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Good morning. Jeff Sparshott here to take you through key developments in the global economy. You can send us your questions, comments and suggestions by replying to this email.
Two, Three, Four
Before we turn to the U.S., let’s take a peek at the world’s second-, third- and fourth-largest economies:
China is showing fresh signs of weakness. Readings of economic growth slowed further in October, with disappointing numbers in industrial output, household consumption and fixed-asset investment. Taken together, the figures add to evidence that China’s economy is broadly slowing, Liyan Qi, Grace Zhu and Bingyan Wang report. “Not only were last month’s data weak, but further weakness lurks ahead,” Capital Economics’s Julian Evans-Pritchard said.
Japan’s economy grew at the slowest pace in a year as the U.S.-China trade dispute and frictions with South Korea weighed on exports. Things may not get better quickly: A sales tax increase on Oct. 1 is expected to hit consumer spending, weakness in China is curbing demand for Japanese goods, a dispute with South Korea is crimping tourism and a powerful typhoon that hit the country in October is likely to damp consumption in the fourth quarter. Daiwa Securities’s Mari Iwashita expects the economy to shrink by annualized 2.1% in the final quarter of 2019, Megumi Fujikawa reports.
Germany narrowly skirted a recession in the third quarter. Gross domestic product increased by an adjusted 0.1% from the previous quarter, following a 0.2% drop in the second. Consumption, construction and exports supported the modest turnaround. The outlook: “There are still very few reasons to be overly cheerful. While a growth crisis still looks unlikely, a longer period of stagnation is still in the cards,” ING’s Carsten Brzeski said.
Taken as a whole, recent signals from the global economy don’t offer much hope of a significant world-wide rebound soon.
WHAT TO WATCH TODAY
The U.S. producer-price index for October is expected to rise 0.3% from the prior month. (8:30 a.m. ET)
U.S. jobless claims are expected to rise to 215,000 from 211,000 a week earlier. (8:30 a.m. ET)
Federal Reserve Chairman Jerome Powell appears before the House Budget Committee at 10 a.m. ET.
Also lined up for the Fed: Chicago’s Charles Evans speaks at a fintech conference at 9:10 a.m. ET, Vice Chairman Richard Clarida speaks on the central bank’s strategic review at 9:10 a.m. ET, San Francisco’s Mary Daly gives welcoming remarks at an Asia economic policy conference at 11:45 a.m. ET, New York’s John Williams speaks at an Asia economic policy conference at 12 p.m. ET and St. Louis’s James Bullard speaks on the economy and monetary policy at 12:10 p.m. ET.
TOP STORIES
Another Hiccup in Trade Talks
Trade talks between the U.S. and China have hit a snag over farm purchases, Chao Deng, Lingling Wei and William Mauldin report.
- President Trump last month said China has agreed to buy up to $50 billion of soybeans, pork and other agricultural products from the U.S. annually.
- China is leery of putting a numerical commitment in the text of an agreement. Beijing wants to have flexibility should trade tensions escalate. “We can always stop the purchases if things get worse again,” said one Chinese official.
- The dispute over farm purchases is one of several issues that have delayed completion of the limited trade accord. Both sides are also at odds over whether—and by how much—the U.S. would agree to lift tariffs on Chinese imports, Beijing’s core demand.
- Chinese officials also have resisted U.S. demands for a strong enforcement mechanism and curbs on the forced transfer of technology.
Negative Thoughts
Federal Reserve Chairman Jerome Powell told lawmakers the central bank saw little need to cut interest rates further after making three reductions since July, Nick Timiraos reports.
- “Of course, if developments emerge that cause a material reassessment of our outlook, we would respond accordingly,” Mr. Powell told Congress’s Joint Economic Committee on Wednesday.
- President Trump again this week criticized the Fed for keeping rates too high and said he envied nations in Europe that have rates below zero: “I want some of that money.”
- Mr. Powell said very low and negative rates seen elsewhere “would not be appropriate for our economy.”
- None of the lawmakers on the committee, which is composed of 10 House members and 10 senators, joined Mr. Trump in criticizing the Fed.
The European Central Bank, Switzerland, Japan and Denmark all maintain negative policy rates. Sweden has had enough. The Scandanavian country’s central bank next month is expected to unwind them amid concerns about distortions in the financial system, Caitlin Ostroff reports.
No Worries
One thing the Fed doesn’t have to worry much about right now: inflation. The consumer-price index—which measures the costs of everyday goods and services—increased 1.8% from a year earlier in October. Core prices, excluding often volatile food and energy categories, were up 2.3% over the year. The latest data show overall price pressures remain mild, Amara Omeokwe reports.
If I Had a Trillion Dollars, I’d Be Rich
The U.S. budget gap grew 34% in the first month of the fiscal year as federal spending outpaced revenue growth, pushing the 12-month deficit past $1 trillion for the first time since February 2013. Annual deficits have been climbing since 2016, despite a period of low unemployment and sturdy economic growth, as tax cuts enacted in 2017 weighed on federal revenue collection and a bipartisan budget deal boosted federal spending levels, Kate Davidson reports.
Brand New Cadillac
It’s not just the government borrowing. Americans are taking out more loans for cars, a sign lower interest rates and a decadelong economic expansion are supporting big-ticket purchases. Auto-loan originations increased to $159 billion in the third quarter to the second highest level on record, according to the Federal Reserve Bank of New York. Auto debt now accounts for nearly 10% of overall household debt, up from about 6% when the recession ended in mid-2009, Sarah Chaney reports.
WHAT ELSE WE’RE READING
Tesla’s next factory will be in Germany, not Britain. Why? “Brexit [uncertainty] made it too risky to put a Gigafactory in the U.K.,” Tesla CEO Elon Musk told U.K. motoring magazine Auto Express.
Global warming will soon start creeping into more economic forecasts. “More immediately, according to our study the 2°C of warming expected by 2050 in a high emissions scenario might incur costs of between 2.5%-7.5% of global GDP, with the worst affected countries being in Africa and Asia. So, while over a 10-year horizon the costs seem unlikely to be significant enough to affect our forecasts, the window of indiscernibility looks to be closing rapidly,” Oxford Economics economist James Nixon writes in a research report.
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