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Good morning! Today we look at the Trump administration’s mixed message on China tariffs, the United States’s two economies, software that shaves worker pay, the rise of U.S. bond yields, 13,000% inflation in Venezuela, and the dollar’s rally.
TARIFFS ON HOLD?
The Treasury secretary and the Trump administration’s top trade official took markedly different positions over U.S. tariffs on Chinese imports, punctuating several days of negotiations between the world’s two biggest economies with a question mark. Treasury Secretary Steven Mnuchin said the U.S. was “putting the trade war on hold” and wouldn’t assess tariffs on Beijing while the two sides talked. U.S. Trade Representative Robert Lighthizer put out a statement saying that tariffs remained an important tool to “protect our technology.” That’s a significant difference in tone and substance, and highlights divisions within the Trump administration over how best to proceed.
AGREEMENT, BUT NO NUMBERS
The battling statements arrived one day after the U.S. and China ended talks in Washington to reduce trade tensions, Bob Davis and Josh Zumbrun report. After two days of negotiations, the U.S. failed to get China to commit to reducing the bilateral trade imbalance by at least $200 billion, a top U.S. goal. Mr. Mnuchin said “we have an agreement with China that they will substantially agree” to trade deficit reduction, although the statement put out by the two sides after the talks contained no specific numerical targets.
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WHAT TO WATCH TODAY
The Atlanta Fed’s Raphael Bostic speaks on welfare economics at 12:15 p.m. ET, the Philadelphia Fed’s Patrick Harker speaks at the CEO Financial Seminar at 2:15 p.m. ET, and the Minneapolis Fed’s Neel Kashkari speaks in Escanaba, Mich., at 6:30 p.m. ET.
TOP STORIES
GOODS, SERVICES AND INFLATION
Economic theory holds that as unemployment falls and labor becomes scarcer, wages and inflation should rise. Why isn’t that happening? It helps to look at the U.S. as two economies rather than one, Paul Kiernan writes. On one hand is the goods economy, where products like computers, gasoline and hair dryers are made and purchased. On the other hand is the services economy, where cable guys, nurses and bus drivers jostle for the bulk of consumer spending. The goods economy has been transformed by trade and technological innovation over several decades. The services economy has been more sheltered. Economic theory appears to hold up better on the services side.
TIME TRACKING CHIPS AWAY AT PAYCHECKS
It’s certainly not enough, by itself, to explain lackluster wage gains on a national scale. But some workers are complaining that their employers use time-tracking systems to chip away at their pay. Breaks that workers never actually get to take and rounding policies that work in employers’ favor, multiplied across years of employment, can result in thousands of dollars missing from paychecks, Rachel Feintzeig reports. Time-tracking software is usually part of a broader workforce management system that records absences and schedules workers.
FOREIGN BONDS YIELD TO U.S.
U.S. government bonds are paying more than debt from other developed countries for the first time in almost two decades. The yield on the benchmark 10-year Treasury note, a key barometer for borrowing costs for consumers and companies, last week topped 3.1%, its highest close in almost seven years. Analysts said the rise in yields in part reflects optimism about the U.S. economy and expectations for a pickup in inflation, Daniel Kruger reports. The climb also shows the impact of the recent tax cut package and a surge in government spending. Those have boosted short-term growth expectations while increasing borrowing and the supply of Treasury bonds, which can hurt bond prices (and raise yields).
VENEZUELA FACES DOWN 13,000% INFLATION
Nicolás Maduro won a disputed election in Venezuela. The victory means Chavismo—the radical leftist movement named for the late Hugo Chávez—will begin a third decade of uninterrupted rule when Mr. Maduro is sworn in again next year. But it is a government struggling to survive: By the end of the year, the economy will have contracted by 50% since 2013, hyperinflation is expected to top 13,000% and the U.S. has imposed sanctions on much of the top leadership of the government. Mr. Maduro’s victory will likely plunge Venezuela into deeper crisis. It also means Venezuela’s oil industry will continue to collapse, keeping vital oil off global markets at a time of rising international oil prices, Kejal Vyas and Juan Forero report.
CHART OF THE DAY: DOLLARS
The U.S. dollar is rallying. The WSJ Dollar Index, which measures the currency against a basket of 16 others, climbed to its highest level of the year. That could be good for U.S. consumers and help keep inflation down. But it also will make U.S. goods and services more expensive overseas, another complication for the Trump administration’s trade agenda.
QUOTE OF THE DAY
“The market of [credit default swaps], in the wake of the economic crisis of 2007, was imposing enough to represent almost the equivalent of the GDP of the entire world. The spread of such a kind of contract without proper limits has encouraged the growth of a finance of chance, and of gambling on the failure of others, which is unacceptable from the ethical point of view.” - Pope Francis
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
A record number of women are lining up to run in the 2018 U.S. elections. Does that mean anything for the economy? “We identify significantly higher growth in economic activity in constituencies that elect women. Probing mechanisms, we find evidence that women legislators are less likely to be criminal and corrupt, more efficacious, and less vulnerable to political opportunism,” Thushyanthan Baskaran, Sonia Bhalotra, Brian Min and Yogesh Uppal write in a United Nations University working paper.
Americans are willing to suffer longer commutes in return for lower taxes. “We present robust evidence that differences in average tax rates distort commute times. The mechanism by which average tax rates have such an effect is through changes in the location of residents and employment,” David Agrawal and William Hoyt write in the Royal Economic Society’s Economic Journal.
UP NEXT
Monday and Tuesday are fairly quiet on the economic data front. Things pick up Wednesday with IHS Markit’s composite purchasing managers index for May—a measure of activity in the eurozone’s services and manufacturing sectors. Economists expect to see a small drop in the metric, not a great sign for the region’s economy.
Also Wednesday, U.S. new-home sales and Federal Reserve minutes from from the central bank’s May 1-2 meeting.
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