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It’s jobs day! U.S. employers are expected to increase payrolls for a record 98th consecutive month. We’ll publish a special edition of this newsletter after the latest numbers are released.
Good morning. Jeff Sparshott here to take you through key developments in the global economy. We look at the growing U.S. trade deficit and rocky relations with China, what to watch in the November employment report, and a potential Fed pause on interest rates. Let us know what you think by replying to this email.
THE TARIFF MAN COMETH
American companies that import products are paying record amounts in customs duties as more and more of President Trump’s tariffs take effect. Tariff collections have doubled since May, including an increase of over 30% in the last two months, Josh Zumbrun reports.
Mr. Trump has focused much of his economic policy making on trade, though it’s only over the past few months that tariff revenue has begun to surge. October was the first complete month in which U.S. tariffs were in place against a full $250 billion of imports from China.
AIN’T NO STOPPIN’ US NOW
Despite tariffs, the overall U.S. trade deficit reached the highest level in ten years in October.
China has been a main target of U.S. trade policy. But while imports are holding up, U.S. exports have collapsed. A strong dollar, tax cuts and a solid economy are fueling U.S. consumer demand for foreign-made goods. China’s trade retaliation and slowing economy are damping their demand for American products.
WHAT TO WATCH TODAY
OPEC and its partner producers meet again to debate a possible production cut.
U.S. nonfarm payrolls for November, out at 8:30 a.m. ET, are expected to post a net gain of 198,000, and the unemployment rate is expected to hold steady at 3.7%.
Canada’s jobs report for November is out at 8:30 a.m. ET.
The University of Michigan’s preliminary consumer sentiment index for December, out at 10 a.m. ET, is expected to slip to 97.0 from 97.5 at the end of November.
U.S. consumer credit for October, out at 3 p.m. ET, is expected to advance by $15.0 billion.
Fed governor Lael Brainard speaks on financial stability at 12:15 p.m. ET and the St. Louis Fed’s James Bullard speaks on the U.S. economy and monetary policy at 1 p.m. ET.
TOP STORIES
BOMBS HUAWEI
The U.S. and China have a 90-day trade truce. The Trump administration’s efforts to extradite the chief financial officer of China’s Huawei Technologies and campaign against the country’s high-tech ambitions may complicate efforts to strike a broader deal in that short time, Kate O’Keeffe and Bob Davis report.
“I’m very concerned that that’s just going to ratchet this trade war and make negotiations much more difficult,” said Gary Locke, former U.S. ambassador to China. “This is I think a really hot-button, almost a grenade with respect to the 90-day negotiations.”
INDEPENDENCE DAY
Here’s one piece of good news on the trade front. The U.S. became a net exporter of oil and refined fuels last week for the first time in decades. The shift to net exporter may be short lived. Still, it demonstrates that America is moving closer to achieving “energy independence” as the shale revolution makes it one of the world’s top oil producers, Bradley Olson reports.
WHAT TO WATCH IN THE JOBS REPORT
The November employment report is expected to show a net gain of 198,000 jobs and the unemployment holding at a 49-year low. Those are solid number any time, but especially for an economy adding jobs for a record 98 straight months. The U.S. clearly isn’t running out of workers.
But the labor market is getting tighter. Economists are forecasting a 3.2% annual increase for average hourly earnings. That would be the biggest jump since 2009, when massive layoffs—especially of lower-paid positions—distorted wage figures. Faster pay gains now would be nothing but good news for workers.
Low unemployment and rising wages should entice more Americans into the labor force. That’s been true for those in their prime working years. The labor-force-participation rate for 25- to 54-years-olds rose to highest level since 2010 in October.
The trend is less convincing among all Americans. October’s rate was only modestly higher than than recent lows from 2015, likely reflecting Baby Boomer retirements.
THE FED’S THEORY OF EVOLUTION
The Federal Reserve will be watching the jobs report closely. The WSJ’s Nick Timiraos has a market-moving report on the central bank’s evolving “data dependent” strategy. The upshot: the central bank could step back from the predictable path of quarterly hikes it has been on for most of the past two years. That means it’s possible it might delay rate increases at some upcoming meetings.
Officials still think the broad direction of short-term interest rates will be higher in 2019. But as they push up their benchmark, they are becoming less sure how fast they will need to act or how far they will need to go.
HOW TO FIX THE WORLD IN 2019
We want to hear from you: if you had the power to solve some of the world’s most pressing issues, if you had the command of the necessary resources, workforces and energy—what would you do? Share your ideas with us, and we will select the best responses for publication in the WSJ’s Davos Special Report to be published on Jan. 23. Take the survey here.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
France’s yellow vest protests haven’t just shaken the country’s political landscape. “The protests point to the difficulties facing nearly all industrialized countries committed to pulling the world back from the cliff’s edge of catastrophic climate change,” The New York Times writes.
An IPO creates its own ecosystem. “Neighborhoods close to firm headquarters experience modest growth in income, a smaller share of low-income residents, and an increase in the number of nearby restaurants. These effects do not appear to reflect the wealth effect from people cashing out, but rather suggest that post-IPO firm investments give rise to local agglomeration economies,” University of Pittsburgh’s Chengying Luo writes in a job market paper.
from Real Time Economics https://ift.tt/2E8qCKL
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