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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.
Firmer Footing
The global economy is regaining some of its footing. U.S. business activity improved to a five-month high in December, a new survey showed Monday, and China’s factory production and consumer spending picked up in November, Eric Morath and Paul Hannon report.
The good data: China’s industrial output and retail sales accelerated, and U.S. purchasing managers were more optimistic about economic activity.
The bad data: Europe is still struggling, and global growth is expected to slow to 3% for 2019—the lowest rate since the economic crisis.
The bonus: Risks are receding. The U.S. and China reached a limited trade deal, another year-end government shutdown looks unlikely, there’s more Brexit clarity and the Federal Reserve plans to keep rates low.
The upshot: An imminent recession seems unlikely and the economy looks set to rebound, but not by a lot. “We’re looking at moderate economic growth in 2020,” said Scott Brown, chief economist at Raymond James.
WHAT TO WATCH TODAY
U.S. housing starts for November are expected to rise to an annual pace of 1.34 million from 1.314 million a month earlier. (8:30 a.m. ET)
U.S. industrial production for November is expected to rise 0.8% from the prior month. (9:15 a.m. ET)
The U.S. job openings and labor turnover survey for October is out at 10 a.m. ET.
The Dallas Fed’s Robert Kaplan speaks at the Council on Foreign Relations at 8 a.m. ET and the Boston Fed’s Eric Rosengren speaks to the Forecasters Club of New York at 1 p.m. ET.
The Bank of England’s Mark Carney speaks in Frankfurt at 2:15 p.m. ET.
Japan’s trade balance for November is out at 6:50 p.m. ET.
TOP STORIES
If You’re Happy and You Know It…
You know who’s pretty happy with the latest round of economic news? Investors. Stocks on both sides of the Atlantic clinched records Monday as investors doubled down on bets that some of the biggest risks to financial markets are clearing, Alexander Osipovich and Avantika Chilkoti report.
U.S. construction companies are feeling it too. The National Association of Home Builders index of builder sentiment in December rose to the highest level since June 1999. “Builders are continuing to see the housing rebound that began in the spring, supported by a low supply of existing homes, low mortgage rates and a strong labor market,” said NAHB Chairman Greg Ugalde.
Look to see if that translates into stronger housing starts: November construction data is out at 8:30 a.m. ET. The housing industry is expected to add to overall economic growth in the fourth quarter. Macroeconomic Advisers is forecasting a 0.1 percentage point contribution—not much, but a welcome reversal after the industry dragged down gross domestic product through all of 2018 and the first half of 2019.
Let’s Make a Deal
Federal government fiscal policy worked as a drag on economic growth for about half of Barack Obama’s presidency. Republican lawmakers enacted $889 billion in net spending cuts during the final six years of his administration, according to the Manhattan Institute. Under President Trump, tax cuts and spending increases have helped goose growth during all but the first quarter of 2017. That doesn’t look set to change. Democrats and Republicans on Monday released a nearly $1.4 trillion budget agreement. The spending deal lasts through the rest of the fiscal year ending Sept. 30, 2020. It permanently repeals a number of health-care-related taxes and raises discretionary federal spending by about $50 billion compared with last fiscal year, Andrew Duehren and Richard Rubin report.
Where Are the Good Jobs?
Manufacturing jobs used to be stable, well-paying jobs. Are they still? A Labor Department analysis shows average hourly earnings for production workers in manufacturing fell below those for all private sector workers in 2006—and stayed there. One reason: Hourly pay in manufacturing has been growing much slower than in the service sector, and some of the best paying factory jobs have come under the most intense pressure from outside forces. The motor vehicle industry is a case study: Hourly earnings in the sector were among the highest in 1990. But pay has grown at a mere 1.5% annualized pace since, less than inflation. Hourly wages across the private sector as a whole grew almost twice as fast during the same period.
The Baby-Sitters Club
More than three million women have joined the workforce during Japanese Prime Minister Shinzo Abe’s seven years in office, compared with a million men. But many are in part-time jobs, and the number of women in senior positions remains small. The proposed solution: babysitting. In October, the government expanded the number of babysitting services that are eligible for subsidies. In some cases, it started giving lump sums to families of up to several hundred dollars a month for babysitters, River Davis reports.
When families have plenty of childcare options, mothers are more likely to work. In the Netherlands, around 64% of families with children under the age of three turn to relatives, babysitters, nannies or other informal caregivers to watch their children. That is higher than many other European countries, and the Netherlands also has one of the highest female labor-force participation rates in the Western world.
WHAT ELSE WE’RE READING
The U.S. economy is becoming increasingly concentrated in large cities and by the coasts. “Just 31 counties, or the top 1% by share, made up 32.3% of U.S. gross domestic product in 2018, according to data released last week by the Bureau of Economic Analysis that included nearly 20 years of county-level GDP data. That’s despite these counties only having 26.1% of employed Americans and 21.9% of the population last year. Their combined GDP share is also up from a recession low of 30.1% in 2009,” Andre Tartar and Reade Pickert report at Bloomberg.
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