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Good morning! Today we look at apparent U.S.-China trade detente, a fresh high for oil prices, slow employment gains in steel cities, the Great Recession’s lost generation, and the job market for bright-eyed college grads.
WELL, THAT DE-ESCALATED QUICKLY
The U.S. and China agreed on the broad outline of a deal that would save imperiled Chinese telecom giant ZTE Corp. If completed, the Trump administration would remove the ban on U.S. companies selling components and software to ZTE, a penalty that has threatened to put the company out of business. Instead, ZTE would be forced to make big changes in management, board seats and possibly pay significant fines, Lingling Wei and Bob Davis report. Beijing has also offered to remove tariffs on billions of dollars of U.S. farm products as part of the negotiations. It appears the two sides are moving closer to resolving their trade dispute. It’s less clear how much has actually changed for U.S. companies competing on the global stage.
CHINA WINS ROUND 1
China, incredibly, appears to be winning its trade fight with the U.S. Though it is still early days, China has thus far escaped the bulk of threatened U.S. tariffs while giving up almost nothing of substance, Greg Ip writes. President Donald Trump initially seemed to have more stomach for confrontation with China than his predecessors. Instead, China has shrewdly exploited his weak points: his hopes for a breakthrough with North Korea, a Chinese client; a low threshold for political pain, especially in Republican farm states; and a readiness to play China’s game of using legal proceedings as a commercial bargaining chip.
Who do you think won round one of the U.S.-China trade spat? Write to Jeffrey Sparshott at realtimeeconomics@wsj.com, tweet to @WSJecon and visit wsj.com/economy for the latest.
WHAT TO WATCH TODAY
Tuesday is quiet on the data front, with a Philadelphia Fed nonmanufacturing survey out at 8:30 a.m. ET and Richmond Fed surveys due at 10 a.m. ET.
Things pick up Wednesday with IHS Markit’s composite purchasing managers index for May. The measure of activity in the eurozone’s services and manufacturing sectors is expected to fall slightly, not a great sign for the region’s economy. Also Wednesday, look for U.S. new-home sales and Federal Reserve minutes from from the central bank’s May 1-2 meeting.
TOP STORIES
HAVE YOU DRIVEN A FORD LATELY?
China will reduce its tariff on imported autos to 15% from 25% starting July 1, the Chinese government said Tuesday. China’s import tariff on auto parts will also be cut to 6%, down from between 8% and 25%, Trefor Moss reports. The auto sector has been an important focus of the trade talks between the world’s two biggest economies. U.S. Trade Representative Robert Lighthizer reported in his Section 301 investigation in March that China doesn’t provide a level playing field for foreign auto makers.
U.S.-CHINA FALLOUT
The Dow Jones Industrial Average surged nearly 300 points Monday to its highest level in more than two months as concerns about a possible trade war between the U.S. and China eased. European stocks and U.S. futures inched higher early Tuesday as the news sank in, though some investors cautioned that the reprieve on trade may only be temporary.
VENEZUELA, IRAN FALLOUT
The U.S. benchmark for oil hit a fresh 3 1/2-year high as investors weighed further crude supply disruptions in Venezuela and Iran, Christopher Alessi and Alison Sider report. The U.S. has threatened to tighten economic sanctions against Iran, and the victory of Venezuela’s far-left president, Nicolás Maduro, paves the way for stricter sanctions targeting the country’s already-hindered oil industry. Goldman Sachs estimates higher oil prices’ effect on consumers is knocking a quarter point off current quarter growth while the boost to capital spending is adding 0.15 points.
STEEL JOBS
Employment in each of America’s top 10 steel cities has grown slower than the U.S. average—or actually declined—since President Trump announced plans to impose tariffs on steel and aluminum imports, Sharon Nunn and Sarah Chaney report. One possible culprit: Higher prices. When prices go up, demand goes down.
FANTASY, REALITY, POLITICS AND IMMIGRATION
The immigration debate of 2018 seems disconnected from economic realities. “There is a good case that America’s economy—growing and thriving—has never needed immigrant labor more than it does now,” Gerald F. Seib writes. Those reasons include a falling birthrate, worker shortages and the lowest unemployment rate in more than 17 years. Instead, some Republican lawmakers are demanding a vote on a bill that would lower legal—not illegal, but legal—immigration.
YOU ARE ALL A LOST GENERATION
The children born into Ronald Reagan’s “Morning in America” era could be on track to become the last recession’s “lost generation,” new research from the Federal Reserve Bank of St. Louis says. Americans who entered the world in the 1980s “are at substantial risk of accumulating less wealth over their life spans than the members of previous generations,” the report’s authors say. “Not only is their wealth shortfall in 2016 very large in percentage terms, but the typical 1980s family actually lost ground in relative terms between 2010 and 2016, a period of rapidly rising asset values that buoyed the wealth of all older cohorts,” Michael S. Derby reports.
CHART OF THE DAY: CAPS AND GOWNS
College seniors are graduating across the U.S. How’s the job market for them? Much better than any other time this decade, but not as good as before the recession. Less than 4% of recent grads are unemployed, but more than 42% end up in a job that typically doesn’t require a college degree, New York Fed research shows.
The New York Fed also finds:
More than one-third of underemployed recent grads land a “good non-college job.” That’s one with a full-time average annual wage of roughly $45,000 or more.
Just over 13% of the underemployed start off in a job that pays around $25,000 a year or less.
Majors most likely to be underemployed? Criminal justice, public policy and law, and performing arts. Least likely? Nursing, education and engineering.
QUOTE OF THE DAY
“Starting these talks between likeminded partners sends a strong signal at a time where many are taking the easy road of protectionism.” – EU Trade Commissioner Cecilia Malmstrom, announcing the start of trade negotiations with Australia and New Zealand
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
Is a labor shortage in the trucking industry starting to affect the broader economy? The Washington Post makes the case rising demand and a limited supply of labor are pushing prices higher. “It could mark a turning point for the U.S. economy. Inflation has stayed unusually low in the past decade, largely because costs have stayed low for food, clothes and other items Americans buy in store or online as companies got more efficient and worker wages barely increased. But rising shipping costs could change that dynamic in 2018.”
Gun purchase waiting periods don’t stop mass shootings but they can save hundreds of lives a year. “We find that the existence of a purchase delay reduces firearm-related suicides by between 2% and 5% with no statistically significant increase in non-firearm suicides,” Griffin Edwards, Erik Nesson, Joshua Robinson and Fredrick Vars write in the Royal Economic Society’s Economic Journal.
from Real Time Economics https://ift.tt/2kid3NU
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