Newsletter: Is This What a Soft Landing Feels Like?

This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here.

Imports are down, there are fewer job openings, there are mixed signals on the health of the service sector and energy companies are cutting back on investment. A slowdown? Sure. A downturn? Sure doesn’t seem like it.

Trade Winds

U.S. imports of goods such as cellphones, toys and apparel fell sharply in September, the latest sign that slowing global growth might be spilling into the domestic economy, Paul Kiernan and Rebecca Elliott report.

• Imports sank 1.7% from August, led by a 4.4% drop in imports of consumer goods, followed by a 3.4% fall in imports of vehicles and auto parts.
• That could be a sign U.S. consumers are curtailing spending. Tariffs are another possible factor: The Trump administration starting Sept. 1 imposed 15% duties on $111 billion worth of tools, apparel, footwear and electronics from China.
• U.S. households have been a main driver for the economy this year as global growth has weakened and business investment has fallen. A sustained drop in consumer spending would leave the economy vulnerable.

WHAT TO WATCH TODAY

U.S. labor productivity in the third quarter is expected to advance 0.9% from the prior quarter. (8:30 a.m. ET)

The Chicago Fed’s Charles Evans speaks at the Council on Foreign Relations at 8 a.m. ET, the New York Fed’s John Williams speaks at a Wall Street Journal “Future of the Workforce” event at 9:30 a.m. ET, the Dallas Fed’s Robert Kaplan speaks in Dallas at 12:40 p.m. ET, the Philadelphia Fed’s Patrick Harker speaks on workforce investment at 3:15 p.m. ET, and Mr. Williams speaks at a global risk forum at 6:30 p.m. ET.

TOP STORIES

Cooler but Not Ice Cold

The labor market has cooled but remains a source of strength for the U.S. economy. The latest evidence: The number of unfilled jobs in September declined to the lowest level in 18 months. But openings still exceeded the number of unemployed Americans—those without work but actively looking—by 1.26 million. Before 2018, openings had never exceeded unemployment in records back to 2000. The solid labor market is supporting consumer spending and the broader U.S. economy, Eric Morath and Harriet Torry report.

Is This What a Soft Landing Feels Like?

U.S. consumers are sending up a bright red warning flare. Two closely watched surveys on consumer confidence are diverging, something that has reliably foreshadowed past recessions.

• Conference Board and University of Michigan confidence measures are the farthest apart since 2000.
• Another recession warning signal also recently suggested a looming downturn: The U.S. 10-year Treasury yield dropped below the three-month T-bill from the end of May until October before correcting itself. An inverted yield curve had preceded each recession since the 1970s.
• What’s the message? Dallas Fed economists Alexander Richter and Tyler Atkinson write that both warning signals “may just be an artifact of past business cycles that did not result in ‘soft landings,’ in which the labor market stabilizes at a tight level.” In other words, growth is slowing and policymakers should remain vigilant—but a recession isn’t inevitable.

Service Sector

Need a little more evidence the U.S. economy is holding up just fine? The Institute for Supply Management’s nonmanufacturing index perked up to 54.7 in October, well above the 50-mark that separates expansion from contraction. It had fallen to the lowest level since the summer of 2016 in September, sparking concerns that troubles in the manufacturing sector were spreading throughout the economy. A separate purchasing managers index was less rosy: IHS Markit said its U.S. services index fell to 50.6 in October,  the lowest since February 2016.

Other parts of the world appear to be mired in a soft patch. IHS Markit said Japanese service-sector output declined for the first time in more than three years. The eurozone service sector held up better but was barely enough to offset a severe manufacturing downturn. “The euro area remained close to stagnation in October, with falling order books suggesting that risks are currently tilted towards contraction in the fourth quarter,” IHS Markit economist Chris Williamson said.

Low Energy

Chesapeake Energy said it may be unable to stay in business if oil and natural gas prices remain depressed. The announcement underscores the challenges faced by drillers still trying to regain their footing after commodity prices collapsed in 2014 and 2015, Andrew Scurria and Alexander Gladstone report.

Lower energy prices are reverberating through the economy. Cheaper gasoline allows consumers to spend elsewhere, supporting overall economic growth. But businesses are spending less in the oil patch. Private investment in the mining sector is down for five straight quarters. That’s been a drag on overall business investment and a brake on economic growth.

Even with recent struggles, the U.S. energy industry is producing plenty of oil. In September, petroleum imports fell more than exports, creating the largest monthly surplus in records going back to 1978. If you squint, you can almost see it in this chart…

WHAT ELSE WE’RE READING

Inflation falls harder on the poor than the rich. “A new analysis from a prominent group of economic researchers suggests not only that rising prices have been quietly taxing low-income families more heavily than rich ones, but also that, after accounting for that trend, the American poverty rate is significantly higher than the official measures suggest. Call it ‘inflation inequality,’ a subtle, pernicious way that the fortunes of the rich and the poor have diverged,” Annie Lowrey writes in The Atlantic.

Poorer people get hit harder by tariffs too. “A 25% tariff on all consumer goods from China would affect approximately 20% of import expenditures and cause the consumer prices of affected goods to increase 1-2% on average. The increase in consumer prices for lower income consumers is almost 50% higher than that of higher income,” the University of Maryland’s Lerong Li writes in a job market paper.

SIGN UP FOR OUR CALENDAR

Real Time Economics has launched a downloadable calendar with concise previews, forecasts and analysis of major U.S. data releases. To add to your calendar, please click here.

 

 

 

from Real Time Economics https://ift.tt/33yTjuc