This is the web version of the WSJ’s economic newsletter. You can sign up for daily delivery here. Good morning! Today we look at booming capex, the latest developments in the U.S.-China trade saga, Germany’s cooling economy, Poles and Hungarians exiting the U.K. workforce, and who’s getting the biggest raises. CAPITAL SPENDING BOOMS U.S. companies are ramping up spending on their businesses at the fastest pace since 2011. Spending on factories, equipment and other capital expenditures by companies in the S&P 500 is expected to have risen 24% in the first quarter, Akane Otani, Ben Eisen and Chelsey Dulaney report. Capex is good for the broader economy, helping boost short-term GDP numbers and laying the foundation for future growth. Yet history suggests it could also pressure share prices—leaving investors questioning whether it is worthwhile to bet on companies with costly projects that may not pan out. Comments or suggestions for Real Time Economics? to Jeffrey Sparshott at email@example.com, tweet to @WSJecon and visit wsj.com/economy for the latest. WHAT TO WATCH TODAY U.S. retail sales for April are out at 8:30 a.m. ET. Economists expect a 0.3% rise from the prior month, suggesting a first-quarter slowdown was merely a soft patch rather than the start of a broader consumer pull-back. The Senate Banking Committee holds confirmation hearings for Federal Reserve nominees Richard Clarida and Michelle Bowman. The Dallas Fed’s Robert Kaplan speaks on energy, trade and economic growth at 8 a.m. ET, and the San Francisco Fed’s John Williams speaks at the Economic Club of Minneapolis at 1:10 p.m. ET. Japan’s first-quarter GDP numbers are out at 7:50 p.m. ET. TOP STORIES LET’S MAKE A DEAL The U.S. and China are closing in on a deal that would give China’s ZTE Corp. a reprieve from crippling U.S. sanctions in exchange for Beijing removing tariffs on billions of dollars of U.S. agricultural products. The negotiations also would ease roadblocks in China faced by U.S. semiconductor company Qualcomm, whose proposed acquisition of Dutch NXP Semiconductors has been held up by Beijing, Lingling Wei and Bob Davis report. ROSS: ALTERNATIVE PUNISHMENTS FOR ZTE ZTE, a Shenzen-based telecommunication-equipment producer, has been hamstrung by a U.S. ban on component sales to the firm. In a move that surprised some in his inner circle, President Donald Trump Sunday said he was working with Chinese President Xi Jinping to get ZTE “a way to get back into business, fast.” Commerce Secretary Wilbur Ross Monday echoed the president’s directive, saying he is considering alternative punishments for ZTE, the fourth-largest vendor of mobile phones in the U.S. Mr. Ross said he hopes the U.S. and China can reach a “fair deal” over recent trade disagreements. Mr. Ross added that if there’s no deal, a trade “tit-for-tat” with China wouldn’t be “economically life threatening” for the U.S. TRADE IMBALANCE The Trump administration’s campaign to reduce trade imbalances with China highlights a gulf between the world’s two largest economies over import duties on everything from aircraft to electric toothbrushes. China joined the World Trade Organization in 2011, and its tariffs fell about 60% from 1996 to 2005, Chuin-Wei Yap reports. They have since hovered some three times higher than U.S. levels. CHINA’S ECONOMY PICKS UP China’s economy is humming along. Value-added industrial production in China rose 7.0% in April from a year earlier, up from a 6.0% year-over-year increase in March, Liyan Qi and Grace Zhu report. The uptick in industrial activity adds another bright spot to other recently reported figures, especially exports, for the world’s second-largest economy. The main potential concerns: slowing consumption and infrastructure investment continue to cloud the outlook for growth. GERMAN ECONOMY COOLS Europe’s largest economy cooled sharply in the first quarter amid a bad spell of illness and labor disputes, mirroring similar developments in the region and denting hopes for another year of stellar growth rates. Germany’s annualized growth rate slowed to 1.2% from 2.5% in the fourth quarter of last year, Nina Adam reports. But a range of temporary factors, such as the country’s flu season and a series of strikes in the metals and engineering sectors, likely contributed to the slowdown, and most private-sector economists expect economic activity to revive in the second quarter and beyond. Broader eurozone figures showed the region’s economy cooling in the first quarter. POLES, HUNGARIANS ABANDON BRITAIN The U.K.’s unemployment rate remained at its lowest level for more than 40 years in the first quarter of 2018, while the number of non-U.K. nationals from the European Union in the workforce slipped on year for the first time in eight years. Contained within that reduction was the sharpest fall in the number of workers from Eastern European countries like Poland and Hungary since records began. The number of EU workers in the British workforce was a key issue for those campaigning for Brexit in the run-up to the nation’s referendum in June 2016, David Hodari and Wiktor Szary report. CHART OF THE DAY: HOW TO GET A RAISE The Atlanta Fed’s wage growth tracker shows steady pay gains for workers—especially for those willing to jump ship. The figures suggest companies are paying a premium to lure workers away from competitors. QUOTE OF THE DAY
“As one Chinese official told me a year ago, we understand that how important it is for President Trump to have tweetable deliverables. We just want to know what the price is.”- Michael Froman, U.S. Trade Representative under President Barack Obama, at the WSJ’s CEO Council in Tokyo
TWEET OF THE DAY
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WHAT ELSE WE’RE READING
The U.S. spends more per person on medical care than other developed nations, yet has shorter life expectancy than most. “In 1980, the U.S. was right in the middle of the pack of peer nations in life expectancy at birth. But by the mid-2000s, we were at the bottom of the pack,” The New York Times reports. It’s not entirely clear what went wrong, though the newspaper looks at a variety of factors likely in play.
Do corporate tax cuts increase income inequality? New research suggests they do. That’s because wealthy individuals shift their income—allotting more to capital income and less to wages and salary—to reduce taxes while others do not, Suresh Nallareddy, Ethan Rouen and Juan Carlos Suárez Serrato write in a National Bureau of Economic Research working paper.
Is it worth it for winemakers to participate in competitions? If they win, yes. “We find a strong medal impact: our preferred estimate indicates that producers of medaled wines can increase their price by 13%,” Emmanuel Paroissien and Michael Visser write in an American Association of Wine Economists working paper.
UP NEXT: WEDNESDAY
Eurozone inflation data for April is out at 5 a.m. ET.
European Central Bank President Mario Draghi speaks in Frankfurt at 8 a.m. ET.
U.S. housing starts for April are out at 8:30 a.m. ET.
U.S. industrial production for April is out at 9:15 a.m. ET.
The Atlanta Fed’s Raphael Bostic speaks on the economy at 8:30 a.m. ET and the St. Louis Fed’s James Bullard speaks at 6:30 p.m. ET.