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Today we look at what to expect in Friday’s U.S. GDP report, why the European Central Bank is readying new stimulus and the kind of welcome a post-Brexit U.K. should expect from the world. 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.
How Slow Can You Go?
The U.S. economy likely slowed in the second quarter of the year. But it’s not all bad news.
Economists are forecasting a 2% pace of growth for 2Q gross domestic product, a big step down from the first quarter’s 3.1% rate. But 1Q was pumped up by an unsustainable rise in business inventories and a short-lived narrowing of the trade deficit—combined they accounted for nearly half of the overall GDP gain in the quarter. Both are expected to drag down top-line GDP in 2Q.
The good news: Consumer spending is expected to pick up much of the slack. Forecasting firm Macroeconomic Advisers estimates personal-consumption expenditures advanced at a 4.3% pace in the second quarter, which would be the best since the end of 2014. Strong job creation and rising wages are supporting household spending, which in turn is lifting the economy.
The wild cards: Business investment, Boeing’s 737 MAX woes and government spending. Keep an especially close eye on businesses: Since the start of 2018, they’ve been investing in intellectual property—software, R&D and the like—at a blistering pace. That should help make the economy more productive over time. But spending on structures and equipment is expected to be a drag in 2Q, a possible sign of fading optimism about future economic prospects amid trade tensions and slowing global growth.
Side note for my fellow nerds: The Commerce Department on Friday also releases GDP revisions for 2014 through the first quarter of 2019 based on updated source data.
The advance estimate for second-quarter GDP is out Friday at 8:30 a.m. ET.
—Jeff Sparshott
WHAT TO WATCH TODAY
The European Central Bank releases a policy statement at 7:45 a.m. ET and ECB President Mario Draghi holds a press conference at 8:30 a.m. ET.
U.S. new orders for durable goods in June are expected to rise 0.5% from a month earlier. (8:30 a.m. ET)
The Commerce Department releases June advance economic indicators at 8:30 a.m. ET.
U.S. jobless claims are expected to rise to 220,000 from 216,000 a week earlier. (8::30 a.m. ET)
The Kansas City Fed’s manufacturing survey for July is out at 11 a.m. ET.
TOP STORIES
Pump it Up
The European Central Bank is preparing fresh stimulus to help prop up the eurozone’s faltering economy. The question for investors is, when, and how, will the ECB act? With some economic indicators flashing red, an early rate cut would be an aggressive signal of intent, coming ahead of a likely quarter-percentage-point cut by the Federal Reserve next week, Tom Fairless reports.
What’s the problem? Even though European companies might seem out of the line of fire of U.S.-China trade tensions, a slowdown in China’s manufacturing base is causing a lull in European exports. That’s especially bad news for an economy that depends heavily on trade for growth, Paul Hannon and Nick Kostov report.
Say Hello to Alexander Boris de Pfeffel Johnson
Boris Johnson assembled a team of mainly euroskeptic ministers to prepare an all-out push to get the U.K. out of the European Union. The new U.K. prime minister handed key roles to loyalists who have said they are unafraid to abruptly exit the EU by the Oct. 31 deadline without a divorce deal.
- Moody’s Analytics estimates a no-deal exit would shave 0.5 to 1 percentage point from U.S. (as in United States) GDP growth over the course of the subsequent year. “Though unlikely to cause a recession by itself, [it] would leave the U.S. extremely vulnerable,” says economist Ryan Sweet.
- The WSJ’s Greg Ip writes that Mr. Johnson has picked a singularly bad time to seek a new place for Britain in the world. From U.S. to China to Italy, protectionism, nationalism and hostility to globalization are on the rise. And Britain isn’t negotiating from strength.
Planes … and Automobiles
Boeing said it might slow or halt production of its 737 MAX jetliner if regulators don’t approve its return to service by the end of this year. Chief Executive Dennis Muilenburg said Boeing plans to continue producing its 737 jets but any slippage in the timeline for the return of the MAX could oblige the company to lower output. J.P. Morgan estimates a halt in 737 MAX production could take about 0.6 percentage point off the quarterly annualized growth rate of U.S. gross domestic product.
Nissan said it would cut 12,500 jobs globally by March 2023 as it seeks to overhaul its business in the U.S., where profits have fallen sharply over the past two years. The company, which is struggling to recover from the turmoil created by the arrest of former Chairman Carlos Ghosn, said it also plans to cut global production capacity by 10%.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
The future of the city is childless. “In high-density cities like San Francisco, Seattle, and Washington, D.C., no group is growing faster than rich college-educated whites without children, according to Census analysis by the economist Jed Kolko. By contrast, families with children older than 6 are in outright decline in these places. In the biggest picture, it turns out that America’s urban rebirth is missing a key element: births,” Derek Thompson writes in The Atlantic.
Nashville, Tenn., added 820,000 private-sector jobs from 2010 through 2017, double the national job growth rate of around 15%. “It is in many ways a positive story of how new winners can emerge even after a devastating recession. But it also represents a major fault line in the recovery that followed: Winning places like Nashville have won big, often for reasons that can’t obviously or quickly be replicated, while much of the rest of the country has struggled to stay even or slipped behind,” Howard Schneider writes for Reuters.
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