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Apr 25, 2019

Real Time Economics | Getting Ready for First-Quarter GDP

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.

Strong 1Q Growth May Mask Subdued Demand

Estimates for first-quarter growth, to be officially released tomorrow, have risen steadily this month. Macroeconomic Advisers was expecting an anemic 1.3% growth rate in late March, but now thinks gross domestic product, adjusted for inflation, expanded a relatively robust 2.8%. But look closer and a lot of the upgrade comes from lower imports and higher inventories, neither a sign of vigorous spending at home. Consumer spending has been revised up while business investment has been revised down. So the firm thinks final sales to domestic buyers—a popular measure of underlying demand—grew just 1.7%, up only slightly from its early-April estimate. —Greg Ip

Highs and Lows

Economists polled by the WSJ are forecasting a 2.5% pace of growth in the first quarter, a slight pickup from the fourth despite a prolonged government shutdown, polar vortex and slowing global growth, Harriet Torry reports.
  • Potential bright spot: consumers. Spending got off to a slow start but appeared to accelerate toward the end of the quarter, with retail sales in March growing at the strongest pace in a year and a half.
  • Possible note of caution: business investment. The 2017 tax overhaul gave business spending a hefty boost in 2018. That likely moderated in early 2019. American manufacturing, meanwhile, got off to a shaky start early this year.
  • Wild card: residual seasonality. The Commerce Department has been dealing with some wonky technical issues that, in the past, have depressed first-quarter and boosted subsequent quarterly readings.
The Commerce Department releases its first estimate of first-quarter GDP at 8:30 a.m. ET on Friday. Here's what to watch in the report.

What to Watch Today

U.S. jobless claims are expected to rise to 200,000 from a fresh 50-year low of 192,000 a week earlier. (8:30 a.m. ET)
U.S. durable-goods orders for March are expected to rise 0.8% from the prior month. (8:30 a.m. ET)
The Kansas City Fed's manufacturing survey for April is expected to fall to 6 from a reading of 10 the prior month. (11 a.m. ET)
Japan's jobless rate for March is out at 7:30 p.m. ET, and industrial production and retail trade for March are out at 7:50 p.m. ET.

Top Stories

How to Earn $196,407 a Year

It was a fruitful year for the rank and file at oil-and-gas companies. Houston-based Phillips 66 paid its median worker $196,407, the highest of any company in the sector. Anadarko Petroleum followed at $183,445 and Exxon Mobil at $171,375. The lowest? Marathon Petroleum's $27,703. But unlike other oil-and-gas producers, Marathon has about 40,000 employees working at its Speedway convenience stores. Most are part-time and work lower-wage jobs, Patrick Thomas reports. That drags the average salary down—a lot.

Tax Refunds

The Republican overhaul cut taxes for nearly two-thirds of households, according to the Tax Policy Center. But changes in tax liability didn’t automatically lead to bigger refunds. What someone pays or gets with their return stems from the total taxes owed but also how much was paid during the year through withholding and estimated taxes, Richard Rubin writes. In the end, the aggregate result in 2018 wasn’t too distant from the prior year, with the number of returns filed and percentage of households with refunds little changed through mid-April.

Japan: Lower for Longer

The Bank of Japan revised its forward guidance on Thursday, saying it expected to keep extremely low interest rates until at least the spring of 2020. The central bank had previously said it would keep low rates for an extended period but hadn’t specified any dates. The revision suggest the BOJ wanted to clarify it isn’t raising rates any time soon, in line with recent dovish statements from other central banks, Megumi Fujikawa reports.

Canada: Join the Club

The Bank of Canada held its key interest rate steady as it sharply lowered its growth forecast for this year. Unlike previous communications, its statement didn’t include a reference to future interest-rate increases, suggesting the BoC has joined other global central banks in pushing the pause button, Kim Mackrael reports.

South Korea: Retreat

South Korea’s economy unexpectedly contracted in the first quarter. Gross domestic product fell 0.3% in the first quarter from the preceding one—the worst performance in over a decade. The economy had registered a solid 1% growth in the prior quarter. The weak performance was blamed on shrinking investment in construction and production facilities, and sluggish exports. The export-led South Korean economy has been losing steam amid headwinds from U.S.-China trade tensions and falling memory-chip prices, Kwanwoo Jun reports.

Switzerland: Making Bank

Switzerland’s banks had a good first quarter. Switzerland’s central bank had a great one. The Swiss National Bank reported a first quarter profit of 30.7 billion Swiss francs ($30.1 billion) as its massive holdings of foreign stocks and bonds benefited from a recovery in global equities and easier monetary policies around the globe. Last quarter’s profit equals about 4% of Switzerland’s entire gross domestic product. But the SNB can’t cash out—doing so would put upward pressure on the franc. That leaves the bank vulnerable to market gyrations: The SNB earned 54 billion francs in 2017, then swung to a 15 billion franc loss last year. —Brian Blackstone

Capitalism in the Crosshairs

James Dimon and Ray Dalio are among the most successful capitalists in the U.S. today. So when they worry aloud about the future of capitalism, it’s worth listening.
“I believe that all good things taken to an extreme become self-destructive and that everything must evolve or die. This is now true for capitalism,” says Mr. Dalio, founder of hedge-fund manager Bridgewater Associates.
The two men love capitalism and aren’t apologizing for it. But they recognize the system isn’t working for everyone, and they have ideas for fixing it. Yet they fear the federal government is hamstrung by intensifying partisanship. So they are putting their money and reputations where their mouths are by speaking out, backing local initiatives and hoping like-minded business leaders join them, Greg Ip writes.

Quote of the Day

I would far rather live in a capitalistic society than a socialist society.
The Bill and Melinda Gates Foundation's Melinda Gates, speaking on CNBC

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