Real Time Economics: The Biggest Trade Deficit, the Best Jobs Market

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Good morning. Jeff Sparshott here to take you through key developments in the global economy. Send us your questions, comments or suggestions by replying to this email.

HUGE

The U.S. trade deficit in goods hit a record in 2018, defying President Trump’s efforts to narrow the gap. The causes: More imports were pulled in by strong demand at home and some exports got hammered by retaliation against U.S. trade policies, Paul Kiernan and Josh Zumbrun report.

CROP BUSTERS

The goods deficit widened most last year with China, the U.S.’s largest commercial partner and the main focus of White House trade efforts. Beijing slammed the brakes on purchases of key U.S. exports, especially agricultural products such as soybeans, wheat and sorghum. China’s purchases of those three crops dropped by nearly $10 billion last year.

THE GOOD NEWS

“The fact that the U.S. economy is doing very well is the main reason the trade gap has risen,” said Harvard University’s Kenneth Rogoff. “Policies that play around at the margins with tariffs are always going to get swamped by macroeconomic factors.”

And the picture looked less dire when services such as tourism, higher education and banking are counted. Including services, the trade gap grew 12% last year to $621 billion, the widest since 2008.

WHAT TO WATCH TODAY

The European Central Bank releases a policy statement at 7:45 a.m. ET. ECB President Mario Draghi holds a press conference at 8:30 a.m. ET.

U.S. jobless claims are expected to fall to 221,000 from 225,000 a week earlier. (8:30 a.m. ET)

U.S. labor productivity for the fourth quarter is expected to advance 1.6% from the prior quarter. (8:30 a.m. ET)

Fed governor Lael Brainard speaks on the economic and monetary policy outlook at 12:15 p.m. ET.

U.S. consumer credit for January is out at 3 p.m. ET.

China’s trade balance for February is out at 7 p.m. ET.

TOP STORIES

JOBS! JOBS! JOBS!

Friday’s employment report is expected to show the U.S. economy added jobs for the 101st straight month, another record. The forecast calls for a gain of 180,000 jobs and a 3.9% unemployment rate, both fairly solid headline numbers. The WSJ’s Sarah Chaney looks at some of the details:

Has wage growth peaked? Average hourly earnings grew at an accelerating rate beginning in October 2017 but eased in recent months. Watch to see whether wages resume an upward climb, as well as for whom they’re rising fastest. In the past few months, rank-and-file employees have seen the strongest wage growth.

Back in the game? The most recent jobs report showed the share of American adults working or seeking work increased to 63.2%, up half a percentage point from a year earlier.  Participation generally had fallen since the early 2000s. But, with many baby boomers staying in their jobs longer and prime-age workers—particularly millennial women—entering the labor force in droves, the overall rate has plateaued, defying expectations of demographic-driven declines.

ADP 1-2-3, BABY YOU AND ME

ADP’s monthly employment report showed the U.S. private sector added 183,000 jobs in February, a sharp slowdown from January’s 300,000 gain. The more closely watched Labor Department report out Friday is expected to follow suit, though the gauges don’t always match from month to month.

One good news-bad news takeaway from the economist behind the ADP numbers: “Job gains are still strong, but they have likely seen their high watermark for this expansion,” said Moody’s Analytics chief economist Mark Zandi.

IT’S ALL IN YOUR HEAD

So maybe deficits and debt do matter—especially after a financial crisis. New research from Christina and David Romer, economists at the University of California at Berkeley, shows that countries with low debt-to-GDP ratios typically pursue aggressive fiscal stimulus measures to shore up their economies. But countries with higher ratios tend to tighten policy sharply through austerity measures. As a result, low-debt countries tend to experience much milder economic downturns following a crisis.

The driving force? Policy makers’ own beliefs and concerns about the appropriate debt-to-GDP ratio. The lesson? Keep debt low, but also don’t let debt loads drive a fiscal response unnecessarily.

TWO-FRONT BATTLE

Even if the U.S.-China trade war ends, the countries’ tech war might not. Washington and Beijing are nearing a pact that could grant American companies improved access to China’s market and eliminate punitive tariffs on China’s exports to the U.S. But the sides are still scrapping over tech, especially Chinese telecom champion Huawei Technologies.

U.S. officials are seeking to shut Huawei out of next-generation 5G telecommunications networks around the world. Huawei is fighting back. Most recently, the company filed a lawsuit challenging U.S. restrictions that keep federal agencies from doing business with it, and Huawei CFO Meng Wanzhou filed a lawsuit against Canadian authorities challenging her detention there at the behest of the U.S., Dan Strumpf reports.

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QUOTE OF THE DAY

So we want to have the companies grow. And the only way they’re going to grow is if we give them the workers. —President Trump, speaking at the first meeting of the American Workforce Policy Advisory Board

TWEET OF THE DAY

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WHAT ELSE WE’RE READING

What is workism? “It is the belief that work is not only necessary to economic production, but also the centerpiece of one’s identity and life’s purpose; and the belief that any policy to promote human welfare must always encourage more work,” Derek Thompson writes at The Atlantic. Oh, and it’s making a lot of people miserable.

Pretty soon, the world will be down to one Blockbuster store. It’s in Bend, Ore. “But this is no elegy for Blockbuster, no lament for how Netflix killed the video star. … This is about the ability of the Bend store, like sturdy links in other dying chains, to live on and avoid being turned into a pawnshop or a fast-food restaurant,” Tiffany Hsu writes in the New York Times.

The Spring 2019 Brookings Papers on Economic Activity has a solid selection of research. You can read the papers here.

UP NEXT: FRIDAY

U.S. nonfarm payrolls for February are expected to increase by 180,000 and the unemployment rate is expected to tick down to 3.9%. (8:30 a.m. ET)

U.S. housing starts for January are expected to rise to an annual rate of 1.18 million from 1.078 million a month earlier.

China’s consumer-price index for February is out at 8:30 p.m. ET.

Fed Chairman Jerome Powell speaks on monetary policy normalization at 10:00 p.m. ET.

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