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Feb 1, 2019

Real Time Economics: Trump Upbeat On a Trade Deal, Jobs Report On Tap

The Wall Street Journal.
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Real Time Economics
It's jobs day! U.S. employers are expected to increase payrolls for a record 100th consecutive month. We'll publish a special edition of this newsletter after the latest numbers are released.
Good morning. Jeff Sparshott here to take you through the day's economic news, including the latest on U.S.-China trade talks, what to look for in the employment report, a stock market celebration and another sign of weakness in China. Send us your questions, comments or suggestions by replying to this email. 

Deal Me In

The U.S. and China moved closer to settling their trade dispute. The next step: President Trump expects to meet with Chinese President Xi Jinping later this month to resolve the conflict that has rattled the global economy.  “I think we can do it by March 1. Can you get it down on paper by March 1? I don’t know,” Mr. Trump said.
U.S. and Chinese negotiators made progress in two days of intense talks this week. China's Vice Premier Liu He delivered a package of modest concessions, including more Chinese purchases of U.S. farm and energy products and promises to invite more U.S. capital into the manufacturing and financial-services sectors. But the offer falls short of what Washington has been seeking and the two sides are still far from a deal, Lingling Wei, Bob Davis and Michael C. Bender report.

Never Let a Serious Crisis Go to Waste

President Trump still has the upper hand in trade talks. The question is whether he will use it—or settle for a face-saving deal to boost markets and shore up his rural constituency. The initial signals aren’t encouraging, Nathaniel Taplin writes.
The main takeaway from Thursday’s meeting: China will buy five million tons of soybeans. China bought nearly 32 million tons in 2017, before trade tensions escalated. If the final result is U.S. tariffs disappearing and Chinese commodity purchases simply rising back to where they were before—along with a few more highly circumscribed new openings for U.S. companies—it will be difficult to say what all this disruption was for. 

What to Watch Today

U.S. nonfarm payrolls for January are expected to increase by 170,000 from the prior month, a marked slowdown from December's 312,000 gain. The unemployment rate is expected to hold steady at 3.9%. (8:30 a.m. ET)
Markit's manufacturing purchasing managers index for January is expected to tick down to 54.8. (9:45 a.m. ET)
The Dallas Fed's Robert Kaplan participates in a moderated Q&A at 9:45 a.m. ET.
The Institute for Supply Management manufacturing PMI for January is expected to tick down to 54.0 from 54.1 a month earlier. (10 a.m. ET)
U.S. construction spending for November is expected to rise 0.2% from the prior month. (10 a.m. ET)
The University of Michigan's consumer sentiment index for January is expected to climb to 91.0 from 90.7 earlier in the month. (10 a.m. ET)
U.S. auto sales for January are expected to slow to an annual pace of 17.2 million from 17.55 million a month earlier.

Top Stories

Run the World (Girls)

Here’s an interesting subplot for Friday’s jobs report. The share of prime-age Americans either working or looking for work matched an eight-and-a-half year high in December. The big driver: young women. This chart looks like a lot of spaghetti until late 2016, when women ages 25 to 34 start to break away.

Why young women? Michael Pearce, senior U.S. economist at Capital Economics, thinks it's partly because they are having kids later or not at all. The general fertility rate hit a historical low in 2017, and the decline has been especially sharp for 25-to-29-year-olds.

That means young women are less likely to stay home with children and more likely to jump into the labor pool. The trend is especially apparent over the long term.
That's a nice boost to the labor force in the short run. In the long run? "The good news on participation is coming at the cost of slower population growth, which will become a drag on the economy’s potential growth rate," Mr. Pearce says.

Feel the Noise

The partial government shutdown may distort January's jobs report. Furloughed federal employees will be counted on payrolls, but additional public-sector hiring was likely limited during the month. And there may be a knock-on effect through the private sector. Last year, private employers added an average of 213,700 jobs each month. If the private figure is close to average, that would be a sign most businesses shrugged off the shutdown. A figure below 100,000 could point to more significant negative effects, Eric Morath writes. 

Pay Day

Something else to watch: wages. The monthly jobs report tracks average hourly earnings for private-sector workers. They've risen better than 3% for three straight months—the first time that's happened since the recession ended. A separate, broader measure of compensation out Thursday confirms steady pay gains: The employment-cost index for the fourth quarter showed wages and salaries for all civilian workers jumped 3.1% from a year earlier, the biggest increase since 2008. 

Markets Love the Economy

Banks and smaller companies propelled stocks to their best January in 30 years, a sign that investors are favoring sectors tied to the U.S. economy. Those groups were among the biggest laggards during the fourth quarter’s steep slide. Their reversal suggests that investors who were bracing for a sharp U.S. slowdown have been soothed by cautious comments from the Federal Reserve, signs of strength in the labor market and data pointing to tepid inflation, Amrith Ramkumar reports. 

Advantage: U.S.A.

China’s manufacturing sector contracted at the start of 2019, with a private gauge falling to its lowest level in nearly three years. The Caixin China manufacturing purchasing managers index has now stayed below 50, the mark that separates expansion from contraction, for two straight months. Surveys of manufacturers across the eurozone also pointed to fresh areas of weakness. U.S. manufacturing gauges, out Friday, are expected to remain well into positive territory. 

What Else We're Reading

Now that's a pay raise. "Employees at Audi’s plant in Gyor, which employs 13,000 people, called off a week-long strike this week after winning one of the biggest wage increases that Hungary’s unions have secured," the Financial Times reports. The figure: 18%.
Former presidential candidate and restaurant executive Herman Cain is being considered by President Trump for one of two vacancies at the Federal Reserve. What does he think about monetary policy? "A dollar should be defined—as it was prior to 1971 under the postwar Bretton Woods system—as a fixed quantity of gold," he wrote in a 2012 WSJ op-ed.
What if there's a robot coming for your comfy white-collar career? A "form of artificial intelligence called machine learning has given computers skills like reading, writing, speaking and recognizing subtle patterns. Thinking computers...are opening a new phase of automation and bringing the pluses and minuses to a whole new class of workers—those who work in offices rather than farms and factories. These people are largely unprepared," the Graduate Institute, Geneva's Richard Baldwin writes in the WSJ.

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