Real Time Economics: Why Markets Love the Fed Minutes and Hate Auto Tariffs

This is the web version of the WSJ’s economic newsletter. You can sign up for daily delivery here. Good morning! Today, our Fed watcher, Nick Timiraos, digs into the newly dovish Fed take on inflation, we look at potential new U.S. tariffs on auto imports, and find employers using putting greens and craft beer to lure workers into the plumbing industry. JUST WAIT A MINUTE Stocks and bonds rallied strongly on the release of minutes from the Fed’s May meeting thanks to new hints that officials are relaxed about inflation​, WSJ Fed watcher Nick Timiraos tells us​. First, the minutes detail a discussion in which officials saw “a temporary period of inflation modestly above 2%” as “helpful in anchoring longer-run inflation expectations.” That reinforces prior signals that inflation over 2% won’t bother them: they’ve emphasized their inflation target is symmetric, meaning they won’t dial up rate increases if inflation rises above 2% goal. Second, the minutes reveal some concern about declaring mission accomplished on the inflation front, with one official saying it was “premature to conclude” inflation would remain at 2% given the Fed’s forecasting misses in recent years. It’s another reason officials would welcome a modest overshoot.
Do you think tariffs are an effective way to support U.S. manufacturing? Write to Jeffrey Sparshott at realtimeeconomics@wsj.com, tweet to @WSJecon and visit wsj.com/economy for the latest. WHAT TO WATCH TODAY The European Central Bank releases minutes from its April 25-26 meeting at 7:30 a.m. ET. U.S. jobless claims, out at 8:30 a.m., are expected to slip to 220,000. U.S. existing-home sales for April, out at 10 a.m. ET, are expected to fall slightly to an annual rate of 5.55 million. On Wednesday, we learned that new-home sales fell in April. The Dallas Fed is hosting a conference featuring the Dallas Fed’s Robert Kaplan and the Atlanta Fed’s Raphael Bostic at 10:35 a.m. ET, the Philadelphia Fed’s Patrick Harker at 2 p.m. ET, and Mr. Kaplan again at 8 p.m. ET. The Bank of England’s Mark Carney speaks to the Society of Professional Economists in London at 3:15 p.m. ET. TOP STORIES CRIMP MY RIDE The Trump administration is using national-security laws to consider imposing new tariffs on vehicle and auto-parts imports. President Donald Trump is asking for new tariffs of as much as 25%, William Mauldin, Timothy Puko, and Kate O’Keeffe report. The move opens yet another front in the trade battles with both allies and rivals, a confrontational approach that has yielded mixed results. The administration is locked in touchy negotiations over narrowing China’s $375 billion annual trade surplus, talks over the North American Free Trade Agreement have bogged down, and other trading partners are challenging the administration’s steel and aluminum tariffs. If the U.S. moves forward with auto tariffs, look for possible retaliation. HERE WE GO AGAIN Japan expressed alarm about the latest threatened U.S. tariffs, which could hit the Japanese economy hard and disrupt the auto industry around the world. The Trump administration’s plan follows an earlier battle over steel tariffs. It also puts the U.S. on a collision course with two of its closest military allies, Japan and Germany, both of which are major car exporters. Outside of Canada and Mexico, which have a free-trade agreement with the U.S., Japan is the biggest exporter of cars to the U.S., Sean McLain and Trefor Moss report. MARKETS REACT… Declines in shares of car companies weighed on markets in Europe and Asia on Thursday following news the White House is considering new tariffs on vehicle and auto-parts imports. The Stoxx Europe 600 swung between small gains and losses in morning trading while Japan’s Nikkei Stock Average fell 1.1% and South Korea’s Kospi index fell 0.2%. In Japan, Toyota, Nissan, Mazda and Honda shares all fell, Riva Gold reports. …BUT DON’T OVERREACT The latest news on auto tariffs hasn’t yet wrecked Asian car makers’ share prices. Sure, investors were rattled Thursday. But given the importance of the U.S. market to Japanese and South Korean auto makers, you could argue that the reaction has been quite restrained. There are two reasons behind that, Jacky Wong writes. First, many major Asian car makers already make a significant number of cars in the U.S. Second, the market is also likely skeptical that President Trump will follow through with his latest threat. He had to water down tariffs on steel and aluminum imports since they ended up hurting allies more than China, his supposed main trade target. ENOUGH AUTOS. LET’S TALK PLUMBERS Drained from a labor shortage, the plumbing industry is throwing the kitchen sink at job candidates. At some companies, that includes all the perks a pampered Silicon Valley tech worker might expect: An on-site tap with craft beer, a kitchen stocked with locally roasted espresso beans, a putting green or a smoker for brisket lunches, Jennifer Levitz reports. The annual median pay for plumbers, pipefitters and steamfitters was nearly $53,000 a year in 2017, but it isn’t uncommon to see jobs advertised for $70,000 up to six figures. CHARTS OF THE DAY: AUTOS U.S. tariffs on autos are notional at this point. But if implemented, they would work like a tax. For consumers, that might not be good news.
For now, consumers are purchasing plenty of vehicles though numbers have largely plateaued.
Domestic U.S. auto production peaked a while back.
And employment in the industry, though up markedly from a few years ago, is moving sideways.
TWEET OF THE DAY [wsj-responsive-sandbox id = "0" ] WHAT ELSE WE’RE READING What’s going to cause the next recession? “Trumponomics will cause the next recession within the next 12 months,” David Rosenberg, chief economist at Gluskin Sheff writes. That’s because so-called tax reform is really more of a stimulus—unnecessary at this stage of the cycle—and trade policy is bound raise prices and spur inflation. As a result, watch out for higher interest rates. The shelf life of a newspaper is notoriously short—so much so that an actual print edition often became the next day’s fishwrap or puppy-training paper. Social media? “[W]e find that diffusion of information on Twitter is largely complete within 1-2 hours,” Yuriy Gorodnichenko, Tho Pham and Oleksandr Talavera write in a National Bureau of Economic Research working paper. But in that short time, “the aggressive use of Twitter bots, coupled with the fragmentation of social media and the role of sentiment, could contribute to the vote outcomes.” Name one thing Donald Trump and Barack Obama agree on. Still thinking? Well, how about the need to overhaul occupational licensing. Why? Well, there’s lots of research on its negative effects. Some of the latest: “[W]e find that licensing raises wages and hours per worker but reduces employment in licensed occupations. For marginal occupations, the welfare costs of licensing thus significantly exceed the benefits,” the University of Minnesota’s Morris M. Kleiner and University of Oxford’s Evan Soltas write in a new working paper. UP NEXT: FRIDAY U.K. gross domestic product for the first quarter is out at 4:30 a.m. ET. U.S. durable goods orders for April, out at 8:30 a.m. ET, are expected to fall 1.5% from the prior month. The headline figures rise and fall with Boeing’s order book. New orders for nondefense capital goods excluding aircraft offer a clearer view of underlying investment trends. The University of Michigan’s consumer sentiment index for May is expected to hold steady at 98.8, reflecting a broadly upbeat assessment of the economy. Fed Chairman Jerome Powell and Bank of England governor Mark Carney speak at a central banking conference in Stockholm, Sweden, at 9:20 a.m. ET. The Dallas Fed is holding a conference on technology-enabled disruption. Speakers include the Dallas Fed’s Robert Kaplan, Atlanta Fed’s Raphael Bostic and Chicago Fed’s Charles Evans at 11:45 a.m. ET, and Mr. Kaplan again at 2:30 p.m. ET.

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Real Time Economics: Why Markets Love the Fed Minutes and Hate Auto Tariffs

This is the web version of the WSJ’s economic newsletter. You can sign up for daily delivery here. Good morning! Today, our Fed watcher, Nick Timiraos, digs into the newly dovish Fed take on inflation, we look at potential new U.S. tariffs on auto imports, and find employers using putting greens and craft beer to lure workers into the plumbing industry. JUST WAIT A MINUTE Stocks and bonds rallied strongly on the release of minutes from the Fed’s May meeting thanks to new hints that officials are relaxed about inflation​, WSJ Fed watcher Nick Timiraos tells us​. First, the minutes detail a discussion in which officials saw “a temporary period of inflation modestly above 2%” as “helpful in anchoring longer-run inflation expectations.” That reinforces prior signals that inflation over 2% won’t bother them: they’ve emphasized their inflation target is symmetric, meaning they won’t dial up rate increases if inflation rises above Continue reading "Real Time Economics: Why Markets Love the Fed Minutes and Hate Auto Tariffs"

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