This is the web version of the WSJ’s daily economic newsletter. You can sign up here.
In today’s issue, a budget deal calms immediate fears but sparks longer-term concerns, Greg Ip says not to worry about market volatility (but do worry about how stock got so high to begin with), Europe raises its growth forecast, China’s yuan tumbles, and a few thoughts from economists on wages, inflation and the budget deal.
BIG DEAL: CONGRESS GETS A BUDGET
Congress is set to vote today on a two-year budget deal.
The accord would end, for a time, the fiscal showdowns over spending and the debt ceiling that have irritated markets. The agreement also marks a U-turn for Republicans once worried about the national debt and could complicate fiscal policy further down the road.
Remember, President Donald Trump just signed into law $1.5 trillion in tax cuts. Now, congressional leaders have agreed to boost federal spending by nearly $300 billion. That should help economic growth this year and next, Nick Timiraos writes, but it could also hasten the return of $1 trillion deficits.
Deficits, in turn, could put upward pressure on interest rates if bond investors demand bigger premiums for absorbing more debt. That could constrain just how fast the economy grows. Bigger deficits also leave the federal government less room to maneuver if there’s an economic crisis.
‘A DEBT JUNKIE’S SPENDING BILL’
The spending package faces a bumpy road in the House, where conservative Republicans balked at the ratcheted-up federal spending and a one-year debt limit suspension, Kristina Peterson and Siobhan Hughes write. “This is a debt junkie’s spending bill,” said Rep. Mo Brooks (R., Ala.).
The agreement also faces resistance from some House Democrats, whose votes will be needed to pass it, over the decoupling of the spending fight and immigration.
If it’s approved, lawmakers will need several weeks to translate the two-year deal into detailed spending legislation. Congress will still need to pass a short-term spending bill this week to avoid a government shutdown when its current funding expires at 12:01 a.m. Friday.
Comments or suggestions for Real Time Economics? Write to Jeffrey Sparshott at realtimeeconomics@wsj.com, tweet to @WSJecon and visit wsj.com/economy for the latest.
WHAT TO WATCH TODAY
U.S. initial jobless claims are due out at 8:30 a.m. E.T. Economists expect 231,000 new claims, up slightly from the prior week’s 230,000. The report, which provides a rough proxy for layoffs, consistently suggests that employers are hanging on to workers in a tight labor market.
Federal Reserve officials are out and about again today. Dallas’s Robert Kaplan, Philadelphia’s Patrick Harker, Minneapolis’s Neel Kashkari and Kansas City’s Esther George are all due to speak today. Markets will be attuned to comments on recent market turmoil and thoughts on wages and inflation. Ms. George is the most hawkish Fed official speaking today, Mr. Kashkari one of the most dovish.
Bank of England and Bank of Mexico rate decisions are due today. The BOE is expected to signal that it anticipates raising interest rates in the U.K. two or three more times in the next three years when it presents its latest forecasts for growth and inflation.
Economists expect China’s consumer-price index rose about 1.5% in January from a year earlier, compared with about 1.8% growth in December. The shifting of the Lunar New Year holiday may have distorted the inflation data. (The CPI release time will be Thursday evening in the U.S.)
TOP STORIES
WHAT GOES UP
Asian markets were on another roller-coaster ride early today. But Greg Ip says not to worry about stock-market volatility: It is perfectly normal. Do worry about how stocks got so high to start with.
Nearly a decade of ultra-easy monetary policy has sent asset prices sky-high and kept volatility unnaturally low. Even with the latest downdraft, U.S. stock values at Monday’s close equaled 152% of gross domestic product, compared with 127% at the precrisis peak. Borrowing excesses that precipitated the financial crisis of 2008 are largely absent today, yet a hunger for risk still permeates markets from bitcoin to junk bonds to real estate.
Asset markets routinely overshoot their fundamentals, and that is a worry that will hang over the economy so long as interest rates and inflation remain abnormally low.
EUROPE UPS FORECAST
Despite some market jitters, economic fundamentals across the globe appear sound.
The European Union raised its forecasts for eurozone growth for 2018 to 2.3% from 2.1%, Emre Peker writes. “This growth is here to stay,” said Pierre Moscovici, the European commissioner for economic and financial affairs. “Unemployment and deficits continue to fall and investment is at last rising in a meaningful way.”
Yet a range of factors—from the latest bout of volatility rocking global markets to possible fallouts from protectionist U.S. policies—continue to weigh on growth, the forecasts show.
HOW TIGHT IS THE LABOR MARKET?
With the tightest U.S. labor market in two decades, employers are scouring for ways to stand out in the war for top talent.
Many say they’ve found an edge not just by helping employees pay for costly in vitro fertilization, or IVF, and other assisted-reproduction treatments but by making existing coverage more generous and accessible than before, Vanessa Fuhrmans reports.
INFLATION: NOTHING TO SEE HERE
Some economists aren’t too worried about tighter labor markets leading to inflation. In theory, competition for workers forces companies to raise wages. Then the companies raise prices to maintain profit margins. Consumers pay more, and there goes inflation.
“While this may sound like good theory in principle, the reality is that wage growth neither leads nor is well-correlated with inflation,” says Joseph LaVorgna, chief economist at investment bank Natixis.
The chart below looks at average hourly earnings for all private-sector workers and one of the Federal Reserve’s favorite measures of inflation starting in 2008. Mr. Lavorgna tracked the numbers back further and finds little correlation.
BUDGET: DON’T LOOK NOW
Some economists are worried about the latest budget deal. Here’s Suttle Economics’s Philip Suttle:
“I would hammer away at three points: (a) this is not what the cyclical doctor ordered; (b) it will leave us with a deficit of more than 5% of GDP at the peak of the cycle; and (c) you don’t want to look at what the deficit will then look like in the next recession.”
CHINA’S YUAN DROPS
The Chinese yuan dropped 1.1% against the U.S. dollar early Thursday, notching its biggest one-day decline since the Chinese central bank devalued the currency in August 2015.
The yuan’s move lower Thursday appeared to be driven by market forces rather than official action, Saumya Vaishampayan reports. The currency’s slide gathered pace following the release of data showing the country’s trade surplus had narrowed by more than expected last month.
A weaker yuan could exacerbate trade tensions with the U.S. Earlier this week, U.S. trade figures showed a record goods deficit with the Asian nation.
CONSUMERS MINDFUL OF RATES
With economic growth having strengthened, and some signs that inflation is on the rise, a growing number of central banks are poised to raise their key interest rates this year. And that is making a lot of consumers anxious, according to a survey by Dutch bank ING.
More than a third were worried about their ability to meet their debt payments if and when rates rise, a concern felt most acutely in Romania, Turkey and Spain. In the first of those countries, the central bank has already raised its key interest rate twice in 2018, having left it untouched for the previous nine years.
“Central banks are aware that many people have never experienced a period of rising interest rates in their adult life, meaning they are likely to tread cautiously,” said James Knightley, chief international economist at ING. - Paul Hannon
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
For newly released inmates, not just any job will do. People who leave prison when there are more construction and manufacturing jobs available are better able to break the cycle of crime and incarceration, the University of Sydney’s Kevin Schnepel writes in the Royal Economic Society’s latest Economic Journal. Food service and retail jobs don’t have the same effect, possibly because minimum wage isn’t enough to discourage illegal activity. “Overall, my study provides robust evidence that the quality of employment opportunities for released offenders may be more important than the quantity of employment opportunities.”
President Donald Trump had little but kind words for former Federal Reserve Chairwoman Janet Yellen. Should Jerome Powell expect the same? Bloomberg Businessweek writes that if the latest market volatility turns out to be more than a shudder, Mr. Trump may start looking for someone to blame. “And that someone could be Jerome ‘Jay’ Powell, who was sworn in as Fed chairman on Feb. 5. The Fed is an independent institution, but Powell still must answer to Congress, which in turn heeds the president.”
UP NEXT
Friday is a bit of a snoozer on the economic data front.
U.S. wholesale trade numbers for December are out at 10 a.m. on Friday. Economists expect a 0.2% rise.
from Real Time Economics http://ift.tt/2Bi8Wer
No comments:
Post a Comment