Newsletter: Does China Really Need $50B in U.S. Farm Goods?

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Good morning. Jeff Sparshott here to take you through key developments in the global economy. Send us your questions, comments and suggestions by replying to this email.

Amber Waves and Waves and Waves of Grain

The partial U.S.-China trade pact could be a boon to American farmers hard hit by the trade war, but the agricultural sector’s relief over a deal is being tempered by skepticism over the ambitious targets set by U.S. negotiators, Josh Zumbrun and Kirk Maltais report.

• U.S. officials said China has committed to boosting agricultural purchases to at least $40 billion—and perhaps as high as $50 billion—annually over the next two years. The latter figure would nearly double peak sales before the trade war.
• There is little doubt that China can scale up its purchases. But in nearly two decades of burgeoning American agricultural exports to China, there hasn’t been a period with the scale of growth foreseen by the deal.
• “They need U.S. pork, they need U.S. soybeans. Do they need $50 billion of agricultural goods? Absolutely not,” said Dave Marshall, a farm-marketing adviser with First Choice Commodities.

WHAT TO WATCH TODAY

The WSJ’s survey of economists it out at 10 a.m. ET.

U.S. crude-oil inventories for the prior week are out at 10:30 a.m. ET.

The Chicago Fed’s Charles Evans speaks to the Economic Club of Indiana at 12:40 p.m. ET.

TOP STORIES

Strong Signals

U.S. factory production, home building and the job market showed signs of a pickup, the latest signals of a firming economy, Harriet Torry reports.

U.S. industrial production, a measure of factory, mining and utility output, posted its biggest month-over-month increase since October 2017. Output in the auto sector rebounded following a strike at General Motors, helping drive the gain.

Construction of new homes climbed in November, a sign of continued momentum in the housing sector. Housing starts rose to a seasonally adjusted annual rate of 1.365 million, just shy of August’s mark, which was the highest since 2007.

Job openings at U.S. employers increased at the end of October. The level of openings is down from a year earlier but still historically high, showing solid demand for workers.

Add it up: The Atlanta Fed’s GDPNow tracker had fourth-quarter growth at a miserable 0.3% pace on Nov. 15. As of yesterday, it’s up to a 2.3% pace.

Flight Delays

Despite November’s decent industrial production numbers, manufacturing is still mired in a soft patch. Boeing’s decision to suspend production of its 737 MAX jetliner is going to make it even worse—dragging down the economy in the process. Morgan Stanley figures the halt could knock as much as 0.8 percentage point off the first-quarter growth rate. JP Morgan Chase, Wells Fargo and Capital Economics separately estimate it will cost around half a percentage point. Based on current estimates, that’s going to leave first-quarter economic growth closer to 1% than 2%. The good news? “GDP will bounce back once production resumes, but expect some turbulence in the U.S. economic data along the way,” says Morgan Stanley’s Robert Rosener.

Ford Adds Jobs

Here’s one bit of good manufacturing news: Ford will invest nearly $1.5 billion in two assembly plants, creating about 3,000 factory jobs. The automaker said Tuesday that it will overhaul a plant in Wayne, Mich., and retool a factory in Dearborn, Mich., Mike Colias reports.

Brexit or Bust

British Prime Minister Boris Johnson’s government said it would leave a post-Brexit transition period at the end of 2020, with or without a trade deal with the European Union. The tough line prompted the pound to fall more than 1% to $1.31, its biggest drop in a year, amid worries of Britain’s economy being hit as trade with the country’s largest partner is disrupted, Max Colchester and Laurence Norman report.

QUOTE OF THE DAY

“It’s really a tale of two economies. And the stock market, of course, is very bullish. But the industrial economy does not reflect any growth at all, worldwide, to speak of.” —FedEx Chairman and CEO Frederick Smith 

WHAT ELSE WE’RE READING

Cleveland Fed researchers built a new labor-market indicator based on advance layoff notices. “We find evidence that these notices, aggregated to the national level, lead other prominent labor market indicators, such as initial unemployment insurance claims, the change in the unemployment rate, and changes in private employment. … Most recently, WARN data suggest a slight increase in labor market slack,” Pawel Krolikowski, Kurt Lunsford  and Meifeng Yang write in an economic commentary.

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