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Feb 22, 2019

Real Time Economics | Why Aren’t Companies Investing More?

The Wall Street Journal.
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Real Time Economics
Chinese President Xi's special envoy is in Washington for trade talks. Can he deliver the kind of structural reform the U.S. is demanding? Good morning. Jeff Sparshott here to take you through key developments in the global economy, including the paradox of strong hiring and weak investment, sagging home sales, more warnings signs from Europe and Asia, and physical exertion on the job. Send us your questions, comments or suggestions by replying to this email.
 

Can He Deliver?

President Trump is set to meet with Chinese Vice Premier Liu He on Friday. The White House is counting on the special envoy to get Beijing to accept tough new trade strictures. Both sides are focused on reaching a deal before a March 1 deadline that could see tariffs on $200 billion in Chinese imports rise to 25% from 10%.
But deep gaps remain between U.S. and Chinese negotiators over some fundamental issues, Lingling Wei and Bob Davis report. And there are questions on whether Mr. Liu can deliver on structural change. The pledges he has made to his counterparts, for example, haven’t been matched by changes in the written text being negotiated between the two sides. This has prompted U.S. negotiators to debate whether Mr. Liu is trying to lull them as a tactic, or can’t get the Chinese bureaucracy to agree to necessary changes. 

What to Watch Today

It's a big day for Federal Reserve chatter: Atlanta's Raphael Bostic delivers opening remarks at a conference on economic and financial conditions at 8:15 a.m. ET; Chicago Booth's Monetary Policy Forum features New York’s John Williams and San Francisco’s Mary Daly at 10:15 a.m. ET, Vice Chairman Richard Clarida at 12 p.m. ET, Vice Chairman Randal Quarles, Philadelphia’s Patrick Harker and St. Louis’s James Bullard at 1:30 p.m. ET; and Mr. Williams delivers closing remarks at a conference on economic and financial conditions at 5:30 p.m. ET.
European Central Bank President Mario Draghi speaks in Bologna, Italy, at 10:30 a.m. ET.
President Trump meets with Chinese Vice Premier Liu He in the Oval Office at 2:30 p.m. ET.

Top Stories

Measure of Confidence

Businesses would rather hire workers than spend on new equipment. A widely-watched measure of how much businesses are investing fell for the fourth time in five months at the end of 2018. It still hasn't returned to its postrecession peak.

Job growth, meanwhile, has been torrid. The economy is adding jobs at the best clip since 2016.

What gives? Possibly strong demand alongside weaker confidence. Small-business optimism, for example, is down for five straight months and hit a more-than-two-year low in January amid uncertainty about domestic politics and global growth.
"Adding to payrolls is more defensible than enacting a costly capex project when future economic conditions are so opaque. Those hired can be kept on payroll, or if necessary re-assigned elsewhere or ultimately laid off in the event of a recession," says the Economic Outlook Group's Bernard Baumohl.

Spring Thaw?

Sales of previously owned homes fell in January for the third consecutive month, hitting the lowest level since November 2015, Harriet Torry reports. But weaker home-price gains and falling mortgage rates could bode well for a pickup this spring. Last month's national median sale price for a previously owned home posted its slowest year-over-year increase since February 2012. And mortgage rates this week fell to the lowest level in more than a year.  

Down In the Dumps

German business sentiment hit a four-year low in February, a sign that the economic troubles which started in the second half of 2018 are continuing into 2019. The country escaped sliding into recession by the skin of its teeth in the final quarter of last year. Germany’s gross domestic product expanded at an annualized rate of 0.1% in the fourth quarter. In the three months through September, the economy contracted by 0.8%, Nina Adam reports.

Corporate Caution, Part 1

Trade tensions, slower economic growth and Brexit are denting the outlook for companies in Europe. Among the 195 firms listed in the Stoxx Europe 600 index that reported fourth-quarter earnings through Feb. 14, earnings per share fell 0.7%, compared with a 16% rise in the fourth quarter of 2017. Revenue growth slowed for the first time since 2015, Nina Trentmann reports.

Corporate Caution, Part 2

China’s search-engine giant Baidu Inc. expects to post its slowest revenue growth in nearly two years in the current quarter, with advertising pinched by tighter government regulation and the downturn in the Chinese economy. Baidu’s business, which relies on ads from Chinese medical, retail and other companies, is a barometer for the health of China’s private sector, Yoko Kubota and Maria Armental report.

Do You Even Lift Bro?

The majority of U.S. workers need to flex their muscles, at least a little, on the job. Only 26.6% of workers are employed in sedentary jobs, meaning they never need to lift more than 10 pounds at work. Newly released Labor Department data showed 35.5% of workers require a medium level of strength on the job, meaning they frequently lift between 11 and 25 pounds and occasionally need to lift a much as 50. Less than 2% were required to do "very heavy work," meaning they frequently lifted more than 50 pounds, and sometimes more than 100 pounds. However, some occupations are quite sedentary. For example, 84.2% of telemarketers are not required to lift objects on the job. —Eric Morath

Trade Talks: What They're Saying

We expect China and the U.S. to reach a trade deal, which, at the very least, would include a plan to zero out within a couple of years China’s merchandise trade surplus with the U.S. —Barclays
As we grind towards a potential settlement, I think it increasingly likely that transactions, rather than principles and ideology will shape the deal. —Suttle Economics
We believe the China–U.S. trade talks, covering nine areas, are indeed likely to make progress, convincing Trump it is worth extending the tariff truce if necessary. —BNP Paribas
Negotiators are making progress sketching out the specifics of a U.S.-China trade deal, which suggests that Trump is likely to postpone the tariff hikes scheduled for next week. —Capital Economics

 

What Else We're Reading

The number of people crossing into the United States illegally is nearing the lowest level in decades. "For the White House, that might be a triumph. But for the agriculture industry, the impact is acute. Each year, its labor force dwindles. To fill those positions, employers have turned to temporary visa programs that recruit workers in Mexico and Central America. Since 2016, the number of U.S. agricultural visas has grown from 165,000 to 242,000, a record high," Kevin Sieff and Annie Gowen report in the Washington Post.
Are immigrants more creative than native-born Americans? "We find uniformly higher rates of innovation in immigrant-owned firms for 15 of 16 different innovation measures; the only exception is for copyright/trademark. The immigrant advantage holds for older firms as well as for recent start-ups and for every level of the entrepreneur’s education," J. David Brown, John Earle, Mee Jung Kim and Kyung Min Lee write in a National Bureau of Economic Research working paper.

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