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In today’s issue, the Fed’s economic outlook brightens, small businesses work harder to find employees, productivity may be about to perk up, companies expand parental leave, Amazon makes another conquest, and colleges learn about economic Darwinism.
FED BULLISH ON ECONOMY
Federal Reserve officials are giving the economy a ringing endorsement, in a measured, Fed kind of way.
“A majority of participants noted that a stronger outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate,” minutes from their last meeting said. For central bankers, that’s pretty strong stuff. Markets noticed: Stocks and bonds fell after it became clear the Fed might move more aggressively than anticipated later this year.
The Fed’s slightly shifting tone follows signs of stronger economic growth and its companion inflation, and a large dose of fiscal stimulus. The challenge for officials is to make sure the economy doesn’t overheat but also not to kill the expansion as they adjust interest rates—a so-called soft landing, Nick Timiraos writes.
“Historically, the hardest part of monetary policy is the soft landing. You can tell it’s the hardest part because they’ve never achieved it before,” said UBS chief economist Seth Carpenter.
SUGAR HIGH OR MEAT AND VEG?
One big question for the Fed: Will a hefty package of federal tax cuts and more government spending give the economy a sugar high, or will it support long-term economic growth?
Fed Vice Chairman Randal Quarles, one of the central bank’s newer members, said the tax law and budget agreement could help sustain the economy’s momentum in part by increasing demand, Kate Davidson reports. But he also said the fiscal packages could help boost the economy’s potential capacity by encouraging investment and labor-force participation.
“It might be early, but it is possible that the investment drought that has afflicted the U.S. economy for the past five years may finally be breaking,” Mr. Quarles said.
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WHAT TO WATCH TODAY
U.S. jobless claims are out at 8:30 a.m. ET. Economists expect 230,000, the same as the prior week. The gauge of layoffs has hovered near 45-year lows.
The index of leading economic indicators for January, out at 10 a.m. ET, is expected to rise 0.7%. This is a wonky measure, beloved by some and ignored by many, that is meant to predict future economic activity.
The Kansas City Fed’s manufacturing survey for February at 11 a.m. ET is expected to register at 15.0, a notch down from the prior month’s 16.
The Dallas Fed’s Robert Kaplan, the New York Fed’s William Dudley, and the Atlanta Fed’s Raphael Bostic are scheduled to speak today.
Japan’s core consumer-price index is expected to show a 0.8% rise in January from a year earlier, down from the 0.9% increase seen in December. Release time is 6:30 p.m. ET.
Earlier today, U.K. growth was revised down to an annualized 1.6% from 2.0% for the fourth quarter. The downgrade means the U.K. notched up one of the weakest growth rates among the Group of Seven advanced economies. Only Japan and Italy fared worse. France, Germany and the U.S. easily outpaced the British expansion.
TOP STORIES
SMALL BUSINESSES SAY WORKERS ARE SCARCE
Anecdotal evidence of a tight labor market continues to pile up.
Now, it’s forcing small and midsize companies to work harder to recruit and retain employees, with some partnering with local schools or unions. Others are paying vacation costs, beefing up internship programs or adding new locations where labor isn’t as scarce, Ruth Simon writes.
Nearly two-thirds of small business owners reported facing a shortage of skilled workers, according to a survey for The Wall Street Journal. Eighty-seven percent of firms have increased recruiting, while nearly 60% have boosted wages.
PRODUCTIVITY BOOM AROUND THE CORNER
If companies can’t find workers, they either have to get more productive or stop growing.
Unfortunately, weak productivity growth has been a hallmark of the economy. A new study argues the tide is poised to turn in coming years, and the next wave will be driven by digitization, Harriet Torry writes.
It’s a matter of some urgency. U.S. worker productivity grew below its long-run average for the seventh straight year in 2017, advancing a meager 1.2% last year from 2016.
PARENTAL LEAVE FOR DADS
Could economic as well as social forces be behind this expansion in benefits?
In a few corners of corporate America, companies are discarding parental-leave policies that encode distinctions between mothers and fathers—arguably holding women back at work and relegating men to secondary roles at home, Lauren Weber reports. Instead, they are offering gender-blind time off for all new parents.
Companies such as Deloitte, TIAA and Cisco Systems, among others, are now framing the first months of a baby’s life as a time for mothers and fathers alike. Still, such policies remain rare in the U.S., the only industrialized nation with no federally mandated paid parental-leave policy.
AMAZON TAKES OVER EVERYTHING
Three technology titans have powered nearly half of the S&P 500’s advance this year: Amazon, Microsoft and Netflix.
That’s a worrying sign for investors expecting a strengthening economy to lift shares of manufacturers, oil companies and other firms whose fortunes typically improve with growth, Akane Otani writes.
“When you see a Netflix or Amazon leading, it’s not necessarily a great sign of investor confidence, since you know those names can always deliver growth no matter what’s going on,” said Jack Ablin, founding partner and chief investment officer at Cresset Wealth Advisors.
EDUCATION IN ECONOMICS
U.S. not-for-profit colleges and universities are segregating into winners and losers—with winners growing and expanding and losers seeing the first signs of a death spiral, Douglas Belkin reports.
Between 2011 and 2016, enrollment at the bottom 20% of schools declined 2%. The top 80% grew 7%. Demographics and geography have some influence on which side of the fault line a school lands, but quality is also a big factor.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
The Trump administration bailed on the Trans-Pacific Partnership and has spoken ill of multilateral trade deals. That’s bad, right? “An alternative perspective is that trade agreements are the result of rent-seeking, self-interested behavior on the part of politically well-connected firms–international banks, pharmaceutical companies, multinational firms,” Harvard University’s Dani Rodrik writes. That means that deals are as likely “to produce welfare-reducing, or purely redistributive outcomes under the guise of free trade” as they are to result in mutually beneficial trade.
One theory holds that automation is throwing workers out of good jobs, lowering wages and increasing inequality. Harvard University’s Anna Stansbury and Lawrence Summers (yes, that Lawrence Summers) aren’t buying it. “If productivity accelerates for reasons relating to technology or to policy, the likely impact will be increased pay growth for the typical worker,” they write. “This suggests that the potential effect of raising productivity growth on the average American’s pay may be as great as the effect of policies to reverse trends in income inequality.”
There’s too little competition throughout the U.S. economy. “With waning competitive pressure, productivity growth slows, wages stagnate, and the gap between winners and losers widens,” the Brookings Institution’s David Wessel writes in the Harvard Business Review. Incumbent-friendly regulation is one factor holding back healthier economic growth, and tougher antitrust enforcement could help bring that growth back.
UP NEXT
On Friday, the New York Fed’s William Dudley, the Boston Fed’s Eric Rosengren, the Kansas City Fed’s Esther George, the Cleveland Fed’s Loretta Mester and the San Francisco Fed’s John Williams are hitting the speaker circuit.
from Real Time Economics http://ift.tt/2sLrKQD
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