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Real Time Economics | China’s Manufacturers Rebound, Europe’s Factories Sink
Real Time Economics
U.S. manufacturing data follows China and Europe this morning. We'll
also look at the jobs market, interest rates, budget deficits and the
spring home-buying season. Good morning.
Jeff Sparshott here to take you through the day's economic news. Send us
your questions, comments and suggestions by replying to this email.
An official gauge of China’s manufacturing activity rose to a six-month high
in March. Factories showed a pickup almost across the board, from new
orders to production, according to the official purchasing managers
index. And a separate, private gauge of factory activity out Monday
rebounded to expansionary territory in March for the first time in four
months, underscoring the turnaround.
The WSJ's Nathaniel Taplin cautions: China’s economy may have improved modestly last month, but the jump in the index probably exaggerates the uptick.
The shifting dates of the weeklong Lunar New Year holiday, new loan
quotas for banks and other seasonal factors make first-quarter data
difficult to read.
While China's factory sector rebounded, Europe's did not. IHS Markit's
manufacturing index for the eurozone in March fell to its lowest level
in nearly six years. But wait, it gets worse: the most forward-looking
indicator—new orders—posted its biggest monthly decline since late 2012,
suggesting a fairly bleak outlook.
One almost-bright spot:
The U.K. manufacturing index rose to a 13-month high. But it appears
that's because companies are stockpiling goods ahead of a potentially
disruptive Brexit. Rising inventories are usually followed by falling production.
And the Winner Is…China
Investors clearly seem more interested in the China data. Asian equities soared on Monday
and, despite the grim eurozone manufacturing reports, so did Europe
with German and French bourses up more than 1% early Monday. The
message: China’s performance matters a lot more for the global economy
and appetite for risk than Europe’s, for now at least.
What to Watch Today
U.S. retail sales for February are expected to rise 0.2% from the prior month. (8:30 a.m. ET)
The Institute for Supply Management's manufacturing index for March is expected to tick up to 54.4 from 54.2 a month earlier. (10 a.m. ET)
U.S. construction spending for February is expected to sink 0.3% from the prior month. (10 a.m. ET)
The Reserve Bank of Australia releases a policy statement at 11:30 p.m. ET.
Bricklayers vs. Mortar Boards
The U.S. employment report for March is out Friday. February’s data was a bit of a dud,
especially for construction and other blue-collar fields. But the
broader trend is decidedly brighter: The Conference Board's latest Global Labor Market Outlook
is forecasting a historically tight labor market this year—especially
for blue-collar jobs. One big reason: "The US labor force has become
more educated, which has reduced the supply of available blue-collar and
low-pay services workers."
College degrees: Over
the past decade, the U.S. labor force has added more than 13 million
people with at least a four-year college degree. It has 4.4 million
fewer with no college at all.
Meanwhile, the unemployment rate has fallen farthest and fastest for
construction, production and transportation—traditionally blue-collar
Rising tide: And wage
gains have been strongest for those with the least education.
High-school dropouts certainly don't make more, on average, than college
grads but the gap is ever-so-slowly narrowing—at least in today’s labor
The Right Stuff
Neel Kashkari, one of the Federal Reserve’s most consistent opponents of interest-rate increases, says it isn’t the time for the central bank to cut borrowing costs.
For now, the Minneapolis Fed president believes the U.S. central bank
is in the right place. “Some of the risks have shifted to the downside,
so pausing to get more information, to see if this really is an economic
slowdown or if it’s just a blip, I think that’s the right move,” Mr.
Kashkari told the WSJ's Michael Derby.
recently, his opposition to rate rises was shared only with St. Louis
Fed President James Bullard. But now their position is common among
Trump: Cut Rates!
President Trump and his team want the Federal Reserve to cut interest rates.
National Economic Council Director Lawrence Kudlow said the central
bank should lower its benchmark rate by half a percentage point, Kate
Davidson and Nick Timiraos report. “I don’t want any threats to the
recovery,” Mr. Kudlow said.
The callfor a rate cut
by a White House official is unprecedented in recent history, and
appears at odds with the administration’s insistence that the U.S.
economy is on course for another year of robust growth.
The Price Isn't Right
One reason the Fed doesn't need to raise rates: There's no sign of inflation pressure.
The central bank's preferred inflation gauge in January was up just
1.37% from a year earlier, the smallest gain since September 2016.
Stripping out volatile food and energy components, so-called core prices
rose 1.79% from a year earlier, an 11-month low. The Fed has a 2%
Democrats have an array of ambitious and
expensive policy proposals, from the Green New Deal to Medicare for All.
How will the government pay for it? The answer, increasingly, comes
from Stephanie Kelton, a professor at Stony Brook University who has
become the public face of an unorthodox strain of economics called modern monetary theory, Kate Davidson writes.
Ms. Kelton argues the government doesn’t need to worry so much about
how much it borrows to pay for spending programs. Unlike a household or
business, it can never run out of money. The government can always
print more. The constraint, according to MMT, is whether the borrowing
and spending spurs inflation and disrupts economic activity.
Japan has $10 trillion in government debt and an economy half that size. Some people think the best policy is to borrow more.
The case for more aggressive deficit spending in the world’s
third-largest economy rests on some confounding facts. Japan is issuing
10-year government bonds at a negative interest rate, meaning it gets
paid by its lenders. Thanks in part to a long period of low rates, only
about 5% of central and local government revenue is going to interest
payments. And inflation is very low, Megumi Fujikawa and Kosaku Narioka
The spring home-buying season is shaping up as the best in years.
A number of economic factors that slowed sales in 2018 have eased or
even reversed in recent weeks: Mortgage rates have been falling, home
inventory is rising and the pace of home-price growth is slowing. These
more favorable conditions are already bringing price cuts and fewer
bidding wars. About 40% of the year’s sales take place from March
through June, making these months pivotal for the housing market each
year, Laura Kusisto reports.