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Feb 28, 2019

Real Time Economics | Did the Economy Grow 3% in 2018?.

The Wall Street Journal.
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Real Time Economics
The U.S. and China are getting closer to a trade deal, business and consumer sentiment are looking a little emotional, and we finally get a look at full-year GDP. Good morning. Jeff Sparshott here to take you through key developments in the global economy. Send us your questions, comments or suggestions by replying to this email.

Getting Closer

U.S. Trade Representative Robert Lighthizer said the U.S. was abandoning for now its threat to raise tariffs to 25% on $200 billion of Chinese goods, the strongest sign yet that a trade accord is near. The threat of higher tariffs had shaken world markets and forced U.S. businesses to consider moving operations out of China—while also pressuring Beijing to negotiate a cease-fire, Bob Davis and William Mauldin report.
Mr. Lighthizer said that the U.S. and China reached a tentative agreement on a mechanism to enforce the trade deal, which has long been a stumbling block in talks.

Why Both Sides Want a Deal

China’s economy is slowing. Factory activity in China fell to its lowest level in three years in February. The headline index has signaled contraction in the sector for three straight months and a component measuring new export orders decreased to the lowest level since late 2011.
The trade deficit, one of President Trump’s favorite metrics, is widening. The big reason: demand for U.S. goods slipped last year. U.S. merchandise exports peaked in May. Since, Chinese tariffs have hit U.S. agricultural exports especially hard, dragging down overseas shipments. Imports have been more resilient, partly reflecting strong U.S. domestic demand.

What to Watch Today

Germany's consumer-price index for February is out at 8 a.m. ET.
U.S. gross domestic product for the fourth quarter is expected to rise at a 2.2% annual rate. (8:30 a.m. ET)
U.S. jobless claims are expected to rise to 220,000 from 216,000 a week earlier. (8:30 a.m. ET)
The Chicago purchasing managers index for February is expected to inch down to 56.1 from 56.7 a month earlier. (9:45 a.m. ET)
The Kansas City Fed manufacturing survey for February is expected to hold steady at 5. (11 a.m. ET)
It's a fun day for Federal Reserve watchers: Vice Chairman Richard Clarida speaks on economy and monetary policy at 8 a.m. ET, Atlanta’s Raphael Bostic speaks on the economy and housing at 8:40 a.m. ET, Philadelphia’s Patrick Harker speaks on the economic outlook at 12:15 p.m. ET, Dallas's Robert Kaplan speaks in San Antonio at 1 p.m. ET, Cleveland's Loretta Mester speaks at a women in economics symposium at 7 p.m. ET, and Chairman Jerome Powell speaks on recent economic developments and longer-term challenges at 8:15 p.m. ET.

Top Stories

It's Not as Bad—or Good—as You Think

The gap in performance between “hard” and “soft” data measuring the U.S. economy is widening—and this time sentiment is souring much more than measures of real activity. Soft data includes survey-based measures of sentiment, like consumer confidence and business conditions. Hard data measures actual activity, like GDP, retail sales and industrial production.
A Citigroup index shows that sentiment data have taken a dive in recent months amid heightened political uncertainty, stock-market volatility and recessionary fears. Hard data aren't nearly so bad. Soft data tends to be a bit timelier, so hard data often follows. But sometimes sentiment can swing too far. Take, for instance, the data gap following the 2016 presidential election; the real numbers never rose to the sky-high levels of the surveys. —Sarah Chaney

More Foreign Workers, Please

Employers who rely on seasonal foreign-worker permits are renewing their fight to lift limits on temporary H-2B visas. The Labor Department website used by U.S. businesses to apply for this spring’s round of H-2B visas crashed after a scramble by employers chasing 33,000 available permits. All of them have now been claimed, Louise Radnofsky and Lalita Clozel report. While the number of H-2B worker visas is capped by law at 33,000 semiannually, Congress can allow up to 69,000 additional visas to be made available—if the White House agrees.

The Rundown

Federal Reserve Chairman Jerome Powell said the central bank is close to announcing plans for ending the runoff of its $4 trillion portfolio of bonds and other assets this year. “We’re going to be in a position…to stop runoff later this year,” he said. As the Fed’s holdings mature, the central bank is draining reserves from the banking system. Eventually, reserve scarcity could lead banks to charge more in overnight interbank lending markets, raising the Fed’s benchmark interest rate. Fed officials have signaled they want to end the runoff before that could happen, Nick Timiraos reports.

The Fed Convinces Bridgewater

The Fed's interest rate pause has changed at least one previously pessimistic investor's mind. Ray Dalio, founder of Bridgewater Associates, the world's largest hedge fund, had seen a 50% probability of recession before the next election. On LinkedIn, he writes the probability is now just 35% because the Fed has both the power to cut rates at least two percentage points and restart bond buying ("quantitative easing"), and "the willingness to do that if needed to prevent a recession."  —Greg Ip

I Won't Back Down

Bundesbank President Jens Weidmann defended his public criticism of the European Central Bank’s crisis-fighting strategy while also signaling he would be willing to take the top job at the ECB when Mario Draghi steps down later this year. Underscoring the shift that that could represent for Europe, Mr. Weidmann argued that there is no urgent need for the ECB to respond to an economic slowdown in the 19-nation eurozone by rolling out fresh stimulus measures. Mr. Draghi had previously said that the ECB is ready to use all its policy tools to support the economy, Tom Fairless reports.

Three Is a Magic Number

U.S. gross domestic product numbers are out at 8:30 a.m. ET. Economists expect a 2.2% pace of growth for the fourth quarter, a marked slowdown from 4.2% in the second quarter and 3.4% in the third. But it may be enough to get overall GDP growth above 3% for the full year, a key mark for the Trump administration. Of course, that depends on how you measure 2018 growth. Thursday’s report will offer a couple ways—the full calendar year’s change from the preceding year, and change from the fourth quarter of 2017 to the fourth quarter of 2018. Both are legitimate gauges. The two aren’t always the same. A 3% victory may well be in the eye of the beholder. (Follow the NYT’s @bencasselman for a delightfully wonky explanation here.)

Tweet of the Day

Gordon G. Chang
View Tweet Twitter logo.
#Trump, by walking away from a bad nuke deal with #KimJongUn, will freak out #XiJinping. Xi was counting on Trump signing a trade agreement Beijing had no intention of honoring.

What Else We're Reading

President Trump may not get structural change from China. No biggie. "If President Trump wants to put his name on a big, splashy agreement that ultimately just returns things to the status quo, let him have it. It’s certainly better than tilting at windmills around Beijing’s industrial policy, or hoping to get a black-letter agreement to end industrial espionage that China doesn’t even admit is happening," David Fickling writes at Bloomberg Opinion.
Italy is instituting a kind of universal basic income. "It’s similar to the guaranteed living wage promised in the Green New Deal, which several Democratic presidential candidates support. Yet many of Italy’s center-left politicos and intellectuals, normally sympathetic to such schemes, quietly dread its rollout. They worry that design flaws and implementation problems will discredit similar ideas," Adam O’Neal writes in a WSJ op-ed.

Up Next: Friday

German unemployment figures for February are out at 3:55 a.m. ET.
The eurozone consumer-price index for February is out at 5 a.m. ET.
U.S. personal income and consumer spending for January are both expected to rise 0.3% from the prior month.(8:30 a.m. ET)
The U.S. personal consumption expenditures price index, excluding food and energy, for January is expected to rise 0.2% from the prior month.
IHS Markit's U.S. manufacturing purchasing managers index for February is expected to inch up to 54.0 from 53.7. (9:45 a.m. ET)
The Institute for Supply Management's manufacturing PMI for February is expected to hold steady at 55.6. (10 a.m. ET)
The University of Michigan's consumer sentiment index for February is expected to inch up to 95.8 from 95.5. (10 a.m. ET)
U.S. auto sales for February are expected to hit an annual pace of 16.8 million, up slightly from 16.7 million a month earlier.
The Atlanta Fed’s Raphael Bostic speaks at a National Association for Business Economics conference at 12:50 p.m. ET. 

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