Newsletter: U.S. Manufacturers Tied Down By Trade Uncertainty

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Trade tensions are weighing on U.S. manufacturers, economists don’t trust China’s official data, and Hungary’s anti-immigration government is coping with a tight labor market by…welcoming more immigrants. Good morning. Jeff Sparshott here to get you through another Monday of economic news. If you have any questions or comments, please send them by replying to this email. 

Manufacturers Cut Spending

U.S. manufacturers are investing less in their factories and workforces as the trade dispute with China makes it more difficult for executives to anticipate costs and demand. Escalating tariffs are prompting some companies to put plans on hold. Others are cutting back investments as trade volumes and economic growth slow around the world, Austen Hufford reports.

• Companies are buying fewer machines for their factory floors and shortening shifts. The knock-on effect means lower sales and less pay for workers, contributing to slower U.S. economic growth.
• The results are showing up in the latest data. Average weekly overtime hours at factories were down almost 9% from a year earlier in August. U.S. imports of capital goods fell in July to the lowest level since 2017. New orders for capital goods posted their first year-over-year decline in three years in July.

WHAT TO WATCH 

U.S. consumer credit for July is out at 3 p.m. ET.

China’s consumer-price index for August is out at 9:30 p.m. ET.

Congress returns to Washington after its August recess. High on the agenda: a Sept. 30 deadline to keep the government funded.

TOP STORIES

How Fast is China’s Economy Really Growing?

Beneath China’s stable headline economic numbers, there is a growing belief among economists, companies and investors that the real picture is worse than the official data. That has analysts and researchers crunching an array of alternative data—from energy consumption to photos taken from space—for a more accurate reading, Mike Bird and Lucy Craymer report. 

• Their conclusion: China’s economy isn’t tanking, but it is almost certainly weaker than advertised.
• Some economists who have dissected China’s GDP numbers say more accurate figures could be up to 3 percentage points lower, based on their analysis of corporate profits, tax revenue, rail freight, property sales and other measures of activity that they believe are harder for the government to fudge.

 

Even some official data is sending a distress signal. China’s imports fell for a fourth straight month in August, highlighting a downturn in demand for everything from raw materials to high-tech products. Exports also slipped, led by a nearly 16% drop in sales to the U.S., Liyan Qi reports. To combat the slowdown, China’s central bank last week cut lenders’ reserve requirement ratios, a move that could free up 900 billion yuan ($126 billion) to finance projects that might spur construction and sustain employment.

Aw, Shucks

The U.S.-Japan corn deal has a flaw: Japan doesn’t need that much more American corn. President Trump last month said Japanese corn purchases would total “hundreds of millions of dollars.” Alluding to excess U.S. supplies, Mr. Trump said Japan is “going to be buying all of that corn.” Yes, Japan is the second-largest buyer of U.S. corn after Mexico. But its total annual corn imports come to only about 11 million metric tons—so even a substantial bump wouldn’t make much of a dent in U.S. corn stocks, which the U.S. Department of Agriculture estimated would end the season at about 60 million metric tons, Megumi Fujikawa and Josh Zumbrun report. 

Australia to U.S. and China: Thanks, Mate!

Australia faced a personal-credit crunch, housing slump and weak business confidence, threatening to derail the longest-running growth streak in the developed world. Then it got a trade boost as U.S.-China relations soured. Australia ships around a third of its exports to China, mostly commodities such as iron ore and coal that are used by heavy industry and in the building of apartments. Those exports are in demand as Beijing accelerates construction spending to head off damage caused by Washington raising tariffs. Trade has been so buoyant that Australia logged its first current-account surplus since 1975 in the second quarter of this year, Rhiannon Hoyle and James Glynn report.

Wages Up 12%? Now That’s a Tight Labor Market

Under Prime Minister Viktor Orbán, Hungary has been one of the most stridently anti-immigration voices in the European Union. At the same time, the country’s legal-immigration regime recently became one of Europe’s most liberal. The reason? Hungary is suffering from a severe labor shortage, Bojan Pancevski and Adam Bihari report.

• With robust economic growth and low unemployment, wages have been rising fast—nearly 12% this year alone. Employers are struggling to fill about 80,000 vacancies.
• Mr. Orbán’s government about a year ago began expediting work permits. Since, more immigrants have been popping up in factories, on construction sites and in farms. Some 50,000 foreigners held work permits in Hungary in 2018 when the new rules kicked in, a 43% increase from the previous year.
• The government hasn’t released statistics covering the time period since the latest rules took effect. Ferenc Dávid, a Hungarian labor economist, estimates the figure to be between 150,000 and 200,000.

WHAT ELSE WE’RE READING

A big chunk of foreign direct investment is an illusion. “A large proportion of the world’s stock of foreign direct investment is ‘phantom’ capital, designed to minimise companies’ tax liabilities rather than financing productive activity, according to research. Nearly 40% of worldwide FDI—worth a total of $15tn—’passes through empty corporate shells’ with ‘no real business activities,’ the study by the IMF and the University of Copenhagen found.” (Financial Times)

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