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The Fed is grappling with strong economic growth alongside weak inflation, the eurozone regained some momentum at the start of the year, and China’s manufacturing sector weakened in April. Good morning. Jeff Sparshott here to take you through key developments in the global economy. Send us your questions, comments and suggestions by replying to this email.
THE INFLATION PARADOX
Federal Reserve officials meet this week more confident that the economy has shaken off recession worries. But they face a new quandary: slowing inflation, Nick Timiraos and Paul Kiernan report.
- Core inflation, which excludes volatile food and energy categories, rose just 1.6% in March from a year earlier, down from 1.8% in January and 2% in December. The Fed’s target is 2%.
- The inflation dynamic helps explain why the bar for any interest rate increase is higher than in recent years. Officials worry that the failure to hit their target could undermine credibility and lead to lower inflation expectations.
WHY IS INFLATION SO LOW?
Trade and technological innovation are likely weighing on prices for many goods.
- Sluggish economic growth outside the U.S. may be damping prices for many globally traded goods.
- Technology improvements mean the quality of electronics is rising faster than their prices, which government statisticians count as a price decline. Televisions posted biggest price drop among the hundreds goods and services that make up the PCE index. By official measure, they’re 18% cheaper than a year earlier.
- Smartphones and online shopping are making bargain hunting easier, sapping sellers’ power to raise prices.
Fed officials meet Tuesday and Wednesday. They’re expected to leave interest rates on hold.
WHAT TO WATCH TODAY
Germany’s consumer-price index for April is out at 8 a.m. ET.
The U.S. employment-cost index for the first quarter is expected to rise 0.8% from the prior quarter. (8:30 a.m. ET)
The S&P/Case-Shiller 20-city home-price index for February is expected to rise 2.8% from a year earlier. (9 a.m. ET)
The Chicago purchasing-managers index for April is expected to tick up to 58.8 from 58.7 a month earlier. (9:45 a.m. ET)
The Conference Board’s consumer confidence index for April is expected to rise to 126.0 from 124.1. (10 a.m. ET)
U.S. pending-home sales for March are expected to rise 1.5% from a month earlier. (10 a.m. ET)
President Donald Trump is set to meet with House Speaker Nancy Pelosi, Senate Minority Leader Chuck Schumer and other Democrats for talks on infrastructure spending. (10:30 a.m. ET)
TOP STORIES
ROAD TO INFLATION
While overall inflation is tame, prices are rising rapidly in some isolated segments of the economy. The National Highway Construction Cost Index, a Federal Highway Administration measure of the cost to build roads, recently posted its biggest annual increase since 2008. The likely culprits: rising demand for services from state and local authorities, alongside rising labor and material costs—including steel subject to Trump administration tariffs. “The sharp increase in the NHCCI probably reflects the steep increase in most of last year in diesel (and gasoline) costs and the steel tariffs,” says Kenneth Simonson, chief economist at the Associated General Contractors of America.
CONFIDENT CONSUMERS
Good news for the economy: U.S. consumers picked up their spending in February and March. Personal-consumption expenditures, a measure of household spending on everything from cars to cocktails increased 0.1% in February and 0.9% in March. The figures suggest Americans remained cautious through February but in March were ready to put any lingering concerns about the government shutdown and renewed trade tensions behind them, David Harrison and Paul Kiernan report.
GOOD NEWS, SORT OF, FROM EUROPE
Growth of 1.5% isn’t great news in many parts of the world. But in the eurozone, it signaled that the economy regained some lost momentum at the start of 2019. The combined gross domestic product of the eurozone’s 19 members increased by an annualized 1.5% in the three months through March, an acceleration from the 0.9% rate in the final quarter of 2018. That pickup left the eurozone economy trailing far behind the U.S. But the latest numbers offer fresh evidence of surprisingly resilient growth despite uncertainties about trade with the U.S. and demand from China, Paul Hannon writes.
“With the economic cycle already in a late stage, that’s probably as good as it gets,” ING Bank economist Peter Vanden Houte said of eurozone GDP.
CHINESE MANUFACTURING SLOWS
A gauge of China’s factory activity weakened in April. The official manufacturing purchasing managers index slid to 50.1 from a six-month high of 50.5 in March, data from the National Bureau of Statistics showed. A separate index released by a private firm showed a similar decline, and measures for production and new orders both softened, Liyan Qi reports. While a reading over 50 signals expansion, the latest numbers suggest that any turnaround in the world’s second-largest economy has yet to fully take root.
MNUCHIN UPBEAT ON TRADE TALKS
Treasury Secretary Steven Mnuchin suggested trade talks with China could be wrapped up by the end of next week. Mr. Mnuchin is set to travel to China this week and China’s Vice Premier Liu He will return to Washington next week to try to hammer out details of a final agreement. “We hope within the next two rounds, in China and D.C., to be at the point where we can either recommend to the president that we have a deal or make a recommendation that we don’t,” Mr. Mnuchin said on Fox Business Network.
OUTFOXED
In and around Mount Pleasant, Wis., contractors have bulldozed about 75 homes and cleared hundreds of farmland acres to make way for Foxconn Technology Group’s $10 billion liquid-crystal-display factory. Village and county taxpayers have borrowed around $350 million to buy land and make infrastructure improvements for the Taiwanese manufacturing giant. One thing largely missing: Foxconn, Valerie Bauerlein reports.
- As of Dec. 31, Foxconn had spent only $99 million, 1% of its pledged investment, according to its latest state filings. The company projected as many as 2,080 in-state employees by the end of 2019 but had fewer than 200 at last year’s end.
- The Foxconn project is among the biggest U.S. public-incentive deals ever offered to a foreign company, a more than $4 billion package of state and local tax breaks and investments.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
Raising the minimum wage and expanding the earned-income tax credit can reduce deaths of despair among the working class. “A 10% increase in the minimum wage reduces non-drug suicides among adults with high school or less by 3.6%; a 10% increase in the EITC reduces suicides among this group by 5.5%. … Our estimates suggest that increasing both the minimum wage and the EITC by 10% would likely prevent a combined total of around 1,230 suicides each year,” William Dow, Anna Godøy, Christopher Lowenstein and Michael Reich write in a National Bureau of Economic Research working paper.
Falling opioid prices boosted demand and increased overdose deaths. “We find the decline in observed out-of-pocket prices is capable of explaining between 31 and 83% of the growth in the number of overdose deaths involving prescription opioids between 2001 and 2010. … The second wave of the opioid epidemic—characterized by growing deaths from illicit opioids between 2010 and 2016—was driven by a combination of supply and demand expansions. Efforts to restrict the supply and misuse of prescription opioids led an increased number of users from the first wave to substitute illicit opioids in place of prescription opioids,” the White House Council of Economic Advisers writes in a new report.
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