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Losing Confidence?
A measure of U.S. consumer confidence fell in November for the fourth month in a row, another sign that American households are growing more cautious amid a global slowdown and continued trade war fears. Even with the drop, the Conference Board said its consumer index remains at a high level, leaving households poised to support the economy during the holiday season.
Quirky warning signal: “The gap between the ‘present conditions’ and ‘expected conditions’ indices is extremely wide, which occurs when consumers believe that current prosperity is not going to last,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez. “Consumers have had a pretty good track record in sniffing out cyclical turning points, and the message now is to beware of a slump.”
WHAT TO WATCH TODAY
U.S. durable goods orders for October are expected to fall 1% from the prior month. (8:30 a.m. ET)
U.S. gross domestic product for the third quarter is expected to advance at a 1.9% pace, unrevised from an earlier reading. (8:30 a.m. ET)
U.S. jobless claims are expected to fall to 220,000 from 227,000 a week earlier. (8:30 a.m. ET)
The Chicago purchasing managers index for November is expected to rise to 47.1 from 43.2 a month earlier. (9:45 a.m. ET)
U.S. consumer spending for October is expected to rise 0.3% from the prior month. (10 a.m. ET)
The personal-consumption-expenditure price index excluding food and energy for October is expected to rise 0.1% from a month earlier and 1.7% from a year earlier. (10 a.m. ET)
U.S. pending-home sales for October are expected to rise 0.8% from the prior month. (10 a.m. ET)
The Baker Hughes rig count is out at 1 p.m. ET.
The Federal Reserve releases its beige book report on U.S. economic conditions at 2 p.m. ET.
Japan retail sales for October are out at 6:50 p.m. ET.
TOP STORIES
Housing Rebound Continues
Home-price growth accelerated for the second straight month in September. The S&P CoreLogic Case-Shiller U.S. National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 3.2% annually, up from 3.1% the previous month. The results, which coincide with an increase in sales of existing homes, indicated that low mortgage interest rates continue to make an impact on the market, Will Parker reports.
The Federal Reserve in January signaled it would hold off on further rate increases, and has since cut its benchmark federal-funds rates three times. That’s fed through to bond markets and ultimately mortgage markets. Underscoring the impact, sales of newly built homes are gaining ground. Commerce Department data show year-to-date new single-family home sales up 9.6% from the same period in 2018.
Trade Deficit Narrows
U.S. trade continued to rapidly contract in October as a slowing economy at home and abroad likely compounded the effects of rising protectionism. The trade deficit in goods shrank 5.7% last month from September to a seasonally adjusted $66.53 billion, its narrowest since May 2018, the Commerce Department said. The decline came as goods imports tumbled to the lowest level in two years and exports dropped to the lowest level since February 2018, Paul Kiernan reports.
U.S.-China trade talks update: President Trump on Tuesday said, “We’re in the final throes of a very important deal—I guess you could say, one of the most important deals in trade ever. It’s going very well. But at the same time, we want to see it go well in Hong Kong, and I think it will.”
Add It Up
The latest batch of data suggests the economy is on slightly firmer footing than once feared. Forecasters at Macroeconomic Advisers are now tracking fourth-quarter gross domestic product growth at a 1.9% pace, an improvement from 1.4% less than two weeks ago. The Atlanta Fed’s GDPNow estimate has been especially alarming, falling as low as 0.3% on Nov. 15 and now just 0.4%. “Atlanta Fed economists will not incorporate the figures in their GDPNow calculations until the full trade report is released next week, but we believe the new data will add at least 0.5 points to the tracking estimate,” said High Frequency Economics economist Jim O’Sullivan.
How Much Money Is Out There?
Tax experts agree that U.S. companies have been pushing profits into low-tax foreign jurisdictions. But a new paper that’s the talk of the tax-policy world contends that previous studies drastically overstate revenue losses to the U.S. government. Prior estimates committed a basic double-counting error by making a “significant misinterpretation” of government data involving foreign subsidiaries, the University of Pennsylvania’s Jennifer Blouin and Dartmouth College’s Leslie Robinson write. Corporate profit shifting costs the U.S. between 4% and 15% of corporate tax revenue, not 30% to 45%, they write. For 2012, that’s a gap of between $45 billion and $101 billion between the two approaches.
Not so fast: Kim Clausing, a Reed College economist who produced some of the larger estimates criticized in the Blouin-Robinson paper, wrote on Twitter that her more recent work reflects corrected data and that she will be making other adjustments. “Simple back of envelope calculations from clean data still show an enormous problem” from profit shifting, Ms. Clausing wrote.
The debate over measuring profit-shifting matters as Congress, Democratic presidential candidates and other countries evaluate the 2017 tax law and consider changes to the international tax system. Knowing just how much potential tax money is out there is crucial. —Richard Rubin
Meet the Country Where Riots Boost GDP
It was French economist Frédéric Bastiat who argued that breaking windows is a poor path to economic growth. But the recent performance of his homeland appears to disprove the rule. Purchasing managers’ surveys by research firm IHS Markit last week confirmed the eurozone economy continues to struggle. But one large European power is very clearly bucking the trend: France. Much of the French economy’s resilience this year is explained by domestic demand. Ironically, street demonstrations and vandalism by France’s yellow vests or “gilets jaunes”—a grass-roots protest movement—have helped bring this about. To appease the rioters, President Emmanuel Macron increased public spending, pushing the budget deficit above 3% of gross domestic product after years of steady reductions. The stimulus has proven timely, given the global slowdown. Other European powers such as Germany are still debating whether to ease fiscal policy, Jon Sindreu reports.
WHAT ELSE WE’RE READING
Who’s paying for U.S. tariffs on Chinese imports? “U.S. businesses and consumers are shielded from the higher tariffs to the extent that Chinese firms lower the dollar prices they charge. U.S. import price data, however, indicate that prices on goods from China have so far not fallen. As a result, U.S. wholesalers, retailers, manufacturers, and consumers are left paying the tax,” the New York Fed’s Matthew Higgins, Thomas Klitgaard and Michael Nattinger write in a blog post.
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