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Good morning. Today we look a the latest on Nafta talks, the U.S. manufacturing boom, clouds on the horizon for automakers, Australia’s 27-year economic expansion, and Amazon’s membership in an exclusive club.
YO, CANADA
The U.S. and Canada are going to try to salvage the North American Free Trade Agreement this week. Canadian Foreign Minister Chrystia Freeland and U.S. Trade Representative Robert Lighthizer meet in Washington to try to bridge differences on a range of issues and maintain three countries in an updated pact, Paul Vieira and William Mauldin write. The pressure is on Canada: The U.S. and Mexico already agreed to terms, and the Trump administration is threatening more tariffs.
Members of Congress want Canada to stay in the pact. Mexico wants Canada to remain. Canada wants to remain. But both President Trump and Prime Minister Trudeau have said no deal is better than a bad deal.
Is the U.S. better off with or without Canada as part of Nafta? 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
The U.S. trade deficit for July, out at 8:30 a.m. ET, is expected to widen to $49.2 billion from $46.35 billion the prior month. “Following a surge in Q2 exports ahead of the pending trade tariff implementation, we expect the July nominal trade deficit widened further, signaling to the markets that net exports will be a substantial drag on Q3 U.S. GDP growth,” economists at Wells Fargo said.
The Bank of Canada releases a policy statement at 10 a.m. ET. Officials are expected to keep their benchmark rate on hold.
The St. Louis Fed’s James Bullard speaks on the U.S. economy and monetary policy at 9:20 a.m. ET, the Minneapolis Fed’s Neel Kashkari speaks at Montana State University at 4 p.m. ET., and the Atlanta Fed’s Raphael Bostic speaks on the economic outlook and monetary policy at 6:30 p.m. ET.
TOP STORIES
WHAT TRADE TENSIONS?
American factory activity in August expanded at the strongest pace in more than 14 years. The Institute for Supply Management’s manufacturing index showed sales of factory-made products, output and employment all picked up last month, Sharon Nunn reports.
Good news: “Despite concerns over U.S. protectionist policies, manufacturing sentiment remains on a solid footing, supported in large part by firm domestic demand,” said Pooja Sriram, U.S. economist at Barclays.
Bad news: Booming output this late in an expansion reminds Amherst Pierpont chief economist Stephen Stanley of the late 1980s. That’s when the Fed had to raise its benchmark rate to almost 10% to tamp down inflation. “If you want to conclude from this quick history lesson that the Fed is currently too easy and in the process of making a policy mistake, I would not object.”
IS THE FED PLAYING CATCH UP?
St. Louis Fed President James Bullard says no. The Fed’s policy committee meets later this month, and is expected to increase the current their target rate, now between 1.75% and 2%. Mr. Bullard called for his colleagues to hold off. “We’ve got a pretty good policy right now and we should stay where we are and see how the data come in,” he said on Fox Business Network.
LITTLE RED CORVETTE
The U.S. auto sector has been pumping up the economy for years. Most major auto makers reported increases in U.S. sales in August, another sign that steady job growth is supporting consumer spending. But sales are expected to cool in coming months as rising interest rates, higher vehicle prices and the threat of tariffs on automotive imports prompt customers to consider buying a used car or delay a vehicle purchase altogether, Adrienne Roberts reports. “All the positive economic news can’t overtake the worsening buying conditions for consumers,” said Charlie Chesbrough, senior economist for Cox Automotive.
THAT’S NOT AN EXPANSION. THAT’S AN EXPANSION
The U.S. economic expansion is 9 years old, the country’s second-longest on record. Australia’s economy completed 27 years of uninterrupted economic growth in the second quarter as gross domestic product climbed at the fastest pace in almost six years, James Glynn reports. The key drivers were household consumption, construction, exports, and mining. However, challenges are growing for the resource-rich economy as the Trump administration stokes trade tensions with China and turbulence roils some emerging markets, threatening to slow world growth.
CHART OF THE DAY: BUY NOW WITH 1-CLICK
Amazon.com followed Apple to become the second U.S. company to reach $1 trillion in market value. The stock has surged nearly 75% in 2018 and added roughly $430 billion to the company’s market capitalization—about the size of Walmart, Costco Wholesale and Target combined.
QUOTE OF THE DAY
No Nafta is better than a bad Nafta deal for Canadians, and that’s what we are going to stay with. – Canadian Prime Minister Justin Trudeau
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
A good job yesterday isn’t necessarily a good job today. The Washington Post highlights six industries that provided an above-average weekly paycheck in the 1990s but now pay less than an average wage: warehousing and distribution, the film and music industry, food manufacturing, car dealers, repair and maintenance, and wood product manufacturing. “The careers used to provide less educated workers an avenue to the middle class, but not anymore,” Andrew Van Dam and Heather Long write.
Trade helped spur economic growth millennia ago. The results really stuck. “Along the Mediterranean coast, there are more archaeological sites in locations that were better connected over sea, and this relationship emerges most strongly after 1000 BC, when open sea routes were traveled routinely and trade intensified. Once these locational advantages emerged, the favoured locations retained their urban developments over the following centuries,” Jan Bakker, Stephan Maurer, Jörn-Steffen Pischke and Ferdinand Rauch write at the Center for Economic Policy Research.
UP NEXT: THURSDAY
The ADP jobs report for August, out at 8:15 a.m. ET, is expected to post a gain of 190,000.
U.S. jobless claims, out at 8:30 a.m., are expected to remain historically low.
U.S. productivity for the second quarter, out at 8:30 a.m., is expected to advance 2.9%.
The Institute for Supply Management’s nonmanufacturing index for August, out at 10 a.m. ET, is expected to tick up to 56.3 from 55.7.
U.S. factory orders for July, out at 10 a.m. ET, are expected to fall 0.6% from the prior month.
The New York Fed’s John Williams speaks at the University at Buffalo at 10 a.m. ET.
from Real Time Economics https://ift.tt/2Q7tJGH
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