Newsletter: Get Ready for the Fed, GDP and Jobs

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Buckle up. This week is a triple header of major economic news in the U.S.: the first read of third-quarter economic growth, a policy statement from the Federal Reserve and October’s jobs report.

A B C, Easy as One Two Three

Federal Reserve policy makers are likely to approve a third consecutive rate reduction at their meeting this week. They also will consider whether to signal a timeout on additional cuts in part because of the improvements they’ve seen so far, Nick Timiraos writes.

• When Fed officials started cutting interest rates this summer, they framed the moves as akin to taking out insurance for the economy.
• The two cuts so far appear to be paying off by giving a lift to household spending in areas most responsive to interest rates, such as housing, autos and long-lasting big-ticket items like appliances. That’s helped offset a slump in manufacturing.
• “Insurance cuts are working,” said Ellen Zentner, chief U.S. economist at Morgan Stanley. “When you dig into the details, the effect has been quite notable.”

WHAT TO WATCH TODAY

U.S. advance economic indicators for September are out at 8:30 a.m. ET.

The Dallas Fed’s manufacturing survey for October is out at 10:30 a.m. ET.

European Central Bank President Mario Draghi speaks at a farewell event in his honor at 11 a.m. ET.

TOP STORIES

Strike Out

The United Auto Workers ended its nationwide strike at General Motors after 40 days of picketing. The new labor deal didn’t come soon enough to spare the October jobs report: 46,000 GM workers and thousands more further along the supply chain will fall out of employment figures.

• Economists at Capital Economics estimate the overall hit from the strike at 80,000. Alongside a broader slowdown in hiring, that would leave a net gain of only 25,000 jobs during the month, they estimate.
• Other forecasts are less severe. Wells Fargo expects a net gain of 75,000 jobs, Natwest 105,000, Visa’s economic team 125,000 and the WSJ consensus is 85,000.
• Even if we get a fairly dire number, don’t panic. “This is a crash we can see coming, but it is one that will be temporary,” says Brad McMillan, CIO for Commonwealth Financial Network.

GM’s new labor deal has repercussions beyond the next jobs report. The UAW will use the agreement as a template in talks with Ford and Fiat Chrysler. That could extend across-the-board wage increases, an accelerated timetable for new hires to reach top hourly pay and a path to full-time status for temporary workers. 

Decoupling

The U.S. factory slump shows manufacturing isn’t the economic bellwether it used to be, David Harrison reports.

• Factory output, investment and employment are down and firms are less optimistic. The overall American economy, however, keeps powering along.
• The change? Manufacturing firms make up a smaller share of the economy and the labor market than in the past. That suggests the U.S. economy may be big enough and diverse enough to keep expanding even if manufacturing suffers a downturn.
• Case study: In 2015 and 2016, factory output was down on a year-over-year basis for 18 straight months as firms suffered from weak demand overseas and a stronger dollar. The overall economy, however, didn’t miss a beat.

I’m Old Enough to Remember When Deficits Mattered

The U.S. spent nearly $1 trillion more in fiscal 2019 than it took in, the highest deficit in seven years. Government deficits have now increased for four years in a row, the longest such stretch since the early 1980s, a period marked by two recessions and a jobless rate near 11%. The budget gap widened 26% in the fiscal year that ended Sept. 30, to $984 billion from $779 billion deficit the previous year, Kate Davidson reports.

I Wish I Knew How to Quit EU

U.K. Prime Minister Boris Johnson wants a Brexit election. He may not get it. Lawmakers will vote Monday on whether Britain should head to the polls. Mr. Johnson wants a December election to shore up his position after he was forced to request a delay to the U.K.’s departure from the European Union, but the opposition Labour party could block the move.

Breaking: The EU extended the Brexit deadline until Jan. 31.

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Charmed, I’m Sure

China has stepped up its charm offensive to attract U.S. and other foreign companies in recent weeks, seeking to offset the debilitating impact of the trade war. The move suggests a growing realization of the trade war’s toll on the Chinese economy and on U.S. companies’ willingness to invest in China. It also reflects a recognition that foreign companies are key to achieving Chinese leaders’ ambitions for both growth and technological advancement, Yoko Kubota, Chao Deng and Lingling Wei report.

Defrauded

Chile’s protests started with students hopping turnstiles over a 3.7% rise in subway fares. They have since morphed into a mass movement, culminating in a demonstration Friday that drew more than a million people into the streets of Santiago. The problem: Slow economic growth that resulted from the end of the commodity boom coupled with stubborn income inequality have brought into sharp relief the precarious nature of middle-class life here. That has translated into a palpable anger emanating over frustrated expectations encapsulated in one huge street banner simply reading, “Defrauded,” Juan Forero reports.

WHAT ELSE WE’RE READING

Who’s paying for tariffs? Economists Alberto Cavallo, Gita Gopinath, Brent Neiman and Jenny Tang find U.S. tariffs almost fully passed through to importers, suggesting the cost has fallen largely on the U.S. But the tariffs’ impact on retail prices is more mixed, a sign retailers are eating some of the cost. “Finally, in contrast to the case of foreign exporters facing U.S. tariffs, we show that U.S. exporters lowered their prices on goods subjected to foreign retaliatory tariffs compared to exports of non-targeted goods,” they write in a National Bureau of Economic Research working paper.

Former Minneapolis Fed President Narayana Kocherlakota says the central bank is going to cut again this week. “The thing I feel some certainty about is that the Fed will announce another quarter percentage point cut in its target interest rate. … The big question, though, is what will they say to tip their hand about December, which will be the final meeting of the year? The Fed will keep its options open in its statement for December,” the University of Rochester professor says in a Q&A.

 

from Real Time Economics https://ift.tt/2q1gsHa