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Good morning! Today we look at strong U.S. economic growth—and how that’s leaving the rest of the world behind—President Trump’s decision to go ahead with another $50 billion in tariffs on Chinese goods, and sweet relief for students buried under a mountain of school loans.
MY ECONOMY IS RED HOT…
The U.S. economy is revving up just as others lose steam. Growth is on track to exceed a 4% pace in the second quarter, which would be the fastest in almost four years. The Federal Reserve is aware, and tapped the brakes with a small increase for interest rates this week. Underscoring the renewed vigor, spending at U.S. retailers saw the biggest jump in six months in May, Josh Mitchell reports. Consumers, spurred by tax cuts and the lowest unemployment in half a century, shelled out more for cars, clothing, building supplies, health products and bar tabs. Caveat: Quarterly numbers are choppy. Gross domestic product posted consecutive gains of 4.6% and 5.2% in mid-2014, only to settle back down to the more mundane pace that has marked the second-longest expansion in U.S. history.
…YOUR ECONOMY AIN’T DOODLEY SQUAT
And then there’s Europe. The eurozone saw growth slow in the first quarter of the year and it looks like that weakness is bleeding into the second. At first, economists attributed the deceleration to weather, an outbreak of flu and strikes, but that explanation now looks less convincing. In response, the European Central Bank signaled it wouldn’t begin raising interest rates until late next year. The ECB did announce the end of its asset purchases, but that’s in part because it was running out of assets to buy under the program’s rules. Adding to the delicacy of the situation is a political standoff over migration that could threaten Angela Merkel’s coalition and a euroskeptic coalition in Italy. It’s too soon for alarm. But global policy makers–especially Fed Chairman Jerome Powell–should be keeping a close eye on the eurozone. - David Harrison
WHAT TO WATCH TODAY
The New York Fed’s Empire State manufacturing survey for June, out at 8:30 a.m. ET, is expected to slip to 18.0 from 20.1.
U.S. industrial production for May, out at 9:15 a.m. ET, is expected to advance 0.2% from the prior month.
The University of Michigan’s consumer sentiment index for June, out at 10 a.m. ET, is expected to inch up to 98.3 from 98.0. American consumers have been broadly upbeat about economic conditions.
TOP STORIES
COULD A TRADE WAR MESS UP THE ECONOMY?
President Donald Trump approved tariffs on about $50 billion of Chinese goods. It wasn’t clear when the tariffs would go into effect, but it is clear the U.S. is ratcheting up its trade fight with China. The casus belli: Alleged intellectual property theft and pressure on U.S. firms to transfer technology to Chinese partners. Beijing has already said it had prepared its own $50 billion list of U.S. goods that it would subject to tariffs, especially aircraft and soybeans. After Beijing made that threat, Mr. Trump upped the ante and said the U.S. would add another $100 billion of goods to the its tariff list, Bob Davis and Peter Nicholas report.
IMF: CHILL OUT
So about that banner economic growth in the U.S. The International Monetary Fund warned that the economic boost from last year’s tax cuts in the U.S. will fade in 2019 and 2020, and the U.S. economy will then slow considerably. The IMF’s forecasts provide a sharp contrast to the economic outlook of the White House, which sees growth accelerating to a sustained 3% annual pace within five years, Josh Zumbrun reports. The IMF sees the U.S. growing at about half that pace once the tax cuts’ impact fades.
BOYS OF SUMMER
The European Central Bank laid out plans to wind down its giant bond-buying program this year. But on interest rates, check back next summer. The ECB said it likely would wait “at least through the summer of 2019” before raising its deposit rate, now at minus 0.4%, Tom Fairless and Brian Blackstone write. The ECB’s decision to start phasing out some of its easy-money policies came despite mounting evidence that the eurozone economy is slowing. The bank lowered its forecast for 2018 gross domestic product growth to 2.1% from 2.4%.
BOJ: I DID IT MY WAY
The Bank of Japan decided to stick to its ultra-easy monetary policy, bucking the global trend largely because inflation isn’t getting close to the central bank’s 2% target. The Japanese central bank also maintained its assessment of the economy, saying it was “expanding moderately.” The economy shrank at an annualized pace of 0.6% in the January to March period, the first contraction in nine quarters, but analysts expect it to rebound, Megumi Fujikawa reports.
STUDENT DEBT LIFELINE
For decades, bankruptcy judges refused to consider reducing student loans. That is now changing, and some judges are throwing lifelines to people struggling to repay their debt. The WSJ’s Katy Stech Ferek chronicles the shift, which could have far-reaching implications for loan programs and the broader economy. Nearly 45 million people carry student debt in the U.S.—the total amount has more than doubled over the past decade to $1.4 trillion.
CHART OF THE DAY: EUROTRIP
The euro on Thursday suffered its worst day against the dollar in two years—the day after the U.K. voted to leave the European Union.
QUOTE OF THE DAY
“Look, if you end up with a tariff battle, you will end up with price inflation. You could end up with more consumer debt. Those are all historic ingredients for an economic slowdown.” – Gary Cohn, President Trump’s former economic adviser, speaking with The Washington Post
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
Anthony Bourdain, the chef who became a best-selling author and TV star before his apparent suicide, had plenty to teach us about food. Economics? “Bourdain didn’t set out to teach the world about economics. But if you follow him closely, and reflect on his discoveries in distant lands and unfamiliar cultures, you discover great truths about prosperity, poverty, and wealth, through the daily lives of real people,” the American Institute for Economic Research’s Jeffrey Tucker writes.
The New York Times has a nifty interactive looking at differences in school-test scores for boys and girls. “In the average district, girls perform about three-quarters of a grade level ahead of boys. But in math, there is nearly no gender gap, on average. Girls perform slightly better than boys in about a quarter of districts–particularly those that are predominantly African-American and low-income. Boys do slightly better in the rest–and much better in high-income and mostly white or Asian-American districts,” the paper reports.
from Real Time Economics https://ift.tt/2JPjVNV
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