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The U.S. and China are getting closer to a deal, Friday’s employment report may tell us whether February was an unpleasant blip or the start a trend, and Germany’s factories are struggling. Good morning. Jeff Sparshott here to take you through the day’s top economic news. Send us your questions, comments and suggestions by replying to this email.
TARIFF TROUBLE
Tariffs have become the biggest sticking point in U.S.-China trade talks. China trade envoy Liu He, in Washington this week, is working to persuade his U.S. counterparts to remove tariffs on $250 billion of Chinese goods immediately on signing a deal. The Trump administration wants the punitive levies to remain in place to ensure Beijing enacts genuine overhauls, including fundamental changes to industrial policies, ending pressure on U.S. companies to transfer technology and providing better protection for U.S. intellectual property, Bob Davis reports.
The stakes are high for both sides, as failure to reach an accord threatens to rattle financial markets and further strain relations between the world’s two largest economies.
SIGN OF PROGRESS
President Trump may announce plans for a summit with China’s President Xi Jinping on Thursday, a sign the two sides are on the cusp of a deal. An announcement of a summit date is “likely” to come while Mr. Trump meets with Mr. Liu at the White House, Vivian Salama and Bob Davis report. The usual caveats: Discussions remain fluid and those plans could change.
DAMAGE CONTROL
Hovering over the talks: the Trump administration’s threat to pile more tariffs on Chinese goods if there’s no deal. A new study from the International Monetary Fund finds tariffs of 25% on the roughly $540 billion in Chinese goods imported annually to the U.S. and retaliatory tariffs on the $120 billion of U.S. exports to China would dent U.S. gross domestic product by 0.3% to 0.6%. China would be hit even harder, with its GDP declining 0.5% to 1.5%. Mexico, Canada, Europe and other parts of Asia would actually benefit somewhat, in the short run, as trade is diverted through their economies to avoid the tariffs, Josh Zumbrun writes.
WHAT TO WATCH TODAY
The European Central Bank releases March 6-7 meeting minutes at 7:30 a.m. ET.
U.S. jobless claims are expected to rise to 218,000 from 211,000 a week earlier. (8:30 a.m. ET)
The New York Fed’s John Williams speaks at a community bankers conference at 9:00 a.m. ET, the Philadelphia Fed’s Patrick Harker speaks on the economic outlook at 1 p.m. ET and the Cleveland Fed’s Loretta Mester speaks in Columbus, Ohio, at 1:00 p.m. ET.
President Trump meets with Chinese Vice Premier Liu He in the Oval Office at 4:30 p.m. ET.
The U.K.’s Conservative and Labour parties are scheduled to meet again in an effort to hash out a compromise Brexit deal.
TOP STORIES
FRIDAY IS JOBS DAY!
Hiring slowed to a crawl in February, with employers adding just 20,000 workers to payrolls. But that came after January’s robust gain of 311,000. The March report, out Friday at 8:30 a.m. ET, feels a bit like a tie breaker. Economists expect hiring to split the difference at 175,000. That would be in line with projections at the start of the year for hiring to gradually slow. However, a figure below 100,000 would likely raise alarm bells that employers have lost confidence and the economy could be decelerating.
The unemployment rate is expected to hold near a half-century low at 3.8%, which would signal the labor market remains extremely tight. That’s good news for job seekers finding plentiful openings and often better pay. It’s not necessarily great news for the economy. If employers can’t find the workers they need, output could slow, crimping the pace of economic growth. —Eric Morath
One byproduct of a tight labor market: Wages are rising. Average hourly earnings for U.S. workers rose 3.4% in February—a good result for workers considering inflation advanced only 1.5% from a year earlier. But investors are concerned that rising pay and energy costs will eat into corporate profits. That would create another hurdle for the stock market just as a slowdown in the European and Chinese economies is chipping away at U.S. growth, Joe Wallace and Akane Otani report.
Nowhere to go but down? Net margins for members of the S&P 500 in the fourth quarter hit their highest level on record, according to FactSet data going back to 1999.
GERMAN MANUFACTURING ORDERS COLLAPSE
The downturn in German industry accelerated in February, as manufacturing orders slumped amid a sharp drop in demand from outside the eurozone. Total orders for the sector dropped 4.2% from a month earlier, missing forecasts by a large margin. Thursday’s data indicate the sector remains deep in the doldrums, Nina Adam writes.
ING Bank economist Carsten Brzeski’s blunt take: “Devastating new orders data just undermined any hopes for an industrial rebound.”
EYES ON THE PRIZE
Germany is edging toward a prize it has coveted for two decades: The presidency of the European Central Bank. The region’s leading economies—France and Germany—are zeroing in on a possible deal to name a German successor to Italian Mario Draghi. That would be a significant coup for Chancellor Angela Merkel, helping to placate critics in her own conservative camp and leaving her imprint on a critical European institution long after she steps down. But some economists think an ECB president from Germany, a vocal critic of the bank’s loose and unconventional monetary policy under Mr. Draghi, would send an unsettling message to financial markets just as the continent’s feeble recovery peters out, Tom Fairless and Bojan Pancevski report.
The German front-runner for the ECB job: German central-bank President Jens Weidmann.
CROSSING OVER
Mexican officials and business leaders warned that delays along the U.S.-Mexico border are causing tens of millions of dollars in losses for shippers and logistics companies. Over the past week, lines of vehicles and wait times for commercial trucks have grown steadily at El Paso, San Diego and other ports of entry. The delays came after the Department of Homeland Security reallocated 750 U.S. Customs and Border Protection agents—who had been managing the flow of commercial traffic—to help stem the flow of migrants, Robbie Whelan reports. The reassignments might rise to more than 2,000 personnel.
President Trump has threatened to close the frontier between the two countries entirely.
TRY IT, YOU’LL LIKE IT
Democrats are blaming inequality, poverty, racial inequity and global warming on “market fundamentalism,” “market fetishism” and “neoliberalism.” By this, they don’t mean just conservative policies enacted by Republican presidents since 1980, but many backed by Bill Clinton and Barack Obama that sought to harness market-based principles to achieve broader social goals, Greg Ip writes. Yet many market-based mechanisms haven’t been given a fair chance. The earned-income tax credit reduces poverty but has yet to be expanded for childless workers, California’s cap-and-trade plan cut greenhouse gas emissions but national efforts died in Congress, and Obamacare’s market mechanism was undermined from the get-go.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
Population loss isn’t just a symptom of local economic challenges. It’s a cause. “80% of U.S. counties, home to 149 million Americans, lost prime working age (25-54) adults 2007-17. … Population loss itself perpetuates economic decline. It negatively impacts housing markets, local government finances, productivity, and dynamism,” Moody’s Analytics’s Adam Ozimek and the Economic Innovation Group’s Kenan Fikri and John Lettieri write in a new report.
Some U.S. manufacturers that survived globalization face a new threat: Trump administration trade policies. “Consider Primex, which has requested that products like weather stations and other electronic devices be excluded from the tariff list. … CEO Paul Shekoski testified at a public hearing on the Section 301 tariffs in August 2018 that if the duties are not lifted, the firm will need to eliminate at least two-thirds of its jobs and face the possibility of shutting down the business,” Christine McDaniel writes in Forbes.
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