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The partial government shutdown enters its 33rd day, the World Economic Forum grapples with heightened global uncertainty and the U.S. housing market looks poised for another rough year. Good morning. Jeff Sparshott here to take you through key developments in the global economy. Let us know what you think by replying to this email.
UNPRECEDENTED UNCERTAINTY…
Business executives are jittery. Political paralysis in major developed economies, frayed trading links and concerns about concentration of corporate power are weighing on the annual World Economic Forum. While many corporate bigwigs in Davos put on a brave face and said the economy has overcome the short-term challenges, there was a brooding sense that major risks lie ahead, Alex Frangos and Deborah Ball report.
“Whether you’re looking at global trade, the government shutdown, the state of the economy and politics,” the uncertainty is unprecedented, said Afsaneh Mashayekhi Beschloss, chief executive of investment firm RockCreek, which manages $14 billion in assets.
…BUT NO IMMINENT RECESSION
That doesn’t mean a recession is about to hit. But the global economy no longer appears poised for a breakout, Greg Ip writes from Davos. The short-term trigger is clear enough: trade conflict and monetary tightening. More broadly, much of the world appears to be stuck in a low-growth equilibrium. The main suspects: slowing labor force and productivity growth. That’s helped push the “neutral” interest rate–high enough to contain inflation, low enough to avoid recession–much lower than before. And that’s why many suspect the Federal Reserve may be done raising rates for now. Central banks need to proceed carefully: in a low-growth world, a little bit of monetary tightening can go a long, and painful, way.
WHAT TO WATCH TODAY
The World Economic Forum annual meeting are in Davos. You can follow the WSJ’s coverage here.
Eurozone consumer confidence is out at 10 a.m. ET.
The Richmond Fed manufacturing survey for January is out at 10 a.m. ET.
TOP STORIES
SHUTDOWN VOTE
The Senate is scheduled to vote Thursday on rival proposals to end the partial government shutdown. The votes will come one day before hundreds of thousands of federal employees will miss their second paycheck.
Fallout: The FBI Agents Association says lack of funds is hindering federal law-enforcement operations. The Consumer Product Safety Commission has stopped monitoring incoming shipments of goods that could pose a safety hazard. U.S. Federal Courts may be forced to halt funded operations by Jan. 31. Some federal employees are considering a switch to the private sector. Follow the WSJ’s latest coverage here.
NO ONE’S HOME
Home sales tumbled in December to their weakest level since 2015, ending a difficult year at a new low and offering fresh evidence that the housing market could be in for a bumpy ride in 2019, Laura Kusisto and Sarah Chaney report. Home sales were weighed down by a surge in stock-market volatility, uncertainty as the government shutdown began and rising interest rates. Housing also suffered from high home prices and a dearth of starter homes in major markets.
BACK TO SCHOOL
Los Angeles teachers will return to work Wednesday after reaching an agreement to end a weeklong strike that upended education for half a million students. The pact included a 6% raise, additional staffing at schools, and a reduction to class sizes, covering the union’s major demands, Nour Malas and Tawnell D. Hobbs report.
In the last year, teachers in states including North Carolina, Arizona and West Virginia have gone on strike to demand higher pay and other changes, winning average pay increases of between 5% and 20%. Teachers unions in Denver and Oakland, Calif. are currently locked in disputes with their districts and threatening to strike within the next month.
GAMING THE SYSTEM
Company-ratings website Glassdoor has become an important arbiter of employee sentiment in today’s job market. A Wall Street Journal investigation shows it can be manipulated by employers trying to sway opinion in their favor, Rolfe Winkler and Andrea Fuller report.
Whom to trust? Glassdoor’s problem echoes the challenges faced by other online rating platforms trying to ensure their rankings are real. Amazon.com, Yelp and TripAdvisor have all had to fend off attempts to game reviews and ratings.
DO YOU HEAR WHAT I HEAR?
Workers tasked with listening to machines to identify potential breakdowns are retiring. They’re being replaced with better ears. Anheuser-Busch InBev, the world’s largest beer maker, is using low-cost sensors and machine learning to detect ultrasonic sounds—beyond the grasp of the human ear—to predict when machines need maintenance. Sensors have been used for predictive maintenance in the past but advances in processing now enable companies to collect and analyze real-time sensor data, Sara Castellanos reports.
OVERNIGHT NEWS
China’s central bank injected 257.5 billion yuan ($37.8 billion) into to the nation’s big and mid-sized banks as a way to boost their lending to small private businesses. The targeted medium-term lending facility is designed to provide cheaper funding for banks and help goose a slowing economy. Wednesday’s operation was its first, Grace Zhu reports.
Japan’s December exports had their largest year-over-year fall in more than two years on a sharp drop in demand from China. That sent Japan’s trade balance in 2018 into deficit for the first time in three years, Mayumi Negishi reports.
The Bank of Japan stood pat on policy at its first meeting of 2019, holding short-term interest rates at minus 0.1% and its target for 10-year government bond yields at about zero. The decision came despite downward revisions to its inflation forecast, suggesting the bank is in no hurry to reach its 2% target, Megumi Fujikawa reports.
QUOTE OF THE DAY
What scares me the most longer term is that we have limitations to monetary policy, which is our most valuable tool. At the same time, as we have greater political and social antagonism. So the next downturn in the economy worries me the most. —Ray Dalio, founder of Bridgewater Associates, at the World Economic Forum
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
Taxes shouldn’t just be about revenue. “The point of high top marginal income tax rates is to constrain the immoderate, and especially unmerited, accumulation of riches. From the 1930s to the 1980s, the United States came as close as any democratic country ever did to imposing a legal maximum income,” UC Berkeley’s Emmanuel Saez and Gabriel Zucman write in The New York Times.
Traditional data sources underestimate global wealth inequality. “In a country like Norway, accounting for hidden assets increases the wealth of the top 0.01% by more than 25%. Because most Latin American, and many Asian and European economies own much more wealth offshore than Norway, the results found in Norway are likely to be lower bound for most of the world’s countries,” Gabriel Zucman writes in a National Bureau of Economic Research working paper.
UP NEXT: THURSDAY
The World Economic Forum annual meeting are in Davos. You can follow the WSJ’s coverage here.
The European Central Bank releases a policy statement at 7:45 a.m. ET.
U.S. jobless claims are expected to rise to 218,000 from 213,000 a week earlier. (8:30 a.m. ET)
Markit’s U.S. flash manufacturing and services indexes for January are out at 9:45 a.m. ET.
The Conference Board’s leading economic index for December is expected to fall 0.1%. (10 a.m. ET)
The Kansas City Fed’s manufacturing survey for January is out at 11 a.m. ET.
from Real Time Economics https://on.wsj.com/2CFUQlY
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