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This week, Federal Reserve Chairman Jerome Powell heads to Capitol Hill and we’ll see a raft of inflation data from the U.S., Europe and China just as central banks contemplate further stimulus. Good morning. Jeff Sparshott here to help you get ready for another full week of economic news. Send us your questions, comments and suggestions by replying to this email.
Why Isn’t the Government Spending More Money?
The economy was supposed to get a lift this year from higher government spending. But so far, much of that stimulus has not shown up, Kate Davidson reports.
- The question puzzling economists: Will government spending catch up, providing a boost to the economy later in the year, or were early stimulus estimates too optimistic?
- The 2018 budget deal provided nearly $300 billion more for federal spending in fiscal years 2018 and 2019 above limits set in 2011. While military spending has tracked with projections, nondefense has lagged.
- If government spending were to catch up in the second quarter, it would add 1.6 percentage points to GDP growth, Evercore ISI’s Ernie Tedeschi estimates. But he cautioned that a big share of that is unlikely to materialize.
- The path for government outlays is just one of several fiscal policy unknowns clouding the outlook: Stimulus provided by the 2017 tax cuts is expected to fade and the current budget deal expires in October.
WHAT TO WATCH TODAY
U.S. consumer credit for May is out at 3 p.m. ET.
The St. Louis Fed’s James Bullard speaks on monetary policy at 4:45 p.m. ET.
TOP STORIES
SUV Supply Overshoots Demand
Sport-utility vehicles became big hits with Americans, prompting auto makers to roll out a range of new models. Now, some dealers and analysts say car companies may have gone too far, and expect an overcrowded market to lead to deflated prices, Ben Foldy reports.
- Sales of crossovers and SUVs are slowing, models are sitting longer on dealership lots and companies are resorting to more promotions to keep inventory from piling up.
- And yet, auto makers are getting ready to roll out even more sport-utility offerings in the next few years, further packing U.S. showrooms. For customers, this could be a boon. But it is also likely to dent auto maker profits.
Clogged Pipeline
The U.S. is overflowing with natural gas. Not everyone can get it. U.S. gas production is at a record high, but the infrastructure needed to move the fuel around the country hasn’t kept up. The result is price spikes, uneven distribution and fears of stifled economic growth.
Always Look on the Bright Side of Life
There’s an upside to Germany’s slowdown: It could help ease a rift between the region’s economically stronger north and weaker south over pro-growth policies, Tom Fairless and Paul Hannon report.
- Germany accounts for nearly a third of all economic activity in the eurozone, but no European Union economy grew slower in the year through March, aside from Italy.
- The loss of momentum could make it easier for European Central Bank President Mario Draghi and his likely successor, Christine Lagarde, to convince a skeptical German public of the need for a longer period of low interest rates or increased government spending.
Data point: German industrial production edged higher in May, though overall output this spring shows “a clearly subdued industrial economy, which is likely to continue in the coming months in view of weak incoming orders and the subdued business climate,” Germany’s Federal Statistical Office said Monday.
Industrial Metal
A retreat in copper prices is signaling continued investor concern for the global economy. Prices for copper, used to build everything from office buildings to electric vehicles, have fallen in eight of the last 10 weeks. The latest drop follows soft manufacturing data, with downbeat figures from China leading some to question growth prospects. China accounts for roughly half of global copper consumption, Amrith Ramkumar reports.
Job Cuts in Banking
Deutsche Bank moved to gut its global ambitions as a trading powerhouse, cutting jobs and retreating to its German banking roots in a radical overhaul to try to save itself after years of decline. It plans about 18,000 global job cuts by 2022, representing about one out of five current full-time employees.
President Recep Tayyip Erdogan dismissed the governor of Turkey’s central bank, sparking fresh investor concerns over the independence of an institution that has strained to combat runaway inflation. A presidential decree said Murat Cetinkaya, who had run the central bank since April 2016 and defied Mr. Erdogan to increase the central bank’s main policy rate late last year, was replaced by his deputy, Murat Uysal.
WHAT ELSE WE’RE READING
How are the Trump administration’s steel tariffs working out?“Since Trump announced the tariffs 16 months ago, U.S. Steel has lost almost 70% of its market value, or $5.5 billion, and idled two American furnaces in mid-June that couldn’t be run profitably at the lowest prices since 2016. Meanwhile, Nucor, down around 20%, has touted $2.5 billion in expansion projects. ‘Are some companies are going to suffer? Absolutely. We’ll see some capacity go away, I’m sure of it,’ ” Nucor CEO John Ferriola tells Bloomberg.
A look at CVs shows Chinese telecoms giant Huawei and China’s state security services are pretty cozy. “I find there is strong evidence that Huawei personnel act at the direction of Chinese state intelligence, and that there exists a deep and lasting relationship between Huawei, its employees, and the Chinese state. This should raise questions within Western governments worried about Chinese access to domestic information,” Fulbright University Vietnam’s Christopher Balding writes in a research paper.
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