Real Time Economics: U.S. Labor Market Is the Best On Record for High-School Dropouts

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The Trump administration is talking tougher on U.S.-China trade and Beijing is finally starting to detail its understanding of the weekend trade truce. 

Good morning. Jeff Sparshott here to take you through key developments in the global economy. We’ll also look the U.S. labor market, China’s efforts to acquire American technology, French protests and an ominous sign for the economy. Let us know what you think by replying to this email.

Programming note: Real Time Economics will publish a special edition following Friday’s jobs report. Look for us in your inbox.

DEVIL IN THE DETAILS

China is beginning to flesh out details of a weekend tariff truce with the U.S. For the first time Wednesday Beijing acknowledged it agreed to a 90-day deadline. Key government agencies and China’s supreme court, meanwhile, announced tough punishments for infringing on intellectual property—a prominent complaint by the Trump administration.

Together, the moves begin to fill in some of Beijing’s understanding of the agreement. But the Commerce Ministry’s statement didn’t mention purchases of agricultural and other products, tariff reductions on U.S. autos, or negotiating about intellectual property, technology transfers and other structural issues the U.S. says are on the agenda, Chao Deng and Grace Zhu report. Separately, Chinese officials have suggested the country will step up purchases of soybeans, natural gas and other products.

IT’S A BIRD, IT’S A PLANE…

On Monday, President Trump touted “a BIG leap forward” in relations with China. The view seemingly shifted a bit by Tuesday: “I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so.” The apparently harder line shredded optimism over the trade truce. Markets tumbled.

“Investors have to get used to chaos surrounding the China trade negotiations; it’s not going away soon,” says Pantheon Macroeconomics’s Ian Shepherdson.

WHAT TO WATCH TODAY

Wednesday is a national day of mourning for former President George H.W. Bush. Fed Chairman Jerome Powell’s scheduled appearance on Capitol Hill is postponed and most U.S. economic indicators have been rescheduled to Thursday.

The Bank of Canada releases a policy decision at 10 a.m. ET.

The Fed’s beige book is out at 2 p.m. ET.

Fed Vice Chairman Randal Quarles speaks on banking conditions at 8:15 p.m. ET.

TOP STORIES

NO DIPLOMA REQUIRED

The U.S. labor market is the best on record for high-school dropouts. The unemployment rate for those older than 25 who don’t have a diploma averaged 5.6% through the first 10 months of this year. The jobless rate for dropouts is trending below the 70-year average unemployment rate for all Americans, something it hasn’t done in data going back to 1992. Watch Friday’s jobs report to see how the trend played out in November. Low unemployment for those with the least education has been driven by solid hiring in lower-skilled jobs, such as at restaurants and in warehouses. And that appears to be yielding better pay. Hourly wages for dropouts rose 23% from mid-2010. That’s the most of any educational grouping.—Eric Morath

I THOUGHT WE HAD A TRUCE

China is still trying to snag top-secret U.S. technology. The WSJ’s Brian Spegele and Kate O’Keeffe unravel the case of a Los Angeles-area startup that ordered a Boeing satellite. The hitch? 1.) The satellite uses restricted technology relied on by the U.S. military. 2.) About $200 million flowed to the project from a state-owned Chinese firm in a complex deal using offshore companies.

A web of U.S. laws effectively prohibits exporting satellite technology to China. In this case, U.S. officials fear the Boeing satellite could ultimately be used by China’s government or military once in space, or its technology reverse-engineered. Such technology would help fill in a missing piece of the puzzle for China as it seeks to secure its status as a superpower.

MACRON YIELDS TO YELLOW VESTS

French President Emmanuel Macron suffered the first major setback in his push to overhaul the French economy, backing off a fuel-tax increase that enraged much of the nation and sparked a grass-roots protest movement against his government. Faced with another weekend of destructive protests by the gilets jaunes—or yellow vests—Prime Minister Édouard Philippe said the tax increase would be pushed back six months to allow for public discussion, Matthew Dalton and Noemie Bisserbe report.

GOOD REASON TO PROTEST?

France became the most heavily taxed of the world’s rich countries in 2017. The Organization for Economic Cooperation and Development’s annual review of taxes in its 36 members showed the French government’s tax revenues were the equivalent of 46.2% of economic output, Paul Hannon reports. The U.S., by comparison, comes in at 27.1% of GDP.

LET’S TALK ABOUT BONDS (SERIOUSLY)

Treasury market moves are sending a menacing signal about the economic outlook. U.S. government bonds are on the edge of a yield-curve inversion, where shorter-dated bonds yield more than longer-dated ones. An inverted curve is often interpreted as a signal of a looming recession, Mike Bird reports.

For most of this year, both short- and long-term bond yields rose as government bond prices fell across the board. However, yields on bonds due in less than two years rose quickest. The pattern indicated both the short- and long-term growth outlooks had improved. But now, the yield curve is closer to inverting because longer-term rate expectations are falling—potentially bad news about economic prospects. 

REST IN PEACE, PRESIDENT BUSH

President Trump will pay his respects Wednesday to the late President George H.W. Bush, after last week also saying farewell to one of the legacies of his Republican predecessor: the North American Free Trade Agreement. Nafta was signed in Mr. Bush’s last year in office and ratified under President Clinton. Mr. Trump plans to withdraw from that agreement and replace it with the U.S.-Mexico-Canada Agreement, or USMCA. The Nafta rewrite shows how far trade politics have shifted—with a sharpening focus on labor and a growing reluctance to allow corporations to move jobs, William Mauldin reports.

QUOTE OF THE DAY

“I don’t look at a recession as a bad thing. I mean it’s bad for America. It’s bad for the people unemployed. It’s usually an opportunity for J.P. Morgan.”—J.P. Morgan Chase CEO Jamie Dimon, speaking on CNBC

TWEET OF THE DAY

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WHAT ELSE WE’RE READING

A U.S.-China trade war isn’t bad for everyone. If the U.S. and China slap 10% tariffs on each other’s imports, the two combatants hurt each other significantly. “The euro area may benefit as long as it makes sure to stay out,” according to a Dutch central bank study. How? Europe gets cheaper imports from China and becomes more competitive in the U.S. due to higher tariffs on Chinese imports and an appreciating U.S. dollar.

After three major Brexit-related defeats in Parliament, Theresa May is still in office but not clearly in power. “And yet she goes on. She is becoming Britain’s Chumbawamba leader. As their 1997 song goes, she gets knocked down, but she gets up again, you are never gonna keep her down. Over the next week she plans to spend hour upon hour in the Commons and on television trying to sell a deal that appears less and less likely to pass,” Sebastian Payne writes in The Financial Times.

UP NEXT: THURSDAY

The ADP employment report for November, out at 8:15 a.m. ET, is expected to show a net gain of 190,000 private sector jobs.

The U.S. trade deficit for October, out at 8:30 a.m. ET, is expected to widen to $55 billion from $54.04 billion a month earlier.

U.S. jobless claims, out at 8:30 a.m. ET, are expected to drop to 224,000 from 234,000 a week earlier.

U.S. productivity in the third quarter, out at 8:30 a.m. ET, is expected to advance 2.2%.

Markit’s U.S. services index for November is out at 9:45 a.m. ET.

The Institute for Supply Management’s nonmanufacturing index for November, out at 10 a.m. ET, is expected to slip to 59.0 from 60.3 a month earlier.

U.S. factory orders for October, out at 10 a.m. ET, are expected to sink 2.0% from a month earlier.

The Atlanta Fed’s Raphael Bostic speaks on the economic outlook at 12:15 p.m. ET, the New York Fed’s John Williams participates in a moderated discussion at 6:30 p.m. ET, and Fed Chairman Jerome Powell gives brief welcoming remarks at a housing conference at 6:45 p.m. ET.

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