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Good morning! Today we look at what to expect in the first-quarter GDP report, fallout from U.S.-China commercial tension, deregulation amid economic expansion, Angela Merkel‘s upcoming visit with President Trump, and the languishing startup scene in the U.S.
WHY IS THE U.S. ECONOMY SLOWING?
The U.S. economy grew at a 1.8% pace in the first quarter, according to forecasts, a marked slowdown from the 3.1% average of the prior three quarters. Don’t worry. It’s not out of whack with the first quarter of 2017 (1.2%) or 2016 (0.6%). Since 2007, gross domestic product growth has averaged 0.2% in first quarters and 1.9% in all others. The Commerce Department tries to adjust for seasonal quirks (construction is down in the winter, retail sales jump at Christmas) and is making improvements to its calculations. But economists believe the agency is still missing something. “If this is indeed the case, then the [Bureau of Economic Analysis's] estimates of first-quarter growth may be underestimating the true strength of the US economy,” economists at Morgan Stanley said.
HERE FOR THE DURATION
So what’s left for investors and observers when the numbers are released Friday at 8:30 a.m. ET? Cleveland Fed research last year found national defense spending makes a large contribution to the seasonally wonky pattern. So skip it. Look for any surprises on consumer spending, a key driver of economic growth, trends in business investment, which helps lay the foundation for future growth, and the drag from trade, which is politically sensitive.
Side note: The current expansion started in mid-2009. That makes it the third-longest on record. If it stretches into the second half of this year (as expected), it will be the second longest.
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
The European Central Bank’s rate decision is out at 7:45 a.m. ET., followed by ECB President Mario Draghi’s press conference at 8:30 a.m. ET. No policy action is expected but Mr. Draghi is likely to discuss whether he thinks the risks to the region’s economy have increased.
U.S. advance trade in goods for March is out at 8:30 a.m. ET. The figure has become politically important as the Trump administration highlights mounting trade deficits as it makes a series of protectionist moves.
U.S. durable goods orders for March are out at 8:30 a.m. ET. Economists expect a 1.8% rise from the prior month. The headline figure is often skewed by airline orders. Look at new orders for nondefense capital goods excluding aircraft for hints at underlying business investment trends.
U.S. jobless claims, out at 8:30 a.m. ET, are expected to remain historically low.
TOP STORIES
CHILLING EFFECT
Some Chinese businesses are canceling or slowing plans to invest in the American market because of U.S. threats to restrict investment. China’s Commerce Ministry spokesman Gao Feng didn’t name any specific businesses, but said that reduced investment from Chinese companies could affect U.S. employment and economic growth. If imposed, the U.S. restrictions would open a new front in an escalating trade battle, Liyan Qi reports. Mr. Gao said said Beijing is prepared to respond if the U.S. goes ahead with its plan. “We are sticking to our bottom-line thinking and are prepared to take action.”
SMALL TARGET
In the U.S., some businesses are already feeling the effects of the U.S.-China trade spat. Exports from small U.S. businesses to China have nearly tripled in the past 15 years, in line with the broader trend in bilateral trade. China’s latest tariffs target a wide swath of small businesses found among President Donald Trump’s support base in the U.S. Farm Belt, including growers of soybeans, sorghum and live hogs, as well as potentially bigger exporters such as aircraft manufacturers.
ROOT OF THE PROBLEM
Here’s one example: Ginseng is a tiny sliver of the trade between the world’s two largest economies, making up about 0.02% of total U.S. exports to China. But effective April 2, the U.S.-grown root was slapped with a 15% tariff that Beijing imposed on U.S. agricultural commodities, part of the tit-for-tat exchange of tariffs that together potentially cover at least $200 billion in goods. That levy threatens to price American ginseng out of Chinese markets altogether, Chuin-Wei Yap reports. That may not seem like a big deal, but it’s potentially devastating to Paul Hsu and other U.S. farmers around Wausau, Wisc. The root has become a mainstay of this flat, fertile region over the past century—and an emblem of how globalization became embedded throughout the U.S. economy. “Nobody wins trade wars,” Mr. Hsu said.
PREPARE TO PAY MORE FOR YOUR NEXT TV
U.S. consumers also could feel the sting of tariffs. The Trump administration’s proposed tariffs on Chinese imports include a 25% levy on TVs and related components. A report commissioned by two trade associations says the levy could push up television prices in the U.S. by 4% overall, and by 23% for those from China. It isn’t clear whether manufacturers or retailers would shoulder the added costs or pass them along to consumers, Andrew Tangel reports. “The uncertainty level is extraordinarily high,” said Gary Shapiro, chief executive of the Consumer Technology Association. The report, based on trade data and an analysis of demand, suggested U.S. consumers could pare TV purchases by 8%, in terms of dollars spent, if the tariffs lead to higher prices.
HOT HOT HOT!
Deep into an economic boom with asset prices near records is when you’d expect the U.S. financial system’s guardians to tamp down risk-taking. Instead, federal regulators and legislators are doing the opposite—watering down, narrowing or declining to enforce rules passed after the financial crisis, Greg Ip writes. The changes are modest and don’t foreshadow a crisis any time soon. But the timing is definitely awkward. They will stimulate lending and risk-taking at a time when the industry is lowering its own standards amid a near-record economic expansion. Much as this year’s tax cut may overheat an economy already near full employment, the deregulatory push could aggravate excesses that come back to haunt the economy in its next downturn.
MS. MERKEL GOES TO WASHINGTON
After the razzmatazz of French President Emmanuel Macron’s state visit, Angela Merkel’s meeting with President Trump Friday is likely to be an altogether more businesslike affair, Simon Nixon writes. Whereas the U.S. president has forged an improbable bromance with his French counterpart, his relationship with the German chancellor is more strained. Mr. Trump has in the past been highly critical of Ms. Merkel’s policies. With Mr. Trump yet to decide whether to make the European Union’s current temporary exemption from tariffs on imported metals permanent before it expires on May 1, Ms. Merkel can expect the EU’s allegedly unfair trade practices to be firmly on the agenda.
CHARTS OF THE DAY: START ME UP
America’s startup scene just ain’t what it used to be. During the latest economic expansion, new establishments have accounted for a little more than 11% of all new private-sector jobs created in the U.S. During the 1990s, the figure was 15%. Those few percentage points are the equivalent of hundreds of thousands of jobs per quarter. The startup slowdown also suggests a loss of dynamism across the broader U.S. economy, with Americans either less willing or less able to launch a new venture, and a decline in the kind of churn that leads to greater opportunity for workers and rising productivity.
In fact, new establishments accounted for more jobs during parts of the recession than they do now.
QUOTE OF THE DAY
“A commercial war opposing allies is not consistent with our mission, with our history, with our current commitments for the global security. At the end of the day, it will destroy jobs, increase prices and the middle class will have to pay for it.” - French President Emmanuel Macron in a joint address to the U.S. Congress
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
Donald Trump is right. “It is not every day you will read those words in the Financial Times, but the US president is correct when he says China does not play by the same trade and investment rules as the west,” The Financial Times writes. But, and there’s always a but in the FT, he has to be careful not to alienate potential allies in his tussle with Beijing. Notably, that includes German Chancellor Angela Merkel, who is visiting the White House on Friday.
Married, banking separately. The Atlantic’s Caroline Kitchener chronicles a developing phenomenon of young married couples keeping separate finances. “When I asked several married Millennial couples why they decided to keep their finances fully or partially separate, one reason came up more than any other: A joint bank account seemed to blur each individual’s financial contributions at a time when women are earning more than they used to.”
Six or eight years ago, stories about rare-earth shortages and China’s dominance of the rare-earth industry were all the rage. The Cato Institute’s HumanProgress.org site chronicles the response: Companies found ways to use smaller amounts of the elements, others made do without them, and firms around the world raised money for new mining projects, ramped up existing plant capacities and accelerated plans to recycle rare earths. The result? No more shortage. “The broader lesson from the rare earths episode is this: human beings are intelligent animals who innovate their way out of shortages, real and imagined.”
UP NEXT: FRIDAY
The Bank of Japan releases its statement on monetary policy and outlook for economic activity.
U.S. gross domestic product for the first quarter of the year is expected to advance at a 1.8% pace, a marked slowdown from the fourth quarter’s 2.9% gain.
The U.S. employment cost index for the first quarter is expected to rise 0.7%, roughly in line with the fourth quarter’s 0.6% increase.
The University of Michigan consumer sentiment index for April is expected to hold steady at 97.8, reflecting a broadly upbeat outlook.
President Trump and German Chancellor Angela Merkel meet at the White House. The official agenda includes bilateral meetings and a press conference.
from Real Time Economics https://ift.tt/2JrHWtI
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