No More 10 Minute Breaks: Real Time Economics: U.S.-China Tensions Rise, Government Shutdown Looms

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The U.S. and its allies are taking China to task for alleged cyber crimes. Will that derail trade talks?

Good morning. Jeff Sparshott here to take you through key developments in the global economy. We’ll also look at a potential government shutdown, job prospects for older workers, coal’s decline, Japan’s missing inflation, and greatest hits from our economy team’s 2018 coverage. Let us know what you think by replying to this email.

CYBER CRIMES AND MISDEMEANORS

The Trump administration unsealed criminal charges against two Chinese citizens allegedly tied to a state-sponsored campaign to steal sensitive information from businesses and U.S. government agencies. The charges come amid a broader push by the U.S. to deter cyberattacks and technology theft, and to reset trade relations with the world’s second-largest economy, Dustin Volz, Kate O’Keeffe and Bob Davis report.

TRUCE HOLDS

President Trump and his Chinese counterpart Xi Jinping agreed this month to a tariff truce to allow trade negotiations. So far, both sides seem to be separating the hacking allegations from the trade talks.

China’s Foreign Ministry accused the U.S. of wholesale fabrication, demanded the charges be dropped and warned the episode could harm U.S.-China relations. But Beijing is unlikely to back up the tough talk with action, Josh Chin reports. The Trump administration, meanwhile, held off on an earlier plan to sanction Chinese entities that benefited from the hacks.

WHAT TO WATCH TODAY

U.S. durable goods orders for November are expected to rise 1.3% from the prior month. (8:30 a.m. ET)

U.S. gross domestic product for the third quarter is expected to be unrevised at a 3.5% growth rate. (8:30 a.m. ET)

U.S. personal income for November is expected to rise 0.3% from the prior month. Consumer spending is expected to rise 0.4%. (10 a.m. ET)

The personal-consumption-expenditure price index for November is expected to rise 0.6% from the prior month. Core prices, which exclude food and energy, are forecast at a 0.2% gain. That would leave core prices up 1.9% from a year earlier. (10 a.m. ET)

The University of Michigan consumer sentiment index for December is expected to tick down to 97.0 from 97.5 earlier in the month. (10 a.m. ET)

The Kansas City Fed manufacturing survey for December is expected to drop to 12 from 15 a month earlier. (11 a.m. ET)

TOP STORIES

PACK IT UP

President Trump and House Republicans upended a bipartisan effort to fund the government, leaving no clear path to avoid a partial government shutdown this weekend. Two days after Mr. Trump signaled he was backing off his demand for $5 billion to pay for a southern border wall, the president said he would veto a short-term spending bill approved by the Senate because it didn’t contain wall funding, Kristina Peterson, Rebecca Ballhaus and Joshua Jamerson report.

In the grand scheme of things, a federal government shutdown wouldn’t cripple the economy. But it won’t inspire much confidence at a time when markets are already reeling.

PACK IT IN

If there is a shutdown, nine of 15 federal agencies would close and more than 380,000 employees would be furloughed, Kate Davidson reports. More than 420,000 would work without pay until the shutdown ends, including FBI agents, Coast Guard employees and Forest Service firefighters. President Trump has already signed measures funding some agencies, including the Defense Department and Centers for Disease Control. A shutdown wouldn’t affect the mail or the delivery of Social Security checks.

Combined federal, state and local government employment makes up the smallest share of the civilian workforce since the late 1950s. There are about 2.8 million civilian federal government workers.

BEAR WITH ME

U.S. stocks tumbled Thursday as worries mounted about a possible shutdown and the Federal Reserve’s latest guidance on interest rates. Global shares followed suit Friday.

Treasury Secretary Steven Mnuchin’s take: “I think clearly you have a situation here where the market has overreacted to the Fed’s comments, and you see program trading taking over.”

HIRING PARADOX

The job market for older Americans can be bleak. Nearly eight million age 55 and older are out of work or stuck in low-quality jobs that offer little opportunity to prepare for retirement, Ruth Simon reports. The late-career employment woe is part of a paradox that is deepening the worst retirement shortfall in decades.

The unemployment rate is the lowest in 49 years and companies are scrambling for workers. The reasons they aren’t hiring older Americans are complex: many direct recruiting and training at younger workers, some job seekers lack the right skills or won’t relocate, and some job-placement specialists say age discrimination is a factor.

A LUMP OF COAL

Coal isn’t making a comeback. The U.S. Energy Information Administration is forecasting U.S. coal consumption next year to be the lowest since 1978.

The big driver is a decline in coal-fired power plants: old ones are getting retired, existing ones aren’t used at full capacity and new ones aren’t getting built. Only one, relatively small, new coal-fired generator is expected to come online by the end of 2019, the EIA says.

The reason: Increased competition from natural gas and renewable sources.

LESSON FOR THE FED AND ECB?

Japan has virtually given up on reaching 2% inflation after nearly six years of trying. Annual inflation excluding volatile fresh food and energy prices was just 0.3% in November, and it has barely budged all year. Yet the central bank hasn’t moved on policy for months and took no action Thursday at its regular meeting, suggesting it doesn’t see the lack of progress as serious enough to warrant a response, Megumi Fujikawa reports.

The Federal Reserve’s preferred inflation gauge is out today at 10 a.m. ET. It’s expected to come in close to the Fed’s 2% goal.

HOLIDAY READING LIST

With the year winding down, we thought we’d revisit some of the key economic themes of the year.

President Trump dominated much of our coverage. Trade tensions started with steel and aluminum tariffs against friend and foe alike.

U.S. Tariffs Prompt Anger, Retaliation From Trade Allies

But policy soon pivoted to China—with broad support at home and abroad.

China: Emergence of a Trade Leviathan

How China Systematically Pries Technology From U.S. Companies

China Started the Trade War, Not Trump

The U.S. has been able to weather tit-for-tat tariffs because of strong economic growth. That’s been especially noticeable across the labor market, where companies are competing harder for workers.

How Bad Is the Labor Shortage? Cities Will Pay You to Move There

The Future of America’s Economy Looks a Lot Like Elkhart, Indiana

Iowa’s Employment Problem: Too Many Jobs, Not Enough People

In This Economy, Quitters Are Winning

Not everything is rosy, though. Concerns include rising student debt, an aging population and a flagging housing market.

Mike Meru Has $1 Million in Student Loans. How Did That Happen?

The Loneliest Generation: Americans, More Than Ever, Are Aging Alone

The U.S. Housing Boom Is Coming to an End, Starting in Dallas

Taken together, warning signs point to slower economic growth ahead.

U.S. Economy Flashes Signs It’s Downhill From Here

Economists Think the Next U.S. Recession Could Begin in 2020

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