Newsletter: Manufacturing Tries to Turn the Corner

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Mighty Momentum

The U.S. might be about to lose half-a-million jobs. Kind of. The Labor Department Friday releases its annual benchmark revisions, incorporating more complete data into the monthly jobs report. A preliminary tabulation showed employers added about 2 million jobs in the year through March 2019—501,000 less than initially thought. Final revisions out Friday will apportion any loss from April 2018 to March 2019, baking the lower numbers into all prior reports for the first time. Separate technical adjustments also arrive, which could affect the rest of 2019’s payroll numbers. There really shouldn’t be any major surprises but—depending on where the revisions fall—the labor market narrative could shift, signaling less momentum.

“The biggest risk this Friday may be psychological. If downward revisions flip last February’s payroll gains negative, it’ll mean the longest streak in continuous payroll gains has already ended,” said Glassdoor senior economist Daniel Zhao. Current Labor Department estimates show employers added only 56,000 jobs in February 2019. If the revisions land more heavily on February than other months, that could break what is now a record 111-month streak of job creation.

WHAT TO WATCH TODAY

U.S. factory orders for December are expected to rise 1.4% from the prior month. (10 a.m. ET)

President Trump delivers the State of the Union address at 9:10 p.m. ET.

TOP STORIES

Just When I Thought I Was Out…

Global manufacturing looked like it was about to turn the corner—from downturn to stabilization and possibly expansion as U.S.-China trade tensions eased. Then coronavirus hit, putting the revival in doubt, Paul Hannon and Harriet Torry report.

• In the U.S., the Institute for Supply Management’s manufacturing index for January indicated a return to growth for the first time since July. Separate surveys of factories in Asia and Europe showed a slower decline in output, with shrinking inventories and steadier orders pointing to a rebound in activity over coming months.
• The surveys were largely completed before uncertainty over the virus disrupted world-wide trade and supply chains. Boeing’s 737 MAX woes, meanwhile, are an additional weight on American manufacturing.
• “The outbreak of the novel coronavirus (nCoV) in China is likely to significantly disrupt activity in 1Q20. The inevitable disruptions to China as well as potential spillovers to the rest of the world should become visible starting with the February [purchasing managers index] report,” J.P. Morgan economists Joseph Lupton and Olya Borichevska write.

The number of confirmed cases of the coronavirus rose above 20,000, Hong Kong reported its first death and gambling center Macau, whose casinos rack up revenues that are more than six times that of the Las Vegas Strip, is closing casinos for half a month due to the quickly spreading pathogen, Stephanie Yang reports.

China’s major real-estate companies have shut sales centers across several cities as the number of reported coronavirus cases grows. Disruption to travel and work will slow property sales nationally, halting them fully in some of the most heavily affected areas. A prolonged freeze would hit a key funding mechanism: Deposits and advance payments now make up the greatest portion of funding for real-estate developers. The risk for global investors is that developers aren’t able to meet their obligations in the offshore bond market, where companies raise U.S. dollars to finance activity. The good news is that there isn’t an immediate refinancing crunch. The biggest wave of debts comes due in the first half of 2021, when developers will need to refinance $45.1 billion, Mike Bird reports.

Foreign investors were net sellers of U.S. commercial real estate last year for the first time since 2012, posing a fresh setback for a market that is already showing signs of strain. Chinese were by far the biggest foreign sellers of U.S. office towers, retail centers, hotels and other commercial property, unloading $20 billion more than they bought, according to data from Real Capital Analytics. But investors from Japan, Canada, the U.K. and elsewhere were also active sellers last year. Their exodus is putting new pressure on the market as property values have leveled off, new state and federal regulations are kicking in and many investors see few catalysts to push prices much higher after a long run, Esther Fung reports.

No Exceptions

Trump administration officials are granting fewer exemptions to tariffs on Chinese imports, with the approval rate recently plunging to 3% in the third round of levies from 35% in the first two. Requests for exemptions have been made by more than 4,500 companies, which typically say they have no viable or cost-effective alternatives to Chinese products. The Trump administration has defended the tariffs, saying they are needed to pressure China to change practices that are unfair to U.S. businesses and can encourage U.S. companies to build or source products domestically, Anthony DeBarros and Josh Zumbrun report.

WHAT ELSE WE’RE READING

The European Union’s final words to the U.K.? “Thank you, goodbye and good riddance.” The misspoken farewell, relayed by the Croatian ambassador to her U.K. counterpart as Britain left the EU last week, perhaps sums up 47 years of the Britons being lost in translation in Brussels, Mehreen Khan reports in the Financial Times.

Alaska’s permanent fund since 1982 has granted each resident a no-strings-attached dividend—$1,600 in 2018. That’s led to more babies. “Primary results suggest that the dividend increased fertility and reduced the spacing between births, particularly for females in the 20-44 year age group. Our results suggest that policies aimed at increasing income should consider fertility consequences and their implications for economic growth,” Nishant Yonzan, Laxman Timilsina and Inas Rashad Kelly write in a National Bureau of Economic Research working paper.

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