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Apr 15, 2019

Real Time Economics: Real Time Economics: The Big Downgrade.

The Wall Street Journal.
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Real Time Economics
Economists, central bankers and governments are all taking a gloomier view of the global economy. Good morning! Jeff Sparshott here to take you through the day's most important economic news. Send us your questions, comments and suggestions by replying to this email.
 

Outlook: Cloudy with a Chance of Rate Cuts

Economists sharply lowered their forecasts for employment and economic growth in the first quarter. In a new Wall Street Journal survey, private-sector forecasters said they expect U.S. economic output to grow, on average, at a 1.3% pace in the first quarter. That would be the weakest since the end of 2015. Economists also trimmed their monthly payroll forecast to an average pace of 170,805 new jobs per month, down from 207,583 in the February survey, Harriet Torry reports.
The latest downgrades follow data suggesting the economy is cooling. U.S. payrolls rose by just 20,000 in February, the slowest pace since September 2017.

Fed's Next Move

A growing number of economists say the Federal Reserve’s next move will be a rate cut. About 18% of economists surveyed this month expect the Fed to lower them, up from 10% in February’s survey and 4% in January. While still a minority, the shift highlights a sharp change in the economic outlook. As recently as January, more than 80% of economists expected the Fed to raise again before September. Now, most don't expect an increase until September or later, David Harrison reports.
 
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What to Watch Today

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.
 

 

Top Stories

Let's Do It Live

Federal Reserve real-time growth trackers also are pointing to a pretty tepid start to the year. But the divergence is stark: The Atlanta Fed's closely watched GDPNow currently has the first quarter pegged at a 0.4% annualized rate. The St. Louis Fed Nowcast is a more robust 2.2%. Either would be a slowdown—but one is downright anemic. Why the difference? One of our favorite themes: Atlanta's GDPNow indicator uses more hard data while the St. Louis’s index is based more on soft data. So, for example, gauges like consumer sentiment have looked a lot better than actual consumer spending. Plus there just isn’t as much first-quarter hard data out yet.

Japan, Too

The Bank of Japan offered a bleaker picture of the economy on Friday and left its ultra-easy monetary policy on hold. The central bank said Japan’s exports and production have shown some weakness, a downgrade from its January assessment. It also adjusted its earlier view that overseas economies were growing firmly on the whole, saying some slowdowns have been observed. The central bank stuck to its overall assessment that the Japanese economy is “expanding moderately,” Megumi Fujikawa reports.

And China

China’s government will consider cutting interest rates and banks’ reserve requirement ratio to counter new downward pressure on the economy, Chinese Premier Li Keqaing said Friday. Mr. Li said Beijing needed to keep economic growth within a reasonable range to prevent waves of layoffs. China’s economy reported its slowest growth in nearly 30 years last year and momentum continued to slow at the start of 2019. In response, the government earlier this month announced tax cuts and efforts to spur infrastructure investment, Grace Zhu reports.

Trade Deal

China made last-minute changes to a proposed foreign-investment law, trying to address U.S. complaints about forced technology transfer and bolster prospects for a trade deal with Washington. The national legislature quietly amended a draft of the law to tighten up channels used to leak intellectual property. The new language takes aim at the regulatory review panels, known as “conformity assessments,” that foreign companies must pass. The Trump administration says the process is used to leach proprietary information and force technology transfers, Lingling Wei and Chao Deng report.
President Trump's take: "So the China talks are moving along. As to whether or not we'll strike a final deal, that I would never want to say."

Deny, Deny, Deny

Chinese Premier Li Keqiang, addressing an irritant in relations with the U.S., said that China’s government doesn’t ask companies to spy on its behalf. Asked at a news conference about China-U. S. competition and whether Beijing forces its companies to conduct espionage, Mr. Li first didn’t respond but later returned to give an emphatic denial, Chun Han Wong reports. “Let me tell you explicitly that this is not consistent with Chinese law. This is not how China behaves,” Mr. Li said. “We do not do that and will not do that in the future.”

The Comedy of Errors

British lawmakers voted to delay the U.K.’s departure from the European Union by at least three months beyond a March 29 deadline. The other 27 EU governments must unanimously agree to any extension, a matter they will consider next week.
Third time's a charm? Before she negotiates with the EU over an extension, Prime Minister Theresa May will likely aim to coerce recalcitrant elements of her Conservative Party into backing a Brexit deal they have soundly rejected twice. Her hope is that lawmakers who want a pure break with the bloc will now see the deal as their least-bad option: Delay could lead to a preservation of closer ties or even a second Brexit referendum.
 

 

What Else We're Reading

The U.S. needs to rethink the way it finances higher education. Instead of forcing students to borrow, "We should replace this system with an 'equity' model, in which funders pay for a student’s education in exchange for a stake in their future success. Students who achieve high earnings—tech engineers, bankers—would pay back more than the cost of their education. Their lower-earning peers—high school maths teachers, Salvation Army workers—would pay back less," Sheila Bair writes in the Financial Times
Neither robots nor automation have caused worker wages to stagnate. "What did? There is a growing though incomplete consensus among economists that a key factor in wage stagnation has been workers’ declining bargaining power—a decline whose roots are ultimately political," Paul Krugman writes at the New York Times.
President Trump is making the trade deficit bigger. "Pretty much anyone with a passing knowledge of macroeconomics could have predicted that this would be the likely result of moves by Trump and Congress to stimulate the U.S. economy with bigger federal deficits," Justin Fox writes at Bloomberg Opinion. "That Trump himself did not see this coming is another indication that, as someone recently said, the man doesn’t understand much about macroeconomics."

What Else We're Reading

The U.S. needs to rethink the way it finances higher education. Instead of forcing students to borrow, "We should replace this system with an 'equity' model, in which funders pay for a student’s education in exchange for a stake in their future success. Students who achieve high earnings—tech engineers, bankers—would pay back more than the cost of their education. Their lower-earning peers—high school maths teachers, Salvation Army workers—would pay back less," Sheila Bair writes in the Financial Times
Neither robots nor automation have caused worker wages to stagnate. "What did? There is a growing though incomplete consensus among economists that a key factor in wage stagnation has been workers’ declining bargaining power—a decline whose roots are ultimately political," Paul Krugman writes at the New York Times.
President Trump is making the trade deficit bigger. "Pretty much anyone with a passing knowledge of macroeconomics could have predicted that this would be the likely result of moves by Trump and Congress to stimulate the U.S. economy with bigger federal deficits," Justin Fox writes at Bloomberg Opinion. "That Trump himself did not see this coming is another indication that, as someone recently said, the man doesn’t understand much about macroeconomics."
 

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