Real Time Economics: Oil Hits New Highs | The Economy’s Goldilocks Moment | Is Anyone Still Looking for a Job?

This is the web version of the WSJ’s daily economic newsletter. You can sign up for daily delivery here. Good morning! Today we look at rising oil prices, low unemployment and inflation, a kind of Nafta minimum wage, robots milking cows, trouble in emerging markets, and the declining number of Americans who aren’t in the labor force but want a job. OIL CLIMBS Oil futures hit new 3 1/2-year highs Monday, with the U.S. benchmark hovering around $70 a barrel. Fundamentals (including strong global demand, OPEC supply reductions and Venezuela outages) have been pushing prices up but the latest bump is largely due to uncertainty: Will President Donald Trump renew waivers of U.S. sanctions on Iran? If they expire Saturday, markets worry Iran’s output would fall, Biman Mukherji reports. West Texas Intermediate, the U.S. benchmark, entered Monday’s trading having gained in 15 of the past 20 trading days. Brent the global benchmark, have climbed in nine of the past 12 weeks. SURPRISE! The price of crude has climbed nearly 12% this year—a rally that caught most big banks flat-footed. Last December, analysts were forecasting Brent crude around $57 a barrel in the first quarter, Alison Sider and Georgi Kantchev report. On Friday, Brent prices rose to $74.87 a barrel. U.S. producers have responded, raising domestic production by almost 12% since the start of the year. That helps the energy industry and its suppliers. The broader impact depends on how high and for how long oil climbs. Oxford Economics says sustained $85 a barrel oil would shave 0.6% off of global economic output and add 1 percentage point to inflation. We’re not there, but consumers are certainly feeling higher prices at the pump, and central bankers may become more alert to inflation pressures. “Sustained prices in excess of $65 could produce additional upward pressure on long-term interest rates,” said Northern Trust’s Carl Tannenbaum.
Comments or  suggestions for Real Time Economics? Write to Jeffrey Sparshott at  realtimeeconomics@wsj.com, tweet to @WSJecon and visit wsj.com/economy for the latest. WHAT TO WATCH THIS WEEK U.S. consumer credit for March is due out at 3 p.m. ET Monday. The Richmond Fed’s Thomas Barkin speaks at George Mason University at 2:00 p.m. ET, and the Atlanta Fed’s Raphael Bostic, Chicago Fed’s Charles Evans and Dallas Fed’s Robert Kaplan speak on the economy and monetary policy at an Atlanta Fed conference starting at 3:30 p.m. ET on Monday. Later in the week gets pretty interesting. Federal Reserve Chairman Jerome Powell speaks in Zurich on Tuesday. The remarks fall at 3:15 a.m. ET, not ideal for markets but still important as investors key in on inflation. And we’re getting three important signals this week, with April producer prices on Wednesday, consumer prices on Thursday and import prices on Friday. “In our opinion, inflation remains the key metric to monitor and will guide the pending pace of monetary policy tightening for the foreseeable future,” economists at Wells Fargo said. Corrections & Amplifications: Last week, we characterized a proposed merger between AT&T and Time Warner as “horizontal.” It is, of course, vertical. Thanks to readers Aaron Kirsch and Brook Lathram for catching the error. TOP STORIES THE THREE BEARS? Stable inflation and low unemployment suggest the U.S. economy is enjoying a Goldilocks moment, running neither too hot nor too cold. Economists and central bankers have long tried to put numbers to the Goldilocks fable. It sits at a theoretical threshold at which the economy is in balance and inflation pressures are neither rising nor falling, called the “nonaccelerating inflation rate of unemployment,” or Nairu. Go much above or below Nairu, the theory holds, and you’ve got trouble, Harriet Torry writes. The Fed’s rough estimate for Nairu is now around 4.5%. Officials project the actual jobless rate will drop to 3.8% by end of this year and reach 3.6% in 2019 and 2020. That suggests the Fed is prepared to let the unemployment rate fall to a level not seen since the late 1960s before it would cool the heat by considering a more aggressive pace of rate increases. A $16 MINIMUM WAGE The Trump administration is seeking to complete its overhaul of the North American Free Trade Agreement with new rules that would penalize the Mexican auto industry unless it boosts wages—to roughly $16 an hour. Robert Lighthizer, the U.S. trade representative and lead negotiator for the Trump administration, is reworking Nafta to require that 40% of the content of any car that trades duty-free within the North American bloc to come from workers who earn above a particular wage level, William Mauldin reports. That would force Mexican factories to pay more for labor—or send auto jobs back to the U.S. or Canada. MOO, ROBOT Where do employers turn when workers are hard to find? At the Kato farm in Obihiro, Japan, a pair of $230,000 robots milk some 90 cows and an $18,000 robot helps feed them. On the northern island of Hokkaido, hundreds of the robots have been enlisted in recent years because human help is hard to find, Peter Landers reports. “We have to change the way we live and the way we work,” said Kenichi Kato, 67 years old, who started his farm with three cows more than 40 years ago. “Some people may say that doesn’t apply to dairy farms, but we’ll never get anywhere that way. Young people won’t come.” CHINA’S SEMICONDUCTOR FUND In a move that could further heighten tensions with the U.S., China is poised to announce a new fund of about 300 billion yuan ($47.4 billion) to spur development of its semiconductor industry, Yoko Kubota reports. China is seeking to develop its own semiconductor industry to cut its dependence on foreign technology. The effort has grown more urgent as attempts to buy American chip companies have faced opposition from the U.S. over national-security concerns. The new war chest by the government-backed China Integrated Circuit Industry Investment Fund Co. follows a similar fund launched in 2014. The 2014 chip-development fund has been at the heart of U.S. complaints about China’s technology policy in recent years. OK, CRY FOR ME Argentina’s currency is reeling and its interest rates have surged to 40%, pummeling investors who piled into a market that had been one of the world’s best performers. The run against the Argentine peso began toward the end of last month, when the central bank sold $4.3 billion to support a sagging currency. Investor concerns that the government may delay fiscal reforms that are unpopular with many Argentines sparked selling of the peso, stocks and bonds, Julie Wernau and Ira Iosebashvili report. The declines are the latest sign that rising U.S. interest rates and a strengthening dollar are prompting investors to pull money out of some of the world’s riskiest markets, especially those with the largest trade and budget deficits.
ANOTHER ONE The Indonesian stock market has slid more than 8% in two weeks, while the rupiah has shed 1.4% since mid-April as global investors have pulled funds from emerging markets. The selloff is partly down to ripple effects from Indonesia’s local-currency bond market, which until recently has been a beneficiary of investors’ yearslong search for yield, Ben Otto and I Made Sentana report. Since mid-April roughly $2 billion of foreign money has flowed out of rupiah-denominated bonds, part of a global trend for capital to return to U.S. markets, where bond yields and the dollar have been rising. CHARTS OF THE DAY: LABOR FORCE The U.S. unemployment rate in April fell to its lowest level since December 2000, the latest sign of a tightening labor market. Employers certainly complain it’s tough to find workers. But they are out there. Last month, more than 5 million people weren’t in the labor force but wanted a job. That’s down a whopping 27% from an August 2012 peak. But looking over the past quarter century, it’s by no means the lowest number of wanna-be workers lurking on the sidelines. It is, however, a historically small slice of the 16-and-over population. QUOTE OF THE DAY
“This country really, really works … this country has six times the per capita GDP growth that it had when I was born … this is a remarkable, remarkable country … I would love to be a baby born in the United States today.” – Warren Buffett, speaking at Berkshire Hathaway annual meeting in Omaha, Neb.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ] WHAT ELSE WE’RE READING
What’s wrong with economists? The Economist says they often focus too much on prices and too little on things people actually care about, such as broader measures of well-being. “This biases many of their conclusions, and limits their relevance to some of the most serious issues facing humanity.” Who wins and who loses from immigration? In the case of Soviet Jews moving to Israel in the 1990s, immigration “changed the entire economic landscape, raising productivity and underpinning the information technological surge,” Tel Aviv University’s Assaf Razin writes. That’s largely because the new arrivals were well educated and quickly assimilated. Can a free-market economist win a Republican primary? The New York Times profiles Tim Kane, candidate for Ohio’s 12th Congressional District and a self-described Republican from the Republican wing of the party. “I’m an old-school, free-market economist,” Mr. Kane told voters during an event in a Columbus suburb. That means pro-free trade and pro-immigration, which doesn’t exactly align Mr. Kane with policies that helped President Trump win an election. UP NEXT: TUESDAY China’s trade balance is out Tuesday. The politically sensitive number will be scrutinized in the U.S. as the Trump administration looks to narrow the trade gap with its economic rival. The Fed’s Jerome Powell speaks in Zurich at 3:15 a.m. ET. The NFIB small business survey is out at 6 a.m. ET. The Labor Department’s Job Openings and Labor Turnover Survey is out at 10 a.m. ET.  

Leave a Reply

Your email address will not be published. Required fields are marked *