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Real Time Economics: What’s the Biggest Risk for the Economy?
Real Time Economics
Which do you think is the bigger economic wild card for 2019: The White House or the Federal Reserve?
morning. Jeff Sparshott here to
take you through key developments in the global economy. We'll look at
China's slowdown, shifting supply chains, another bad sign for the
housing market, growing U.S. budget deficits and what exactly the
European Central Bank got for its $3 trillion bond-buying spree. Let us know what you think by replying to this email.
2019's Big Threat: Trade
Economists think a trade war between the U.S. and China is the biggest threat to the U.S. economy in
2019. Nearly half who responded to a survey by The Wall Street
Journal said a U.S. dispute with Beijing was a greater risk than
macroeconomic or financial disruptions, Harriet Torry reports.
Trump, in contrast, recently told the Journal the Federal Reserve was
the biggest risk to the economy, because it has been raising interest
rates. Just 7.3% of economists, or four respondents in total, agreed
that Fed rate increases were the biggest threat in 2019.
What to Watch Today
U.S. retail sales for November, out at 8:30 a.m. ET, are expected to rise 0.1% from the prior month.
U.S. industrial production for November, out at 9:15 a.m. ET, is expected to rise 0.3% from a month earlier.
Markit's U.S. flash manufacturing index for December, out at 9:45 a.m. ET, is expected to inch down to 55.0
from 55.3 at the end of November. The flash services index is expected to slip to 54.5 from 54.7.
European Union leaders meet Thursday and Friday to discuss Brexit, budget, migration and other issues.
China’s downturn deepened last month.
Industrial production, weighed down by automobile makers and property
markets, advanced at the slowest pace since early 2016. Growth in retail
sales fell to the lowest level in more than 15 years.
downward cycle hasn’t finished yet, and we’ll probably see more
weakness in the first half of the year,” said Standard Chartered's
Winners and Losers
Not everyone is a loser in a U.S.-China trade war. As tensions intensify, global companies are actively diversifying their supply chains away from China.
This is good news for countries receiving that investment and for the
banks and supply-chain consultants that are helping with the transition.
Popular destinations include Vietnam, Indonesia the Philippines and
Cambodia, Aaron Back reports.
Case study: Steve
Madden CEO Edward Rosenfeld said the company is “aggressively shifting
production out of China to other countries, primarily Cambodia.”
What Happens In Vegas
The national housing slowdown is spreading
to markets like Las Vegas and Phoenix, where prices still haven’t
reclaimed their pre-crisis peaks. After home values rose sharply this
year, the Las Vegas market has shifted in recent weeks. Prices fell
slightly in November while the inventory of unsold homes has roughly
doubled compared with a year earlier, Laura Kusisto reports.
year’s slowdown began in some of the hottest markets like Seattle and
Denver. Now these cities are looking less like an exception and more
like leaders of a broader national slump.
Mo' Money Mo' Problems
The U.S. budget gap widened
in the first two months of the fiscal year as tax collections lagged
behind federal outlays, Kate Davidson reports. Customs duties during
October and November rose 86% to $11.8 billion due to an increase in
tariffs. But that was hardly enough to offset the month's $205 billion
shortfall. The deficit is headed toward $1 trillion this fiscal year.
Nominally communist China isn't exactly like the actually communist Soviet Union.
But it's economy is more Soviet than you think. "And despite its
capitalist trappings, the Communist Party is piloting China's economy in
a direction similar to that of the Soviet Union in
its twilight," The Economist writes.
Mandatory handgun purchase delays cut suicide rates.
"We find that the existence of a purchase delay reduces firearm-related
suicides by between 2% and 5% with no statistically significant
increase in non-firearm suicides.
Purchase delays are not associated with statistically significant
changes in homicide rates," Griffin Edwards, Erik Nesson, Joshua
Robinson and Fredrick Vars write in The Royal Economic Society's Economic Journal.
The U.S. budget deficit has never been so high when
the economy was so strong. "Rarely have deficits risen when the
economy is booming. And never in modern U.S. history have deficits been
so high outside of a war or recession (or their aftermath)...Now would
be the time to act: today's relatively strong economy offers
policymakers the opportunity to reduce deficits without fear of
worsening a recession or disrupting a fragile recovery," the Committee for a Responsible Federal Budget writes.