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Good morning! Today we look at the high stakes for Angela Merkel‘s visit to Washington, signs Europe’s economy stumbled to start the year, the double-edged sword of rising oil prices, a new low for U.S. jobless claims, and the forces bending U.S. homeownership rates.
THE ANGELA AND DONALD SHOW
German Chancellor Angela Merkel is in Washington for a high-stakes meeting with President Donald Trump: It’s a last-ditch effort to avoid the biggest trade conflict in years between the U.S. and the European Union.
European officials expect the White House to make good on its threat to impose higher tariffs on steel and aluminum from EU countries, including France, Germany and the U.K., Bojan Pancevski, William Mauldin and Emre Peker report. That would trigger retaliatory tariffs on a list of American products including motorcycles, bluejeans and bourbon whiskey.
German officials suggest they are willing to pursue a mini-trade deal to resolve the dispute. It would include the EU lowering tariffs for U.S. products such as cars and farm goods, and include Brussels supporting Washington against unfair Chinese trade practices.
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WHAT TO WATCH TODAY
U.S. gross domestic product for the first quarter of the year is out at 8:30 a.m. ET. Economists expect GDP to advance at a 1.8% pace. While that’s a marked slowdown from the fourth quarter’s 2.9% gain, it shouldn’t be surprising or worrisome. There are lingering technical issues that tend to depress first-quarter figures.
The U.S. employment cost index for the first quarter, out at 8:30 a.m. ET, 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, out at 10 a.m. ET, is expected to hold steady at 97.8, reflecting a broadly upbeat outlook.
President Trump and German Chancellor Merkel meet at the White House. The official agenda includes a working lunch just after noon and a joint press conference at 1:50 p.m. ET.
Corrections & Amplifications: On Thursday, we noted this is the third-longest U.S. economic expansion on record. It will take sole possession of second place in May (not the second half of this year). Thanks to PNC Financial Services Gus Faucher for catching our error.
TOP STORIES
FRANCE’S ECONOMY LATEST TO FLASH WARNING
A trade fight with the U.S. would come at a seemingly bad time for Europe. French growth slowed in the first quarter, raising questions over the long-term strength of the eurozone’s recovery. The French gross domestic product figures are the latest source of concern for policy makers in the eurozone after tumbles in industrial output, softer consumer spending growth and declining confidence levels, William Horobin reports. A prolonged soft patch would dash expectations the currency bloc is on track to repeat the bumper growth it recorded in 2017.
WATCH AND WAIT
The European Central Bank on Thursday put off a decision on the future of its giant bond-buying program, saying officials want to better understand the recent slowdown. The “moderation in growth” across the 19-nation currency union probably reflected temporary factors such as cold weather or the timing of public holidays, ECB President Mario Draghi said. But he didn’t rule out more durable weaknesses. Understanding what lies behind the slowdown is “essential for informing our next decisions.”
OIL GIVES, OIL TAKES AWAY
The highest oil prices in years are increasing expenses for companies that had grown used to low energy costs since crude’s 2014 tumble. They’re also proving to be a boon for some businesses, Doug Cameron and Bradley Olson report. Companies like Union Pacific are caught in the middle. The railroad operator reported its fuel expenses surged 28% to $589 million in the latest quarter, mostly from an increase in diesel prices. But the company also benefited from higher demand for sand used in shale-oil extraction and a surge in shipments of crude. Energy revenue jumped by 15% in the March quarter from the year-ago period, growing twice as fast as its overall business.
OUR HOUSE
Rising wages, loosening credit standards and demographic shifts are all creating momentum for the U.S. housing market. The homeownership rate held at its highest level since 2014 to start the year, Laura Kusisto reports. At 64.2%, the share of households that own a home is now back around levels from the mid-1990s. Over the past year, the U.S. added 1.3 million owner households and lost 286,000 renter households, the fourth consecutive quarter in which the number of renter households declined from the same quarter a year earlier. Last year marked a turning point in the housing market recovery. It was the first that the homeownership rate rose in 13 years. Nonetheless, challenges remain, including rising interest rates, climbing prices, limited inventories and a tax bill that diminished some financial benefits of homeownership.
HOW LOW CAN YOU GO?
The number of Americans applying for unemployment benefits last week fell to the lowest level since 1969. Initial jobless claims, a proxy for layoffs across the U.S., fell to a seasonally adjusted 209,000 in the week through April 21, Josh Mitchell and Sharon Nunn report. That was the lowest level since Dec. 6, 1969. (That’s back when: Richard Nixon was president. The U.S. held its first draft lottery since World War II. The Rolling Stones played at Altamont. And Jay-Z was born.) While the numbers for claims are imprecise and subject to revision, the broader trend suggests employers are hanging on to workers in a tight labor market.
BANK OF JAPAN ON HOLD
The Bank of Japan dropped its target date for reaching 2% inflation and left its stimulus policies in place, showing its willingness to stick with a radical easing program while the Federal Reserve is raising interest rates. One big difference for the BOJ: Japan has yet to fully escape its long period of weak prices, Megumi Fujikawa and Mayumi Negishi report. In March, core consumer prices, a figure that excludes volatile fresh food prices, rose 0.9% over year-earlier levels. In the U.S., some economists expect the Fed’s preferred inflation gauge to reach 2% when the March reading is released on Monday.
KOREAN TENSIONS EASE
Rising geopolitical tension can hurt the economy. This should help: The leaders of North and South Korea agreed to pursue a peace agreement after historic talks on Friday. After an 8½-hour meeting at the demilitarized zone that was heavy on shows of amity between Kim Jong Un and his South Korean counterpart, Moon Jae-in, the two leaders agreed to take further steps to dial down tensions, start talks with the U.S. and set up an inter-Korean liaison office, Jonathan Cheng and Andrew Jeong report. The men largely steered clear of specifics on the question of Pyongyang’s nuclear weapons, leaving uncertainties about the regime’s willingness to cede ground on its arsenal ahead of a meeting between Mr. Kim and President Trump.
CHART OF THE DAY: WAGES
It’s not a bad time to join the U.S. labor market. ADP’s latest Workforce Vitality Report shows pay for new entrants (24 or younger and starting work) is about 5% higher than for peers who landed their first gig just a year earlier. That’s outpacing the 4.9% gains for job holders, and 4.4% increase for job switchers. Of course, the new kids are starting at a lower base, just $11.96 an hour versus $29.86 for job holders. Possible interpretation: Employers are increasingly willing to train up workers rather than pay the higher salaries demanded by those with experience. And they’re competing more to get the trainees.
WHAT ELSE WE’RE READING
One-in-four parents living with a child in the United States today are unmarried. The figure has skyrocketed from a half-century ago, when 7% of parents living with their children were unmarried, The Pew Research Center reports. Another big shift: “Solo mothers–those who are raising at least one child with no spouse or partner in the home–no longer dominate the ranks of unmarried parents as they once did.” In 1968, 88% of unmarried parents were solo moms. In 2017, the share was 53%. Increases in cohabitating parents account for the shift.
Maybe Phil Collins really did feel it coming in the air. “We find that elevated levels of air pollution have a positive and statistically significant impact on overall crime and that the effect is stronger for types of crime which tend to be less severe,” the London School of Economics’s Malvina Bondy, Sefi Roth and Lutz Sager write. How? There’s some medical evidence linking acute exposure to air pollution with heightened concentration of stress hormones. Changes in blood levels of stress hormones may in turn result in behavioral change, in this case by reducing the perceived risk of punishment.
Beware of the consensus. By the end of the 1990s, most economists agreed that technological change was harming some low-skilled workers, not trade, Oxford University’s Adrian Wood writes. “The economic consensus that globalization was not the main cause of increasing inequality in the north encouraged policymakers to tune out. It undermined the argument for using a crucial political lever for action, namely fear of protectionism.” More disagreement might have led to policies mitigating some social costs of globalization.
from Real Time Economics https://ift.tt/2HvfieL
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