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Trading Down
U.S. tariffs triggered a slide in imports while American exports picked up in November, pushing the trade deficit to its lowest level since October 2016. Tariffs went into effect on a range of Chinese consumer goods in September, including footwear and many electronics. Economists expect the sharp decline in imports to abate in early 2020 because of the recently negotiated phase-one trade deal. The partial agreement calls for the U.S. to cut the tariff rate to 7.5% from 15% on about $120 billion of Chinese products, Harriet Torry reports.
The latest data suggest trade is likely to make a large, positive contribution to the economy in the fourth quarter, after proving a drag in the second and third quarters. Forecasting firm Macroeconomic Advisers is tracking fourth-quarter gross domestic product growth at a 2.5% pace, with net exports contributing 1.5 percentage point to the gain.
WHAT TO WATCH TODAY
The ADP employment report for December is expected to show a net gain of 150,000 jobs from the prior month. (8:15 a.m. ET)
Fed governor Lael Brainard speaks on the Community Reinvestment Act at 10 a.m. ET.
U.S. consumer credit for November is out at 3 p.m. ET.
China’s consumer-price index for December is out at 8:30 p.m. ET.
TOP STORIES
China Pulls Back
Chinese investments in North America and Europe hit a nine-year low in 2019, according to a new report from Baker McKenzie and Rhodium Group. The drivers: Beijing’s restrictions on outbound investment, heightened regulatory reviews in the U.S. and Europe, slower economic growth and tighter credit conditions in China, and geopolitical tensions. The outlook: “We see grounds for a degree of optimism as there are a number of variables showing change in the right direction, which could propel Chinese outbound investment to bottom out and return to modest growth in 2020,” said Baker McKenzie’s Tracy Wut. Those factors: Looser credit in China, a better understanding of new U.S. and European investment rules, a phase-one trade deal that may help cool tensions and China’s efforts to open its markets.
Pedal to the metal. Tesla said it has begun preparing its new China factory for the auto maker’s next all-electric vehicle, a compact SUV. The Palo Alto, Calif., company said it is starting work related to the Model Y at the Shanghai factory, its first overseas assembly plant. Tesla has been assembling its Model 3 sedan at the Shanghai plant for several months, Yin Yijun, Yoko Kubota and Tim Higgins report.
Tap the brakes. General Motors posted its biggest-ever sales drop in China last year and warned of a tough 2020, underscoring the challenges that U.S. car makers are facing as a protracted decline grips the world’s largest auto market, Mike Colias and Yoko Kubota report.
Pig out. U.S. pork producers are hoping a thaw in relations will be a boon for exports to China. Chinese buyers opted to purchase more pork from the European Union and Brazil after an African swine fever epidemic decimated hog herds in Asia, rather than turn to the U.S. The result: 575 million pounds of frozen U.S. pork stored in warehouses and hog futures still well below their near-term peak.
Two-Track Economy
The U.S. factory sector is the weakest in more than a decade. That hasn’t spilled over into the rest of the economy. The Institute for Supply Management’s purchasing managers index for nonmanufacturing rose to its highest level in seven months in December. That’s in sharp contrast to ISM’s manufacturing gauge, which last month slumped to its lowest mark since June 2009. The factory sector appears to be in recession, held back by trade tensions and weakness overseas. The service sector—a much bigger chunk of the economy—remains an engine of economic growth.
It could be worse. German manufacturing orders fell in November, the Federal Statistical Office said Wednesday, signaling that the downturn in the German industrial sector continues. “There are still no signs at all of a bottoming out for German industry. Instead, the free fall continues. In fact, there is simply one word to describe the current state of the German industry: ‘dire,’ ” said ING economist Carsten Brzeski.
Year in Review: Jobs
Job creation slowed last year after a robust 2018, but the December figure—and any revisions to prior months—will determine how the year stacks up. The latest data will come in Friday’s jobs report.
Worst of times: Last year will be the worst for job creation since 2010, just after the recession ended, if employers added fewer than 98,000 jobs last month.
Best-ish of times: But if payrolls grew by a net 177,000 or more, last year will surpass 2017’s job creation figure, and place 2019 near the middle of the pack in the decade-long expansion.
Economists expect employers added 160,000 jobs in December. Broadly, the historically long stretch of job creation is consistent with a growing U.S. economy, and last year’s cooling reflects a tight job market, global uncertainty and fading effects of 2018’s fiscal stimulus. —Eric Morath
WHAT ELSE WE’RE READING
This week we’ll highlight research presented at the American Economic Association’s annual meeting, via the WSJ’s Greg Ip.
Oregon’s 2008 ban on non-compete agreements raised average hourly earnings by 2% to 3%, and for workers who were actually bound by the agreements by as much as 14% to 21%, according to Michael Lipsitz of Miami University and Evan Starr of the University of Maryland.
The Phillips Curve–the purported inverse relationship between inflation and unemployment–has flattened nationally since the 1980s but steepened in individual states, according to Emi Nakamura of the University of California at Berkeley (and last year’s winner of the Clark medal, awarded to the best economist under age 40).
Large firms move high-skill jobs out of states with high personal taxes, according to an analysis of big firms’ job postings by Janet Gao of Indiana University and two co-authors.
Male employees are promoted faster by male than female managers, whereas female employees are promoted at similar rates by managers of both genders., Ricardo Perez-Truglia of the University of California-Los Angeles and Zoe Cullen of Harvard University find. The benefit is restricted to male employees who work in close physical proximity with their managers, for example by sharing smoke breaks.
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