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The U.S. and China are ready to talk again, don’t expect an aggressive half-point cut from the Fed this month, and a hard Brexit is looking less likely. 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.
Off Again, On Again
Chinese and American officials plan to hold trade talks in Washington in early October, a new attempt to tame a trade war that is rippling through the global economy and hurting business investment and confidence, Chao Deng and William Mauldin report.
- Chinese Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke by phone on Thursday morning Beijing time and agreed to meet next month.
- Expectations for a breakthrough are low, as tensions—and tariffs—have risen between the two countries. Neither Beijing nor Washington specified a start date for the talks.
- Beijing is eager to see a deal that would have the U.S. remove its tariffs, while Washington wants China to commit to structural changes in its economy and purchases of U.S. agricultural goods. People following the trade talks say Beijing has grown less willing to make concessions as the U.S. surprises them with round after round of tariffs.
WHAT TO WATCH
The ADP employment report for August is expected to show a net gain of 140,000 jobs from the prior month. (8:15 a.m. ET)
U.S. jobless claims are expected to hold steady at 215,000. (8:30 a.m. ET)
U.S. productivity is expected to rise at an unrevised 2.3% annual pace in the second quarter. (8:30 a.m. ET)
IHS Markit’s U.S. services index for August is expected to tick up to 51.0 from 50.9 earlier in the month. (9:45 a.m. ET)
The Institute for Supply Management’s nonmanufacturing index for August is expected to tick up to 53.8 from 53.7 a month earlier. (10 a.m. ET)
U.S. factory orders for July are expected to rise 1.0% from a month earlier. (10 a.m. ET)
President Trump meets with the General Motors CEO Mary Barra in the Oval Office at 1:45 p.m. ET.
TOP STORIES
Fed Lines Up a Quarter-Point Rate Cut
Federal Reserve officials are gearing up to reduce interest rates at their next policy meeting in two weeks, most likely by a quarter-percentage point, as the escalating trade war between the U.S. and China darkens the global economic outlook. The idea of an aggressive half-point cut to battle the slowdown hasn’t gained much support inside the central bank. While markets have signaled a much dimmer outlook for growth and inflation, that hasn’t shaken many Fed officials from their belief that the 10-year U.S. expansion can continue at a modest pace, Nick Timiraos reports.
Trade Gap Narrows
The U.S. trade gap narrowed in July as manufacturing weakness held down imports of business equipment and supplies. The figures highlight a growing split within the U.S. economy, as businesses struggle with global headwinds while upbeat consumers keep up the demand for imported products and services. The trade dispute between the U.S. and China, combined with the broader global slowdown, could cause both U.S. imports and exports to decline in the months ahead, David Harrison and Paul Kiernan report.
Watch Friday’s Jobs Report for Signs of a Deepening Slowdown
The August employment report will provide the latest snapshot of the economy’s health during a month of global economic turbulence and heightened Wall Street jitters. Here’s what to watch from the WSJ’s Sarah Chaney:
Payrolls performance. So far this year, hiring has cooled: Over the first seven months of 2019, employers added an average 165,000 jobs per month, down from 223,000 in 2018. Economists project 150,000 jobs were added in August.
Participation. The labor-force participation rate for prime-age workers, those who are 25 to 54 years old, hit a recent peak of 82.6% in January. It has trended lower since, a sign fewer workers are coming off the sidelines and into the workforce.
Stabilizing wages. Hourly wages rose 3.2% in July from a year earlier, down from a recent high of 3.4% in February. There are various reasons why wage growth might not be accelerating in a tight labor market, including lackluster productivity growth and the retirement of highly paid baby boomers.
One gem from the Fed’s beige book that could tie some the threads together: “An employment agency noted that one factor holding back hiring has been a wide gap between job candidates’ salary demands and employers’ offers.”
The jobs report is due out Friday at 8:30 a.m. ET.
How to Tax the Rich
Democrats are considering sharp tax increases on the wealthiest Americans. They could learn from Europe’s mistakes. The continent went from 12 wealth taxes in 1990 to four today. Europe struggled because rich people could switch countries, some assets were exempt and governments were unwilling to concentrate taxes on the super-rich, University of California, Berkeley economists Emmanuel Saez and Gabriel Zucman write in a new paper.
- “This ‘European context’ is not a law of nature but results from policy choices,” Messrs. Saez and Zucman say. “Other choices could lead to radically different outcomes in terms of tax evasion and tax competition.”
- Unlike in Europe, for example, the U.S. already taxes its citizens’ worldwide holdings and imposes special levies on people who renounce citizenship. Combined with more requirements on financial institutions to report assets to the government, that system provides a framework for taxing wealth and preventing it from escaping the U.S., they argue.
—Richard Rubin
What Else We’re Following
British lawmakers imposed twin defeats on Prime Minister Boris Johnson, frustrating his signature effort to take Britain out of the European Union at the end of October and thwarting his push for a quick election. The back-to-back blows significantly reduce the chances that the U.K. will leave the bloc abruptly on Oct. 31 without a deal, Jason Douglas reports.
France can teach the U.S. a lesson about free markets. You wouldn’t think of France as a model of unfettered markets. But from cellphones to airfares, competition has risen in Europe but shrunk in America, writes Greg Ip.
WHAT ELSE WE’RE READING
The U.S. still has plenty of fiscal firepower to fight a recession. Douglas Elmendorf, a Harvard dean and former Congressional Budget Office director, says the federal government could swing a collection of spending increases and tax cuts twice as large as the 2009 American Recovery and Reinvestment Act. That would be about $1.7 trillion. Some would be clawed back via higher GDP and taxable incomes. The rest? “All else equal, adding that much debt now would simply bring the future one year closer: The ratio of federal debt to GDP that CBO projects under current law for, say, 2026 would arrive in 2025, and so on,” he writes in the Washington Post.
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