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Mar 14, 2019

Real Time Economics | Trump In ‘No Rush’ With China'

The Wall Street Journal.
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Real Time Economics
U.S.-China trade talks are running hot and cold, the Brexit follies continue and there's more evidence China's economy is slowing. 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.

Hot and Cold

President Trump warned Beijing he would not sign off on a trade deal that didn’t meet U.S. demands. Following a White House meeting with his advisers, Mr. Trump told reporters that he was “in no rush” to reach an agreement. Mr. Trump added that he would walk away from a weak offer, as he had done last month in the Hanoi summit with North Korean leader Kim Jong Un, Bob Davis and Alex Leary report.
The president's latest comments are a sharp departure from his recent optimism; it's not clear if they're a negotiating tactic or a sign of some underlying impasse in talks. Prospects for a trade deal have been on a roller coaster of late. In any event, a hoped-for March agreement looks unlikely and U.S. officials are now talking instead of an April date.

What to Watch Today

U.S. jobless claims are expected to rise to 224,000 from 223,000. (8:30 a.m. ET)
U.S. import prices for February are expected to rise 0.4% from the prior month. (8:30 a.m. ET)
U.S. new-home sales for January are expected to inch up to an annual rate of 622,000 from 621,000 a month earlier. (10 a.m. ET)
The WSJ survey of economists is out at 10 a.m. ET. Results and links posted here.
Treasury Secretary Steven Mnuchin appears before the House Ways and Means Committee at 9 a.m. ET and the Senate Finance Committee at 1:30 p.m. ET to discuss the latest White House budget proposal.

Top Stories

Brexit, Toil, Tears and Sweat

British lawmakers ruled out a no-deal exit from the European Union. The surprise decision came just a day after Parliament resoundingly rejected—again—Prime Minister Theresa May's plan for an orderly separation from its biggest trading partner. Lawmakers will now likely vote on Thursday in favor of a proposal to request a delay in Britain’s scheduled exit date beyond March 29. While the latest developments likely eliminate the prospect of a chaotic Brexit, the other 27 EU countries must first agree to delay Britain’s departure, and then a deal must be reached and ratified before the new deadline, Stephen Fidler and Jason Douglas report.

I'm Still Standing

Prime Minister Theresa May has faced one political disaster after another, losing crucial votes and ministers at a rate not seen in British politics for decades. Yet she’s still standing. An extraordinary combination of factors means that despite regular drubbings in parliament, a rolling rebellion among her own cabinet and a flagship Brexit plan that was overwhelmingly rejected twice, the 62-year-old continues to hold on to power.
At the heart of this survival act? There's a fear among Conservative Party lawmakers about who would replace her. And there are worries that ousting her could trigger an election, increasing the chance of a hard-left Labour Party coming into power. So Conservative lawmakers, worried that Brexit might suddenly get more radical or not happen at all, are sitting on their hands, Max Colchester reports.

Cohn to Fed: Ignore Trump

Former White House economic adviser Gary Cohn hopes the Fed will ignore pressure from President Trump, his former boss. Responding to the Fed’s Januray decision to signal a pause in interest rates, Mr. Cohn tells Freakonomics Radio: “I surely hope—and I almost pray—that what the Fed did was in reaction to what they were seeing in the data, that they felt there was an actual slowing of the economy.” Fed Chairman Jerome Powell has repeatedly said political considerations wouldn’t influence interest-rate policy. —Nick Timiraos

Punch Bug

Volkswagen plans to cut as many as 7,000 administrative positions over the next five years amid an industrywide scramble to slash costs and make room on the balance sheet for heavy spending on electric and self-driving cars, William Boston reports. Across the globe, auto makers and their suppliers are overhauling their businesses to counter slowing sales in the world’s largest auto markets and improve profits while funneling more money toward innovative technology. General Motors said last year it would shed as many as 14,800 factory and salaried workers and Ford Motor is looking to trim salaried staff.

China’s Economy Cools

China’s economy isn’t done slowing. Industrial activity and home sales cooled in the first two months of the year despite Beijing's efforts to shore up growth. That seems to have taken a toll on the job market. A national urban survey unemployment rate inched up to 5.3% in February from December’s 4.9% (January’s figure wasn’t released). To counter the deceleration, authorities have ramped up spending on infrastructure projects, urged banks to lend more and lowered taxes. Those efforts appeared to gain some traction, with fixed-asset, infrastructure and property investment growth picking up at the start of the year, Liyan Qi and Lin Zhu and Grace Zhu report.

Intelligence Forecast

China is rapidly gaining ground on the U.S. in artificial-intelligence research, a field deemed critical by the Trump administration. A new report finds China is drawing close to the U.S. in the number of its AI research papers that are among the top 10% most cited, a measure of the highest-impact research. The results add to a body of research that shows Chinese research challenging and even surpassing the lead that the U.S. built on the strength of its university system and private-sector innovation, Asa Fitch reports.

Data Dive: Business Investment

An underlying gauge of U.S. business investment rose in January, a step in the right direction but still not enough to reverse a weak finish to 2018. New orders for nondefense capital goods excluding aircraft climbed 0.8% from December, the strongest pace since last summer. But the overall picture remains middling. "This increase in the orders series could be a sign that activity is picking up again following a weak run late last year, but averaging across recent figures, the trend in core capital goods orders still looks soft," says JPMorgan Chase's Daniel Silver.

Construction Spending Takes Flight

U.S. construction spending data is jumpy from month to month but over time reveals sometimes interesting trends. Here’s one flagged by Associated General Contractors of America chief economist Ken Simonson: major outlays on airport infrastructure. High demand and semi-independent financing at airport authorities are driving the outlays: “They raise a lot from aircraft landing fees, gate rentals and taxes or rents on in-terminal retail, parking structures, rental-car agencies and on-airport hotels, plus access charges for off-airport taxi, ride-sharing, and shuttle services. ... In contrast, transit and commuter and intercity passenger rail lose money on every customer and must seek appropriations every year or two.”

What Else We're Reading

Amazon may be the largest private employer of PhD economists in the world. "Amazon's economists game out real estate decisions, set the lowest prices that will deliver a profit, precisely determine what customers care about and whether advertisements are working—all using machine-learning algorithms that automate decisionmaking on a massive scale. It's the kind of asset that smaller companies can't always pay for, allowing Amazon to pull further and further away from the competition," Lydia DePillis reports at CNN Business.
Higher opioid prescription rates correspond with falling labor-force participation. "Our estimates imply that prescription opioids can account for 44% of the realized national decrease in men's labor force participation between 2001 and 2015," Dionissi Aliprantis, Kyle Fee and Mark Schweitzer write in a Cleveland Fed working paper
Unintended consequences: Syringe-exchange programs decrease HIV diagnoses by up to 30%. "However, I present new evidence that SEPs increase rates of opioid-induced mortality and opioid-related hospital admissions, especially in rural and high-poverty areas, suggesting that needle exchanges may be less effective than other interventions at stimulating recovery," Miami University's Analisa Packham writes.

Up Next: Friday

The Bank of Japan releases a policy statement.
Eurozone consumer prices for February are out at 6 a.m. ET.
The New York Fed's Empire State survey for March is expected to fall to 8.3  from 8.8. (8:30 a.m. ET)
U.S. industrial production for February is expected to rise 0.3% from the prior month. (9:15 a.m. ET)
The University of Michigan's consumer sentiment survey for March is expected to rise to 95.3 from 93.8 at the end of February. (10 a.m. ET)
The U.S. job openings and labor turnover survey for January is out at 10 a.m. ET.
The Baker-Hughes rig count will be released at 1 p.m.

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