This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here.
The White House is escalating with China and the Federal Reserve, nations around the globe are running a real-time minimum wage experiment, and the gig economy is struggling with a tight labor market. Good morning. Jeff Sparshott here with the day’s top economic news. Send us your questions, comments and suggestions by replying to this email.
TARIFF MAN RETURNS
President Trump threatened to ramp up U.S. tariffs on Chinese imports. The surprise announcement puts in doubt a quick accord between the world’s two biggest economies, Bob Davis, Rebecca Ballhaus and Lingling Wei report.
- What happened: In a pair of Twitter messages Sunday, Mr. Trump wrote he planned to raise levies on $200 billion in Chinese imports to 25% starting Friday, from 10% currently. He also wrote he would impose 25% tariffs “shortly” on $325 billion in Chinese goods that haven’t yet been taxed.
- What happened next: Mr. Trump’s tweets surprised many Chinese officials, and Beijing considered canceling trade talks set to resume in Washington on Wednesday. A Chinese Foreign Ministry spokesman told reporters Monday the negotiating team is preparing to go to the U.S.
- Ain’t gonna happen: There had been widespread expectations that an accord could be reached by Friday. And while it’s far from clear that the U.S. would actually raise tariffs on Friday—the U.S. trade representative’s office usually gives industry time to digest a substantial tariff change—a final deal this week appears less likely.
The latest development rattled markets.
WHAT TO WATCH TODAY
The Philadelphia Fed’s Patrick Harker speaks on the economy at 9:30 a.m. ET.
Bank of Canada Governor Stephen Poloz speaks at 2 p.m. ET.
The Federal Reserve’s senior loan officer survey for the second quarter is out at 2 p.m. ET.
TOP STORIES
TIME TO PICK A FIGHT WITH CHINA
President Trump jolted markets with a couple tweets about tariffs. Global stocks had been rising recently for essentially three reasons: a dovish Fed, easing trade tensions and better growth in the U.S. and China. But the main drivers for the trade rapprochement in late 2018 were in fact weakening economies and markets on both sides of the Pacific, Nathaniel Taplin writes.
Four months later, U.S. growth and the job market have bounced back, Mr. Trump’s approval rating is near the highest of his presidency, and equities are testing new highs. In China, growth has steadied as well. The stage is set for a new round of trade brinkmanship.
European shares and U.S. futures followed Asia lower.
TIME TO PICK A FIGHT WITH THE FED
Vice President Mike Pence and White House National Economic Council Director Lawrence Kudlow last week called on the Fed to lower interest rates, saying the economy’s engine could handle more fuel. “This is exactly the time not only to not raise interest rates, but we ought to consider cutting them,” Mr. Pence said on CNBC.
The Fed’s response: Not so fast. Fed officials last week voted to hold their benchmark rate steady. On Friday, Vice Chairman Richard Clarida said there’s no need to do anything: “We can, I believe, afford to be data dependent…as we assess what, if any, further adjustments in our policy stance might be required.”
The White House, meanwhile has been trying to put Trump loyalists on the Fed’s board of governors. Two recent picks dropped out. Next up may be one of the president’s former domestic policy aides. Paul Winfree, who was deputy director of the White House Domestic Policy Council, is currently at the Heritage Foundation.
SHORING UP THE ECONOMY
China’s central bank said Monday it would cut the reserve requirement ratio for medium- and small-sized banks. The move is expected to release 280 billion yuan ($41.6 billion) of liquidity into the banking system.
“While this won’t provide an immediate prop to growth, it should help to shore up economic activity later this year,” Capital Economics’s Julian Evans-Pritchard says.
THE MAXIMUM MINIMUM
Governments around the world are increasing the minimum wage. How high can it go before the costs outweigh the benefits? We may find out as several major economies test a key threshold: A pay floor above 60% of their median wage levels. A figure much above that threshold could reduce the incentives of firms to hire low-wage workers, Tom Fairless reports.
- South Korea is already around two-thirds of median pay, Britain is set to reach 60% next year for workers aged 25 and older, and Democrats in Congress are considering a bill to lift the federal minimum wage to $15 an hour, or almost 70% of the median. Several states have already taken the lead.
- The problem? “We don’t know if 60% is the right level,” said Andrea Garnero, an economist at the Organization for Economic Cooperation and Development. “The only way to find out is by trial and error.”
TIGHT LABOR MARKET VS. THE GIG ECONOMY
The Great Recession threw people out of work and left them open to trying new things, such as picking up temporary, low-commitment contract work through an app. Venture capitalists, meanwhile, were willing to throw record amounts of cash at companies putting a “gig” twist on the old contractor approach to hiring, Christopher Mims writes.
- But a decade after the founding of Uber, these companies find themselves in a very different position: between the rock of ongoing losses and the hard place of a tight labor market. Turnover is typically high in service-sector jobs. In the fast-food industry in the U.S., for instance, turnover in 2017 was as high as 150% per year. At some gig economy companies, turnover could be as high as 500% per year.
- Solution? Reaching profitability might be impossible without automating the jobs now filled by costly humans.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
The Fed is making a mistake, just not the one the White House says. “The central challenge facing the modern Fed is to figure out a way for the economy to operate at full employment without being reliant on cheap money and asset bubbles to generate growth. … Monetary policy now requires the Fed to use all of its powers to tame the excesses of financial markets. And that can happen only if the markets are more afraid of the Fed than the Fed is of the markets,” Steven Pearlstein writes at the Washington Post.
Daycare might be bad for kids’ educational development. Especially rich kids. “We show using RDD that one additional daycare month at age 0–2 reduces IQ by 0.5% (4.7% of a s.d.) at age 8–14 in a relatively affluent population. The magnitude of this negative effect increases with family income. Similar negative impacts are found for personality traits. These findings are consistent with the hypothesis from psychology that children in daycare experience fewer one-to-one interactions with adults, with negative effects in families where such interactions are of higher quality,” Andrea Ichino, Margherita Fort and Giulio Zanella write in a forthcoming Journal of Political Economy. (h/t to Tyler Cowen at marginalrevolution.com)
SIGN UP FOR OUR CALENDAR
Real Time Economics has launched a downloadable Google calendar with concise previews, forecasts and analysis of major U.S. data releases.
- To add to your Google Calendar on desktop, click here.
- To add to your Google calendar app on mobile, click here.
- If you prefer to view the calendar using a web browser, with the option of adding select Real Time Economics entries to your calendar, click here.
- And here’s our how-to.
Let us know what you think. This is a pilot project, so we’d appreciate your feedback.
from Real Time Economics https://on.wsj.com/2VlEriT
No comments:
Post a Comment