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Good morning, Greg Ip here to preview jobs day. Also, the Chinese consumer is down for the count and the factory figures look funny.
NO RECESSION UNTIL JOBS FALTER
Today’s jobs report will confirm or refute signals from the stock and bond markets that the economy is slipping closer to recession. Economists believe nonfarm payrolls grew 176,000 in December, but some see growth topping 200,000 after ADP’s private survey suggested payrolls rose 271,000. Either would be a pickup from 155,000 in November. Economists think unemployment dropped to a new 49-year low of 3.6%, from 3.7%. Of course, employment is a coincident, not a leading, indicator: Even if the economy isn’t in recession now, it may be a year from now. Yet jobs growing faster than the underlying demographic trend of 100,000 and falling unemployment are signs of an economy outperforming its potential, not rolling over.
What if jobs growth comes in below 150,000, or unemployment rises? That would be a worrisome signal the economy is rapidly losing altitude. Expect more Federal Reserve officials to join Dallas Fed president Robert Kaplan in calling for a pause in rate increases. Markets are already discounting a cut this year.
Comments or suggestions for Real Time Economics? Write to Greg Ip at realtimeeconomics@wsj.com, tweet to @WSJecon and visit wsj.com/economy for the latest.
WHAT TO WATCH TODAY
December jobs data is released at 8:30 a.m. Economists see nonfarm payrolls rising 176,000, the unemployment rate slipping to 3.6%, and hourly wages rising 0.3%.
Fed Chairman Jerome Powell will be interviewed along with his predecessors, Janet Yellen and Ben Bernanke, at the American Economic Association’s annual meeting in Atlanta at 10:15 a.m.
Atlanta Fed President Raphael Bostic discusses monetary policy and long-run macroeconomic performance at the AEA meetings at 10:15 a.m.
TOP STORIES
IS THE FACTORY SLOWDOWN EXAGGERATED?
Thursday’s stock market drop was fueled by a steep drop in the Institute for Supply Management’s purchasing-managers’ index, from a heady 59.3 in November to 54.1 in December, suggesting manufacturing growth had abruptly downshifted from rapid to merely moderate. But the index has long looked suspiciously high, running well ahead of a similar index compiled by IHS Markit, which fell just 1.5 points to 53.8 the same month. A report by IHS found that starting in June 2017, the ISM index began to systematically overstate growth in both industrial production and new factory orders. Its December drop may simply be a return to normal.
CHINESE CONSUMERS, DOWN FOR THE COUNT
China’s economy is no longer driven solely by manufacturing and investment. It is increasingly the largest market for many consumer, luxury and durable goods. Now, that expanding middle class is cutting back, sending ripples abroad. Apple, Ford and General Motors all report falloffs in Chinese sales. Alibaba Group Holding Ltd. cut its revenue forecast and JD.com Inc. reported a fall in active customer accounts. Some economists think China is growing at as little as half the officially reported 6.5% rate. With sales of Apple phones falling, the Foxconn plant in the central city of Zhengzhou that assembles the phones isn’t offering overtime.
WHITE HOUSE PREDICTS MORE APPLES
Apple won’t be the only multinational burned by slumping Chinese sales, Kevin Hassett, President Trump’s chief economist, said. “Multinational firms with profits in China are probably going to see at least that part of their profit picture sour a little bit.” But a “positive trade deal with China” could cause “animal spirits to reverse sharply” and cause markets to rally. Nick Timiraos and Bob Davis report that the two sides are discussing four main areas: additional Chinese purchases of U.S. goods and services; increased access to the Chinese markets for U.S. industry; protection of U.S. intellectual property; and sharp reductions of Chinese subsidies, particularly in the high-tech areas.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
Manhattan home prices fell in the fourth quarter, with the median slipping to less than $1 million for the first time in three years, as ample inventory continued to allow buyers to demand sweeter deals, Bloomberg Quint reports. Condo and co-op prices declined to $999,000 in the three months through December, down 5.8% from a year earlier.
Property markets from Hong Kong to Sydney are slumping, Bloomberg reports. While each has its own characteristics, there are a few common denominators: rising borrowing costs, increased government regulation and volatile stock markets. There’s also dwindling demand from a force so powerful it pushed prices to a record in many places–Chinese buyers.
Democrats shouldn’t adopt a budget rule requiring all new spending to be paid for, New York Times columnist Paul Krugman writes: “Another recession will come, sooner or later—probably sooner rather than later—and a rigid budget rule will not be helpful when it does… low borrowing costs, in turn, reflect … the private sector wants to save more than it’s willing to invest, even with very low interest rates. Meanwhile, the federal government can borrow money very cheaply.”
UP NEXT – SATURDAY
Federal Reserve Bank presidents Raphael Bostic (Atlanta), Mary Daly (San Francisco) and John Williams (New York) speak in Atlanta at the AEA’s annual meeting.
from Real Time Economics https://on.wsj.com/2CQVNcN
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