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Good morning! Today we look at U.S. economic growth, inflation expectations, Trump’s tactical shift on trade, slower growth in China and France, and how investors unfriended Facebook.
TRUMP PREVIEWS GDP
Hoping for a sneak peek of Friday morning’s GDP numbers? President Donald Trump outlined his expectations for the economic growth report: “Somebody actually predicted today, 5.3. I don’t think that’s going to happen; 5.3. If it has a 4 in front of it, we’re happy. If it has like a 3, but it’s a 3.8, 3.9, 3.7 we’re OK.”
So, high 3s or low 4s? We’ll know for sure when the Commerce Department publicly releases its first official estimate of second-quarter gross domestic product at 8:30 a.m. ET. The president is privy to the report the evening before though executive branch officials aren’t supposed to talk about it, Rebecca Ballhaus and Harriet Torry report.
BEHIND THE STRONG GROWTH
Economists expect the U.S. economy’s output grew at a seasonally and inflation-adjusted annual rate of 4.4% in the second quarter. That would mark one of the strongest quarters in this nine year-old expansion. While consumer spending likely bounced back from a weak first quarter, economists think trade drastically skewed the second-quarter numbers to the upside due to companies stockpiling ahead of expected tariffs and a surge in U.S. soybean exports during the second quarter. That could prove a one-time boost. – Harriet Torry
Do you think U.S. economic growth is peaking? Write to Jeffrey Sparshott at realtimeeconomics@wsj.com, tweet to @WSJecon and visit wsj.com/economy for the latest news. (Please include your full name and hometown, or a title and company. Responses may be quoted in this newsletter.)
WHAT TO WATCH TODAY
U.S. gross domestic product for the second quarter, out at 8:30 a.m. ET, is expected to climb at a 4.4% pace.
The University of Michigan’s consumer sentiment index for July, out at 10 a.m. ET, is expected to inch up to 97.3 from 97.1 earlier in the month. U.S. consumers have been broadly upbeat amid strong job creation and economic growth.
TOP STORIES
SMOOTH OPERATOR
Friday’s GDP report has a little something extra: a five-year comprehensive benchmark revision. Commerce Department economists and analysts incorporate more reliable source data and improve their methodology, often resulting in more accurate figures and small adjustments to quarterly numbers. There’s not typically any major shift in our understanding of the economy. One thing to watch this time: changes to the seasonal adjustment process. Commerce acknowledges it has a problem smoothing its data—with proper seasonal adjustment the first quarter should not regularly come in much weaker than other quarters. It’s trying to fix that to better reveal underlying economic trends. That could mean upward revisions for first quarters, downward revisions for other quarters, and the big picture just about the same.
NOT-SO-GREAT EXPECTATIONS
U.S. consumers have been expecting annual inflation of between 2.5% and 3% for most of the past eight years, according to a monthly University of Michigan survey. That held even during 2015, when annual inflation was trending near zero. Now, the consumer-price index is approaching 3%. Is that causing households to recalculate? Nope. They’re sticking to their guns—expecting 2.9% inflation in the next year, according to a July survey. Well-anchored inflation expectations allowed Federal Reserve policy makers to look beyond temporary factors holding down price increases in the recent past. Will those same expectations give the Fed leeway if inflation overshoots its target? The University of Michigan updates its numbers Friday at 10 a.m. ET. - Eric Morath
TACTICAL SHIFT ON TRADE
The Trump administration opted for cooperation over confrontation in its latest round with the European Union. But Republicans pushed the administration to find similar solutions on other fronts: Trump advisers got an earful from angry lawmakers on Capitol Hill, who blasted the administration’s approach, criticized the Europe pact as weak, demanded faster relief for ailing constituents and pledged to ramp up efforts to tie Mr. Trump’s hands in shaping trade policy going forward, Siobhan Hughes and Jacob M. Schlesinger report.
Mr. Trump’s aides said his policy has led to newly active negotiations from North America to Asia to Africa. They said that has raised the prospect of new trade gains amid the pain already felt in the U.S. from higher import prices and from exports lost due to retaliation by trading partners.
CHINA’S SLOWING ECONOMY
The Trump administration sees China as America’s biggest economic threat. But the Asian nation is having troubles of its own. China is moving faster than expected to inject money into the economy, a sign that the government is becoming more worried about slowing growth as trade tensions are on the rise. The country’s cabinet this week encouraged local governments to quickly tap the bond market. The central bank lent more than 500 billion yuan ($74 billion) to banks, a push to get them to lend and the largest one-time amount since such injections started in 2014. The recent measures are directed at an economy that has seen growth gradually slow for eight years, Chao Deng reports.
FRANCE’S SLOWING ECONOMY
France may have won the World Cup. But its economy didn’t win the second quarter. GDP grew an anemic 0.2% on a quarterly basis between April and June. That works out to 0.6% annualized growth (which is how the U.S. reports GDP), according to J.P. Morgan. In contrast, the U.S. is expected to post 4.4%. One of the key factors in France: a drop in household consumption driven in part by transit strikes. Trade also subtracted from growth. J.P. Morgan says the French data “suggests a bit of downside risk” to eurozone GDP, which is due Tuesday. The bank had called for 2% annualized growth, but now it could come in a bit below that. - Brian Blackstone
CHART OF THE DAY: FRIEND REQUEST
Facebook suffered the biggest-ever one-day loss in market value for a U.S.-listed company after it warned about slowing growth. Facebook’s loss in market value Thursday is larger than 457 of the 500 companies in the S&P 500.
QUOTE OF THE DAY
Trade wars encourage predatory state behaviour. They lead to higher taxes, reduce consumer choice and hamper economic freedom, and they are not easy to win. The result is trade controlled by governments, instead of companies and consumers making decisions in their own interests. - EU Trade Commissioner Cecilia Malmström, writing in The Financial Times
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
China appeared caught off guard by President Trump’s aggressive trade tactics. “Sources and observers told the South China Morning Post that the problem is policies introduced by Beijing–driven by a need to consolidate the party’s power–that have discouraged policy advisers from having in-depth discussions with their US counterparts that would help them to understand the latest thinking in Washington, or from speaking their minds. That has left Beijing without a comprehensive strategy to deal with the Trump administration, at least on the trade front, at a time of heightened tension and rivalry,” Wendy Wu and Kristin Huang write in the Hong Kong newspaper.
The U.S. is still a magnet for scientific talent. “[W]e estimate students’ location preferences using a hypothetical choice method: we ask respondents to choose between two postdoc job offers, where one offer is in the U.S. and one is abroad. We find that foreign students have a stronger preference for U.S. locations even after controlling for ability and career preferences. Our results suggest the U.S. is managing to retain talented foreign graduate students for postdoc positions,” Ina Ganguli and Patrick Gaulé write in a National Bureau of Economic Research working paper.
from Real Time Economics https://ift.tt/2uTa8Ri
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