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Mar 29, 2019

Real Time Economics | Mortgage Rates Drop, Prospects for U.S.-China Deal Rise.

The Wall Street Journal.
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Real Time Economics
Good morning. Jeff Sparshott here to take you through key developments in the global economy. Send us your questions, comments and suggestions by replying to this email.

The 4% Mortgage Is Back

Mortgage rates are dropping. Economists and lenders believe they're getting low enough to help jump-start the housing market. The average rate on a 30-year fixed mortgage this week fell to its lowest since January 2018. Some lenders are advertising sub-4%. Just a few months ago, average rates were on the verge of hitting 5%, drying up refinancings and putting a damper on home price growth, Ben Eisen reports.
Thanks, Fed: Rates have been declining along with the yield on the benchmark 10-year Treasury note. The bond-market moves have been spurred by the Federal Reserve’s decision to pause its interest rate increases along with investor worries about the economy.

What to Watch Today

U.S. personal income for February is expected to rise 0.2% from the prior month. (8:30 a.m. ET)
U.S. consumer spending for January is expected to rise 0.3% from the prior month. (8:30 a.m. ET)
January's U.S. personal consumption expenditures price index, excluding food and energy, is expected to rise 0.2% from a month earlier and 1.9% from a year earlier. (8:30 a.m. ET)
The Chicago purchasing managers index for March is expected to fall to 60.7 from 64.7 a month earlier. (9:45 a.m. ET)
The University of Michigan's consumer sentiment index for March is expected to hold steady at 97.8. (10 a.m. ET)
U.S. new-home sales for February are expected to rise to an annual pace of 620,000 from 607,000 a month earlier. (10 a.m. ET)
The Baker-Hughes rig count is out at 1 p.m. ET.
The New York Fed’s John Williams speaks in St. Thomas, Virgin Islands, at 9:25 a.m. ET, the Dallas Fed’s Robert Kaplan speaks at the Global Asset Management Education conference at 10:30 a.m. ET and Fed Vice Chairman Randal Quarles speaks on macroprudential policy at 12:05 p.m. ET.

Top Stories

U.S.-China Progress

China is starting to give ground. Beijing is offering foreign technology firms better access to the country’s fast-growing cloud-computing market. The plan is part of a package of offers on technology-related issues Chinese negotiators are expected to discuss with their U.S. counterparts during high-level meetings, Lingling Wei reports.
Up next: U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin arrived in Beijing Thursday for the latest round of talks. Next week, a Beijing delegation travels to Washington. The two sides are aiming for a package that includes substantial increases in U.S. exports to China and Chinese pledges to address some long-running structural issues, such as allowing greater market access to American companies and boosting protection of intellectual property.

Think Globally, Wait and See Locally

Federal Reserve Vice Chairman Richard Clarida said the central bank may need to pay closer attention than in the past to global risks, including from trade tensions and Brexit. “In today’s world, U.S. policy makers can hardly ignore these risks,” he said. “The U.S. economy’s increasing integration with the rest of the world has made it more exposed to foreign shocks.” 
Precedent: Mr. Clarida became the second Fed official this week to highlight how the Fed eased policy by cutting rates in 1998, when shocks abroad threatened to stoke an international financial crisis, Nick Timiraos reports.

Where Has the Economy Been?

The U.S. economy finished 2018 on a softer note than previously estimated, and new data shows corporate-profit growth stalled, pointing to weak momentum at the start of 2019. Gross domestic product rose at a 2.2% annual rate in the fourth quarter, down from an earlier estimate of 2.6%. A measure of U.S. company earnings, meanwhile, posted no growth in the fourth quarter compared with the prior three months, Harriet Torry reports. Businesses faced slower consumer spending and rising labor costs, which could signal more moderate growth this year despite a strong labor market.

Where Is the Economy Heading?

The U.S. bond market has been hogging all the attention thanks to an inverted yield curve. That’s when the yields on long-term Treasurys fall below those of short-term government securities—something that's happening for the first time since August 2007. Such a reversal of the norm has been a reliable predictor of recessions.

But are there any other prescient recession indicators? Capital Economics's Andrew Hunter says the Conference Board's Leading Economic Index also has a good track record—it's declined before the onset of each recession over the past 50 years, though it's also had some false positives. Right now it has leveled off, which offers some cold comfort. "We don’t think it is pointing to an impending recession. ... Even if it doesn’t fall any further, it provides further reason to think that economic growth is set to slow sharply."

A Day In the Life

The U.K. was supposed to leave the European Union today. The country spent months preparing for what some Brexit supporters dubbed “Independence Day” on March 29. Instead the U.K. woke up to the reality that Brexit is going to drag on and no one is entirely clear how it ends, Stephen Fidler and Max Colchester write.
Next steps: Prime Minister Theresa May  promised to quit if the deal she negotiated—and lawmakers have twice rejected—is passed. She will give it another shot on Friday. Meanwhile, members of Parliament will vote Monday on alternatives to Mrs. May’s deal. They tried and failed at that earlier this week. Time is running short. As things stand, the U.K. will leave the EU on April 12 without a deal.

Work It

The German unemployment rate hit a fresh record low in March as demand for labor remained strong—a trend that should continue to underpin consumption and tax receipts in Europe’s largest economy. Germany’s seasonally adjusted jobless rate fell to 4.9% in March from 5.0% in February, which marks the lowest rate since the beginning of the data series in January 1992, Nina Adam reports.

Chart of the Day: Inventories

One of the more fickle contributions to GDP in many quarters: inventories. If they grow, they add to overall output. If companies draw them down, they subtract. (Now scroll down to the tweet of the day...)

What Else We're Reading

Does Europe want the U.K. to stay? "With the House of Commons seemingly paralysed, EU leaders are aware that their approach—notably on the question of delaying the UK’s exit—might help determine whether Brexit happens at all. The judgment turns on not just an assessment of Britain’s place in the European project, but on the chances of reversing the Brexit vote, and whether it is worth the risk to wait and see how the UK ructions end," Alex Barker writes in the Financial Times.
Wage growth in the U.S. may be stronger than we think. "Data from the Current Population Survey, a household survey used to compute the unemployment rate, do not include individuals who change residences. If it could include movers, our previous estimate of 2018 average individual wage growth would increase from 5.0% to 5.5% or higher. This 5.5% wage growth implies that, on average, U.S. workers currently are receiving substantial real wage gains—possibly double what has been reported," Michael Morris, Robert Rich and Joseph Tracy write in a Dallas Fed analysis.

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