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Today in Real Time Economics, what the 10-year Treasury yield is telling us about the economy, how a weaker dollar feeds inflation, household debt percolates as an economic issue, global growth pulls miners along for the ride, France tries to loosen its labor market, and Spain’s economy hams it up.
BENCHMARK BONDS
Long-term U.S. bond yields have crept within reach of 3% for the first time in years.
The development has significant implications for financial markets and the broader economy. The 10-year Treasury note yield influences borrowing costs for governments, consumers and corporations. Its half-percentage-point rise this year contributed significantly to the 10% tumble in the Dow Jones Industrial Average earlier this month, Daniel Kruger writes.
But stocks have bounced back, reflecting continued optimism about the outlook for growth and corporate earnings. Concerns now center on long-dormant inflation and central banks’ efforts to step back from extraordinary stimulus measures. The yield on the 10-year U.S. Treasury note was 2.88% Friday after hitting 2.91% on Wednesday, its highest level in four years.
KEEP AN EYE ON THE DOLLAR
The U.S. currency hit its lowest level in more than three years last week and some analysts expect it to fall further. The dollar’s value directly impacts import prices, which can fuel inflation. It also has indirect effects on business costs.
Morgan Stanley revised its forecast for the end of this year to 1.30 euros per dollar from a previous estimate of 1.17. That prompted a rethink on the bank’s inflation forecast—economists there now see core inflation hitting 1.8% at the end of this year and 1.9% next year, versus a prior estimate of 1.7% for both. That’s about in line with Federal Reserve projections and hardly a signal of runaway inflation. It is, however, one more data point suggesting price pressures are really, truly firming and bear watching.
“Seeing core inflation numbers hitting [the Fed’s] year-end forecasts several months ahead of schedule could easily lead policy-makers to conclude that further hikes are needed, all else equal of course,” Morgan Stanley economists said.
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WHAT TO WATCH TODAY
Today is a bit of a nothingburger on the economic data front.
Wednesday gets more interesting, starting with IHS Markit’s composite index for the eurozone. It is expected to show 2017’s solid finish carrying into February.
We’ll also get U.S. existing-home sales for January. Economists expect January sales to climb to an annual pace of 5.64 million, a pickup from December.
Also Wednesday, the Federal Reserve releases minutes for its Jan. 30-31 meeting, perhaps offering a peek into the central bank’s thinking on the the recently passed tax overhaul and inflation.
We also get a dose of Fedspeak this week, starting with the Minneapolis Fed’s Neel Kashkari and Philadelphia Fed’s Patrick Harker on Wednesday.
TOP STORIES
HOUSEHOLD DEBT ON THE RISE
Large and rising household debt is percolating as an economic problem in some corners of the globe. Switzerland, Australia, Norway and Canada each has more household debt—including mortgages, credit cards and car loans—than the U.S. did at the height of last decade’s housing bubble, Josh Zumbrun writes.
Globally, 10 economies have have debt-to-GDP ratios above a level the International Monetary Fund identified as a warning sign. Collectively, they have total economic output that’s more than Germany’s or Japan’s. And it’s not just the level of debt, but also how fast it’s been rising. In some places it’s comparable to the U.S. during the run-up to the housing bubble.
“They are better prepared, less likely to have a massive cataclysm like we had in the U.S.,” said Guillermo Tolosa, an economist at Oxford Economics. “But still, we’ve come to a point where we should all be concerned.”
ECONOMIES ON THE MARCH
Need a little more evidence that 2017 was a good year for the global economy?
The Organization for Economic Cooperation and Development said the combined economic output of its 35 members throughout 2017 was 2.5% higher than in 2016, marking an acceleration from the 1.8% rate of growth recorded a year earlier, Paul Hannon reports. That pickup in developed-country growth was part of a rare, synchronized acceleration across most large economies, including China.
During the fourth quarter growth was 0.6% higher than in the three months through September, a slowdown from the 0.7% rate of growth recorded in the third quarter.
MINING FOR ECONOMIC DATA
Mining companies are a bellwether for the global economy. Now, the world’s biggest are staging a turnaround fueled by a renewed appetite for raw materials and the burgeoning electric-vehicle market.
Rising commodity prices are part of the story, Alexandra Wexler, Scott Patterson and Rhiannon Hoyle report. A rare period of synchronized economic growth in China, the U.S., Europe and elsewhere is buoying copper, gold and coal prices. A chilly Chinese winter that fueled coal purchases, the industry’s expectations of a global infrastructure push and a weaker U.S. dollar also have helped.
Rising expectations of a coming surge in electric-vehicle sales have also increased demand for the raw materials used to make the vehicles’ batteries like cobalt and nickel.
MARCHONS, MARCHONS!
Some of France’s largest employers are seizing on President Emmanuel Macron’s labor-system overhaul to undertake mass layoffs, heralding a sea change for a country that has long coddled its workforce, William Horobin and Nick Kostov write.
Companies like Peugeot, the country’s biggest car maker, Société Générale, France’s third-largest listed bank, and IBM are among the companies preparing to take advantage of the measures. The uptake is an early test of whether Mr. Macron’s changes will pave the way for a modernization of France’s workforce, or simply open the gates to widespread job cuts.
WHAT HAM PRICES TELL US ABOUT THE ECONOMY
A surge in ham prices shows that Spaniards are shaking off one of the country’s worst downturns in decades, Jeannette Neumann writes. Now, they’re splurging on goods recently considered extravagant. That includes the ultimate Spanish gastronomic luxury: free-range, acorn-fed Iberian ham.
The Spanish economy has bounced back after a decadelong property boom went bust, shrinking the country’s trillion-euro economy by 8% and catapulting unemployment to 27%. Last year it surpassed its precrisis output.
One result: A 50-pound, purebred Iberian piglet, which produces high-quality jamón ibérico de bellota, sells on average for around €115 ($143) vs. around €83 at the same time last year.
QUOTE OF THE DAY
“They fear that Brexit could lead to an Anglo-Saxon race to the bottom. With Britain plunged into a Mad Max-style world borrowed from dystopian fiction. These fears about a race to the bottom are based on nothing, not history, not intention, nor interest.” - David Davis, U.K. Secretary of State for Exiting the European Union (via the BBC)
WHAT ELSE WE’RE READING
Before flu season kicks into high gear, get out in the sun. “We find that sunlight strongly protects against influenza,” the University of Kansas’ David Slusky and Harvard University’s Richard J. Zeckhauser write. Ample sunlight in the late summer and early fall is the key, because it doses entire populations with vitamin D.
Poor oral health can damage a person’s economic prospects. The New York Times examines some of the links between bad teeth and the ability to find and keep a job. “People with bad teeth can be stigmatized, both in social settings and in finding employment.”
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