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What have purchasing managers been telling us over the past year? The global economy is sputtering.
Good morning. Jeff Sparshott here with the day’s economic news, including flight to low-tax states, a steak dinner for President Trump and Fed Chairman Powell, the White House’s World Bank pick, interest rates, and the State of the Union. Send us your questions, comments or suggestions by replying to this email.
GLOBAL SLOWDOWN? TOTALLY SAW IT COMING.
The global economy’s stumbles haven’t been a surprise to the world’s purchasing managers. Also clued in: The people who closely follow the economic indexes based on their views, Josh Zumbrun reports.
Through most of last year, official forecasts held steady and, until the fourth quarter, the stock market climbed upward. But one of the earliest and clearest cracks in the global economy was sitting in plain view—the world’s purchasing managers were seeing weakening demand, slowing orders and signs the U.S. wouldn’t escape the downward pull.
WHAT TO WATCH TODAY
Markit’s services purchasing managers index for January is expected to hold steady at 54.2. (9:45 a.m. ET)
The Institute for Supply Management’s nonmanufacturing index for January is expected to slip to 57 from 57.6. (10 a.m. ET)
President Trump delivers his State of the Union address at 9:10 p.m. ET.
TOP STORIES
BLUE STATES SEE RED
Big earners are bolting to low-tax states. New York Gov. Andrew Cuomo became the latest public official to blame the flight on the 2017 tax law’s cap on deductions for state and local taxes.
Where to? Miami seems to be a big winner. Preliminary data show a jump in Florida home purchases by buyers from high-tax states. Home values in lower-tax areas have been rising faster than those in places where limiting the ability to deduct high state and local taxes eroded some of the savings from the federal tax reduction, Laura Kusisto, Arian Campo-Flores and Jimmy Vielkind report.
RARE MEETING, WELL DONE
Federal Reserve Chairman Jerome Powell dined Monday night with President Trump and Treasury Secretary Steven Mnuchin at the White House. The Fed said Mr. Powell “did not discuss his expectations for monetary policy, except to stress that the path of policy will depend entirely on incoming economic information and what that means for the outlook.” The dinner, on Mr. Powell’s 66th birthday, lasted about 90 minutes and steak was served, Nick Timiraos reports.
Mr. Trump repeatedly lashed out at Mr. Powell as the central bank raised interest rates last year, occasionally venting to his advisers about whether he could dismiss the Fed chairman. One Trump administration official who was briefed on the dinner said it was “cordial and collegial.”
THIS TOO SHALL MALPASS
President Trump will nominate David Malpass, one of the World Bank’s sharpest critics within his administration, to be the next leader of the bank. As the Treasury Department’s undersecretary for international affairs, Mr. Malpass has argued China has become wealthy enough that it no longer needs to borrow from the World Bank, Josh Zumbrun reports. The U.S. has traditionally picked the World Bank’s president, but the right to do so isn’t formalized. The final decision rests with the World Bank’s board of executive directors, which will begin considering nominations on Thursday.
STAY POSITIVE
Ultra-low interest rates help small businesses. But they help big competitors even more. So the big guys grow faster and the smaller players get discouraged. Eventually, the leaders become so big that they’re no longer vulnerable to competition. Everyone pulls back from investing and fewer entrepreneurs decide to open new businesses, according to new research from Princeton’s Ernest Liu and Atif Mian, and the University of Chicago’s Amir Sufi. The result is a slowdown in productivity gains and sluggish overall economic growth, David Harrison reports.
GO NEGATIVE
The Federal Reserve could have sped up the recovery had it turned to negative interest rates. A San Francisco Fed report says allowing the benchmark federal-funds rate “to drop below zero may have reduced the depth of the recession and enabled the economy to return more quickly to its full potential.” The Fed has always kept its target rate range in positive territory, though as part of its response to the financial crisis, it pushed its short-term rate effectively to near-zero, Michael S. Derby reports.
REMEMBER THE SHUTDOWN?
President Trump in Tuesday’s State of the Union is expected to issue a plea for national unity at a moment of deep partisan divisions. The White House primarily sees the speech as key to its efforts to win a public-relations battle in the standoff with congressional Democrats over border-wall funding, which led to the 35-day shutdown that left 800,000 workers without pay for weeks, Rebecca Ballhaus reports.
QUOTE OF THE DAY
You know, the World Bank’s biggest borrower is China. Well, China has plenty of resources. And it doesn’t make sense to have money borrowed in the U.S., using the U.S. government guarantee, going into lending in China for a country that’s got other resources and access to capital markets. —Treasury Undersecretary David Malpass, speaking in November 2017
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
Anyone can get a job. Not everyone can get a good job. “A small group of well-educated professionals enjoys rising wages, while most workers toil in low-wage jobs with few chances to advance,” Eduardo Porter writes at the New York Times.
It’s no accident U.S. fertility rates are at a historical low. “We find that 35% of the decline in fertility between 2007 and 2016 can be explained by declines in births that were likely unintended, and that this is driven by drops in births to young women,” Kasey Buckles, Melanie Guldi and Lucie Schmidt write in a National Bureau of Economic Research working paper.
Unintended consequence or odd coincidence? “Two years into Donald Trump’s presidency, the man who has profited most from the era is his foremost nemesis in the business world, Amazon.com Inc. founder Jeff Bezos,” Justin Sink writes at Bloomberg.
UP NEXT: WEDNESDAY
The U.S. trade deficit for November is expected to narrow to $54.3 billion from $55.49 billion the prior month (8:30 a.m. ET)
U.S. labor productivity in the fourth quarter is expected to rise at a 1.6% pace, a slowdown from the prior quarter’s 2.3%. Unit labor costs are expected to increase 1.7%.
Fed Vice Chairman Randal Quarles speaks at a stress-testing conference at 6:05 p.m. ET, and Chairman Jerome Powell participates in a “teacher town hall” at 7 p.m. ET.
from Real Time Economics https://on.wsj.com/2WIxtBF
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