Newsletter: Some Good News, For Now

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Consumers continue to lead the way in the U.S., younger workers are happier with their paychecks, and China’s young are spending like Americans. Good morning. Josh Mitchell here to take you through key developments in the global economy. Send us your questions, comments and suggestions by replying to this email.

Good News, For Now

Thursday’s GDP report showed a solid jump in corporate profits along with a boom in consumer spending. What more could the U.S. economy need?

Not so fast. The report—the second reading on second-quarter GDP—did little to resolve the big questions hanging over the world’s largest economy.

• The headline GDP number was downgraded to 2% growth from 2.1%, Harriet Torry reports.
• The good news is households spent big in the spring. They’re the biggest source of demand in the U.S. economy and their spending rose by the most since late 2014. Spending was even stronger than initially estimated.
• Still, companies don’t look great right now. Business investment fell for the first time since 2016. And the jump in corporate profits in the quarter may have been a blip. Compared to a year earlier, profits were up a more muted 1.7% in the second quarter. “Consumer spending is strong but remember it’s the companies that pay their salaries and offer them jobs,” says economist Joseph Carson.
• Separately, Wall Strreet analysts have cut their third-quarter profit estimates, the WSJ reported earlier this month.
• The upshot is big clouds remain over the economy, given the unresolved trade dispute and signs of manufacturing weakness. Next week’s jobs report will likely offer more clues on whether the economy’s slowing further or settling into a more steady pace of growth.

 

WHAT TO WATCH TODAY

U.S. consumer spending for July is expected to rise 0.5% from a month earlier. (8:30 a.m. ET)

The U.S. personal-consumption-expenditures price index, excluding food and energy, for July is expected to rise 0.2% from a month earlier and 1.6% from a year earlier. (8:30 a.m. ET)

The Chicago purchasing managers index for August is expected to rise to 47.5 from 44.4 a month earlier. (9:45 a.m. ET)

The University of Michigan consumer-sentiment index for August is expected to hold steady at 92.1. (10 a.m. ET)

China’s official manufacturing index for August is out at 9 p.m. ET.

TOP STORIES

U.S. Businesses: All Pain, Little Gain

A growing number of U.S. companies say they’re hurting as the U.S.-China trade war intensifies, Chao Deng reports. Roughly 37% of 100 respondents to an annual survey conducted in June by the U.S.-China Business Council said their China sales have suffered due to concerns from Chinese companies about doing business with American companies. That’s about seven times higher than the percentage of respondents surveyed in 2018.

President Trump defended his negotiating stance with China after criticism from GOP Sen. Pat Toomey of Pennsylvania, Michael C. Bender reports. Mr. Toomey told Politico: “There’s no question that trade uncertainty is contributing to the [economic] slowdown.” He has warned that tariffs, and retaliatory tariffs, hurt the U.S. economy. Trump responded on Fox News Radio. “So what does Pat Toomey want me to say, ‘Let me put my hands up China, continue to rip me off,’” Mr. Trump said. “When Pat Toomey says, ‘Oh, I don’t like that,’ that only means one thing. That means raise your hands and get used to paying $500 billion a year to China plus plus plus.” The $500 billion figure is a rough approximation of U.S. imports from China in 2018.

Imitation Is the Sincerest Form of Flattery

Young Chinese are spending like Americans—and getting into worrisome debt, Stella Yifan Xie, Shan Li and Julie Wernau report.

• Previous generations were frugal savers—a product of their years growing up in a turbulent economy with a weak social safety net.
• By contrast, the more than 330 million people born in China between 1990 and 2009 are spending avidly on gadgets, entertainment and travel.
• The freewheeling consumption is helping China diversify its economy, which for decades has relied on exports and infrastructure-building to drive growth.
• The timing is crucial given signs that tariffs have dinged China’s growth. A more diversified economy could help insulate China from shocks.
• The downside: Household debt levels have risen rapidly over the past several years, with many young Chinese borrowing money for their purchases.

 

Improving With Age

Apparently, bigger paychecks lead to happier workers. Who would have thought? Lauren Weber reports that the share of U.S. workers satisfied with their paychecks rose to 46.4% in 2018 from 43% in 2017, the Conference Board reports. That correlated with a rise in workers’ pay.

• The biggest jump in satisfaction occurred among workers under age 35. For the first time since 2011, they reported being happier with their paychecks than workers over 55.
• That makes sense. Overall, median weekly earnings rose 5% from the fourth quarter of 2017 to the same quarter in 2018, according to the Bureau of Labor Statistics. For workers between the ages of 25 and 34, that increase was 7.6% over the same period.

 

Give Me More Hours

A greater segment of U.S. workers could be eligible for overtime pay soon, Andrew Ackerman reports. “The U.S. Labor Department is set to complete a new rule on eligibility in coming weeks. The rule would increase the annual salary threshold that generally determines who qualifies for time-and-a-half overtime pay, people familiar with the matter said. Workers and employers in numerous industries—including retail, fast food, higher education and nonprofits—would be affected. The federal overtime rule would raise the salary threshold to around $36,000, these people said, higher than the current $23,660 figure, which hasn’t been changed since 2004. The details could still change as the administration works to finish the rule.”

WHAT ELSE WE’RE READING

In the U.S., interest payments on government debt are rising again after a long decline, Justin Fox writes at Bloomberg​. “The U.S. is the standout here. Its interest burden is both: 1. Higher than that of other major Western economies (I’ve included the not-so-major Netherlands for reasons that will soon become apparent), and 2. Rising since 2013, while those of the other countries have been falling.”

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