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President Trump says there’s a “good possibility” the U.S. and China will soon strike a trade deal, Germany’s vaunted apprenticeship program has a problem, and U.S. small businesses are getting a bit more cautious about the economic outlook. Let’s dive into Tuesday’s economic news.
Autumn Thaw
U.S.-China trade talks are showing signs of a possible thaw, as a Chinese trade team returns to Washington and Chinese commodity buyers return to America’s soybean market, Josh Zumbrun and Michelle Hackman report.
- Reports from the Commerce and Agriculture departments last week showed China making some of its largest purchases in over a year. They will need to continue well after this week’s talks to lead to a sustained recovery for U.S. farmers.
- U.S. negotiators might need to give ground to keep the purchases coming, including easing some restrictions on Huawei, the Chinese telecommunications giant that the U.S. has identified as a national security risk.
- “As to whether or not we make a deal, I don’t know. But there’s certainly a good possibility,” President Trump said Monday. High-level negotiations resume Thursday.
Wildcard: The U.S. added 28 Chinese entities to an export blacklist Monday, citing their role in Beijing’s repression of Muslim minorities in northwest China. Beijing said on Tuesday it will go ahead with planned high-level trade talks. China has sought to narrow the scope of the negotiations, putting aside national-security issues.
WHAT TO WATCH TODAY
The U.S. producer-price index for September is expected to rise 0.1% from a month earlier. (8:30 a.m. ET)
Fed Chairman Jerome Powell speaks at the National Association for Business Economics annual meeting at 1:50 p.m. ET. Also up for the Fed: Chicago’s Charles Evans speaks on the economy and monetary policy at 1:35 p.m. ET, and Minneapolis’s Neel Kaskari speaks at St. Cloud State University in Minnesota at 5 p.m. ET.
TOP STORIES
The Apprentice
The vaunted German workforce training system has a problem: a shortage of young people seeking apprenticeships, Eric Morath reports.
- In Germany, workers as young as 15 can apply to be paid for on-the-job training while attending classes. For decades the system provided a steady flow of skilled workers to German companies while keeping youth unemployment in check.
- But now German companies are struggling to fill apprentice openings they’ve long relied on to produce the next generation of workers.
- That’s a potential caution sign to many countries that have sought to replicate the German model. President Trump has put expanding apprenticeships at the center of his work-force development agenda.
- There are two driving factors behind Germany’s growing number of vacancies: Young people now make up a smaller slice of the country’s population, and that group is increasingly interested in attending college.
You’re Hired
The White House has reshaped the federal workforce to advance President Trump’s priorities, emphasizing border control, veterans and the military while shrinking the size of the education, labor and housing-and-urban-development agencies. Strategic hiring is a quiet way to advance a presidential policy agenda. Under President Obama, for example, the Centers for Medicare and Medicaid Services saw its workforce expand more than 44%. Under Mr. Trump, the Department of Veterans Affairs leads cabinet agencies in average yearly growth. Overall, the size of the federal government under Mr. Trump has grown in the first two fiscal years of his administration, although at a more modest pace than his two predecessors, Likhitha Butchireddygari reports.
Looking for Independence Avenue
Federal Reserve Chairman Jerome Powell highlighted the importance of an independent central bank, amid steady criticism of the Fed’s monetary policy from President Trump in recent weeks. Speaking at the premiere of a documentary about the late Marriner S. Eccles—the Fed’s chairman from 1934 to 1948—Mr. Powell focused on his predecessor’s efforts to distance the central bank from political considerations. “From my perspective as Fed chair, he is responsible more than any other person for the fact that the United States today has an independent central bank—a central bank able to make decisions in the long-term best interest of the economy, without regard to the political pressures of the moment,” Mr. Powell said.
It’s a Small World
U.S. small-businesses optimism has fallen sharply since last summer as owners become unsettled over trade policy, the path for interest rates and the economic outlook. The National Federation of Independent Business’s optimism index remains historically elevated but companies appear increasingly cautious. “All indications are that owners are eager to do more, but they’re uncertain about what the future holds and can’t find workers to fill the jobs they have open,” NFIB President Juanita Duggan said.
China’s Service Slowdown
China’s services activity expanded at its slowest pace in seven months. The Caixin China services purchasing managers index slipped to 51.3 in September from 52.1 in August, still above the 50 mark that separates expansion in activity from contraction. The reading offers more evidence that a global slowdown, trade tensions and struggling manufacturers are starting to drag down more insulated sectors of the economy. U.S. and German services-sector activity last month expanded at its slowest pace in three years, according to separate gauges. Unlike the U.S. and Germany, China’s manufacturing sector picked up in September, suggesting overall growth is stabilizing.
WHAT ELSE WE’RE READING
Inequality is highest in America’s big, booming cities. It’s least in Rustbelt cities like Detroit. The common themes: technology and globalization. Booming cities have strong demand for skilled labor, which pushes wages for skilled workers higher and higher relative to those at the middle and bottom. In cities like Detroit, those forces led to weak economic conditions and lackluster wage growth for everyone, resulting in more compressed wage distributions. The takeaway: “Relatively high regional wage inequality is often a consequence of strong but uneven economic growth, while a relatively low level of regional wage inequality is often the result of a weakening local economy,” New York Fed economists Jaison R. Abel and Richard Deitz write in a new blog post.
China’s retaliation against Trump administration trade policy is denting American consumer spending. “I find that changes in trade policy had large effects on consumption, with high-tariff counties experiencing at least a 3.8 percentage point decline in new auto sales growth relative to low-tariff counties,” New York University’s Michael Waugh writes in a National Bureau of Economic Research working paper.
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