becoming more savvy,” said Shane Tedjarati, president of Honeywell’s high growth regions unit. “We cannot become complacent. We are benchmarking ourselves against Chinese companies,” Mr. Tedjarati said.
Chinese firms have always used price as a lever, said Joe Ngai, managing partner at McKinsey & Co.’s Greater China practice. (…)
According to a recent report by the American Chamber of Commerce in Shanghai, slightly more than 80% of U.S. companies said competition from Chinese firms is one of their most pressing issues. Even more, 93%, cited rising costs—which adversely affects margins—as a challenge. (…)
“When you have to match a price level that is much lower than yours, you need to scrutinize your specs,” said Jean-Michel Vallin, president at Faurecia China. “Chasing costs is part of our daily work,” he added. (…)