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Trading Places
The U.S. trade deficit narrowed in 2019 for the first time in six years as disputes with China and other countries reshaped relationships with economic partners. Exports declined last year for the first time since 2016. Imports fell more sharply. That combination shrank the overall trade deficit 1.7%, to $616.8 billion, Harriet Torry reports.
- China lost its rank as the top U.S. trade partner, falling to third place behind Mexico and Canada.
- U.S. trade in goods rose faster with Vietnam than with any of its largest trading partners. Trade with China fell most rapidly.
- The trade deficit expanded in recent years partly because the U.S. economy was growing faster than the rest of the world. A smaller deficit due to falling imports and exports can be a sign of weaker demand and slowing economic growth.
WHAT TO WATCH TODAY
U.S. jobless claims are expected to slip to 215,000 from 216,000 a week earlier. (8:30 a.m. ET)
U.S. labor productivity in the fourth quarter is expected to rise at a 1.6% pace from the prior quarter. (8:30 a.m. ET)
Dallas Fed President Robert Kaplan speaks at 9:15 a.m. ET and Fed Vice Chairman Randal Quarles speaks on monetary policy and the economy at 7:15 p.m. ET.
Japan’s household spending for December is out at 6:30 p.m. ET.
TOP STORIES
Black Gold
The shifting trade picture isn’t just about tariffs and trade policy, and it certainly isn’t about rising demand for American factory and farm goods. Rather, it’s got a lot to do with the American shale boom. Since the start of 2018, U.S. petroleum exports are up a little more than 30%. All other goods? Down almost 2%. The trade deficit in petroleum last year was the smallest on record. Other stuff? The biggest.
China said it would slash tariffs on $75 billion of U.S. imports in half as part of its efforts to implement a recently signed trade agreement with Washington. The cuts come amid growing doubts about Beijing’s ability to follow through on the phase-one trade deal, in which China has pledged to boost its purchases of American merchandise and services by $200 billion over two years. A coronavirus outbreak that began in late January has caused a near-standstill in economic activity in the country, Lingling Wei reports.
U.S. companies are maneuvering to sidestep tariffs on Chinese imports, using a variety of strategies to avoid the payments without upending their supply chains. Tariffs remain on roughly $370 billion in Chinese imports to the U.S. annually. Instead of shifting production to the U.S., some American manufacturers are tweaking their assembly lines and shipping routes to keep most of their operations in China—but in a way that doesn’t oblige them to pay tariffs to the U.S. government, Katy Stech Ferek reports.
Precautions taken to contain the coronavirus outbreak are ricocheting across global industries. Airbus shut down a factory in China that accounts for almost 10% of the production of its most popular jet, Hyundai Motor said it was idling all seven of its plants in South Korea because of a lack of parts from suppliers in China and Tesla warned of delivery delays in China. Apple, which depends on China as a manufacturing base, expects to ship between 5% and 10% fewer iPhones than was projected prior to the outbreak, Benjamin Katz and Kwanwoo Jun report.
The virus is also straining China’s medical-mask market. Officials are buying up local supplies of medical masks and directing them to the front lines of the outbreak, leaving companies to ramp up production to fill global demand.
Same As It Ever Was
Purchasing managers are feeling a little better about the U.S. economy. The people who sit in the center of a company’s supply chain and make decisions about whether to order more supplies, change inventories or alter prices say the outlook is improving for both the manufacturing and service sectors. Factory activity in January expanded for the first time since July and the service sector was the strongest since August. What’s that telling us? “The current level of the surveys is very consistent with growth in the 2%-2.25% range,” said Phil Suttle of Suttle Economics. In other words, it’s the same-old same-old, just-over-2% growth rate that has prevailed throughout the 10-year expansion.
Jobs Day! Jobs Day!
The Labor Department releases its January employment report Friday. Economists are forecasting a gain of 158,000 jobs and the unemployment rate steady at 3.5%. Those are solid numbers during a record-long stretch of job creation. If there’s been a recent crack in the labor market, it’s weekly wages and hours. Average weekly hours for private-sector employees have declined annually for nine straight months. “A reduction in average hours isn’t necessarily a sign of impending doom for the labor market,” said Nick Bunker, an economist at Indeed Hiring Lab. “Yet lower average working hours contribute to lower weekly earnings growth—which may hinder economic growth moving forward.”
QUOTE OF THE DAY
“We may have finally reached the point where we’ve taught people recessions or expansions do not die of old age.” —San Francisco Fed President Mary Daly, speaking on CNBC
WHAT ELSE WE’RE READING
Central banks around the globe don’t have much room to cut interest rates if a recession hits. Can fiscal policy fill the void? “I am skeptical. Fiscal policy is far too politicized to substitute consistently for modern independent technocratic central banks, which until now have largely taken the lead in short-term stabilization. Fiscal policy takes the lead in fundamental but hugely contentious issues–concerning growth, long-term stability, and allocation–that need to be decided in a democratic fashion, at least in advanced economies. And yet academic depictions of fiscal policy as an objective technocratic tool often make one feel like we are living in an episode of the American television series The West Wing,” Harvard economist Kenneth Rogoff writes at Project Syndicate.
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