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Apr 2, 2019

Real Time Economics | Manufacturing Shows Signs of Life

The Wall Street Journal.
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Real Time Economics
U.S. economic growth in the first quarter is starting to look stronger, a welcome turnaround after some fairly miserable forecasts earlier in the year. Good morning. Jeff Sparshott here to take you through the day's top economic news. Send us your questions, comments and suggestions by replying to this email.

It's Getting Better All the Time

Manufacturing activity in the world’s two largest economies perked up in March, an antidote to financial-market fears of a coming global recession. The rebound for purchasing manager surveys in the U.S. and China sparked a rally in U.S. stocks and sell-off for supersafe government bonds. That reversed a so-called inverted yield curve, in which short-term rates are higher than long rates, a precursor to past downturns, Paul Kiernan and Paul Hannon report.

Canary in a coal mine: Though manufacturing accounts for a fraction of U.S. output, it is seen as a bellwether for the broader economy. New orders were particularly strong in March, boding well for U.S. factory activity in the coming months.

In the old country: While the U.S. and China rallied, Europe stumbled, suggesting pockets of weakness remain in the global economy.

What to Watch Today

U.S. durable goods orders for February are expected to fall 2.1% from the prior month. Monday’s purchasing manager surveys for the U.S. were good news. Watch to see if underlying business investment is following the same trajectory. (8:30 a.m. ET)
The Caixin China composite purchasing managers index for March is out at 9:45 p.m. ET.

Top Stories

Not Too Shabby

First quarter gross domestic product isn't looking so bad after all. Monday's manufacturing surveys boosted investor sentiment. But nitty gritty data on retail sales, business inventories and construction spending boosted estimates of first-quarter output. J.P. Morgan Chase revised its GDP forecast to a 2% pace of growth from an earlier estimate of 1.5%. Macroeconomic Advisers jumped to 1.7% from 1.3%. The Atlanta Fed's GDPNow model moved to 2.1% from 1.7% last week—and a paltry 0.3% on March 1.

The big drivers: January retail sales were revised up, business inventories rose more than expected, and state and local construction spending surged.

Breaking Up Is Hard to Do

The U.K.'s House of Commons failed for a second time to agree on an alternative to Prime Minister Theresa May Brexit plan. Without a resolution, the current default is for the U.K. to leave the EU without a deal on April 12, Max Colchester and Stephen Fidler report.
Join our conference call Thursday to discuss what's next.

U.K. Business Confidence Falters

Corporate decision makers in the U.K. are struggling to navigate the uncertainties surrounding Britain’s planned departure from the European Union, leading to investment delays, lower cash flows and lagging sales growth. Investment plans in the services and manufacturing sectors—the pillars of the U.K. economy—are at their lowest level in eight years, according to a survey by the British Chambers of Commerce. 

Define 'Minimum'

Rep. Terri Sewell (D., Ala.) favors raising the federal minimum wage, just not as fast in her district as New York City or San Francisco. She wants a tiered system, under which the federal minimum in the cities with the highest cost of living would slide to more than $15 an hour by 2024. Places with the lowest cost of living, including Tuscaloosa, Ala., would have a minimum of $11.50 an hour in 2024. The entire country would eventually reach $15, but not likely until 2033.
Reality bites: The proposal is a break from Democratic leadership, which backs a bill calling for a $15 an hour national minimum by 2024. If a $15 an hour minimum “does no harm, then why not say $25?,” Ms. Sewell tells the WSJ's Eric Morath. “The reality is going too quickly could have adverse effects.”

Thanks, But No Thanks

The International Monetary Fund has some advice for Switzerland: spend some of your budget surplus. “To increase policy space, the current balance between the utilization of monetary and fiscal policies—stretched monetary policy and underutilized fiscal policy—should be adjusted,” the IMF said in its latest report. Switzerland’s response: no. 
Global dichotomy: Countries with large deficits, like the U.S., are in little hurry to reduce them. Those with surpluses such as Switzerland seem uninterested in spending them even with their central banks stretched and interest rates super low or negative. —Brian Blackstone

You Down With MMT (Yeah You Know Me)

Investors and voters should come to grips with modern monetary theory. It creates the financial framework for left-leaning policies like a jobs guarantee, Medicare for all and the Green New Deal. A core tenet: The economy and inflation should be managed through fiscal policy, not monetary policy, and government should put the unemployed to work. Instead of the Fed cutting rates in a recession, the government should spend more; rather than raise rates during a boom, the government should raise taxes or spend less.
The WSJ's James Mackintosh sees a problem  with MMT: Traditional monetary policy has the enormous advantage of making macroeconomic decisions at arm’s length from party politics. MMT is essentially an argument about politics, not economics.

Quote of the Day

Finance Twitter is getting to be not interesting because it’s just angry people, the angry zealots of modern monetary theory. Anybody raises any questions about it, that demonstrates you must not understand it.
Minneapolis Fed President Neel Kashkari, in an interview with the WSJ

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