This post is by Jeffrey Sparshott from Real Time Economics
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We’ll get key data on U.S. inflation and consumer spending this week, all against a backdrop of U.S.-China trade talks and the possibility of another government shutdown. Good morning. Jeff Sparshott here to take you through key developments in the global economy. Send us your questions, comments or suggestions by replying to this email.
LOOKING FOR INFLATION
Makers of household staples from diapers to toilet paper are set to raise prices again this year after hiking in 2018. Church & Dwight increased prices for about one-third of its products, including Arm & Hammer cat litter and baking soda. Consumer-goods companies including Procter & Gamble, Colgate-Palmolive and Clorox also have raised prices—or pledged to do so—in response to higher costs of raw materials and transportation, as well as unfavorable swings, Aisha Al-Muslim reports.
So, inflation, right? Nope. No signs yet. U.S. consumer prices rose a scant 1.9% from a year earlier in December. Economists expect an even milder 1.5% in January—which would be the lowest level in more than two years. Core prices, which knock out volatile food and energy, are expected to increase only 2.1%. Why is a bit of a mystery. Overall economic growth is robust, some companies are passing along higher costs and wages are posting their best gains since 2009. But none of that is feeding into a problematic inflation loop, or forcing the Federal Reserve to get more aggressive on interest rates. January consumer-price data is out Wednesday.
WHAT TO WATCH TODAY
U.S.-China trade talks begin in Beijing. Deputy U.S. Trade Representative Jeffrey Gerrish leads a deputy-level round of meetings starting Monday. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin kick things up a notch starting Thursday.
Fed governor Michelle Bowman speaks at a community banking conference at 11:15 a.m. ET.
President Trump is expected to sign an executive order aimed at boosting U.S. development of artificial intelligence—and at blunting China’s momentum in the field. (3 p.m. ET)
Negotiations over a bipartisan deal for border-security funding have stalled, raising the specter of another government shutdown at the end of this week, Kate Davidson and Kristina Peterson report. “Is a shutdown entirely off the table? The answer is ‘no,’ ” Mick Mulvaney, President Trump’s interim chief of staff, said on NBC. A presidential emergency declaration to build the border wall is “absolutely on the table,” he said.
Another shutdown would likely dent consumer confidence and could hurt the broader economy.
THE RICH GET RICHER
U.S. colleges and universities brought in a record $46.7 billion in donations last fiscal year, fueled by stock market gains and strategically timed gifts allowing donors to prepare for changes in tax laws. Giving increased by 7.2% in fiscal 2018, the ninth consecutive year of gains, Melissa Korn reports.
Free college programs are spreading across the U.S. There are now more than 300—120 of which were launched from 2015 to 2017, Douglas Belkin and Michelle Hackman report. A crisis in college affordability and a tightening labor market have propelled their proliferation. Most support two-year degrees and are closely aligned with the local labor market, aiming to help fill the estimated seven million open jobs in the U.S.
It isn’t clear that all programs are leading students to graduate from two- or four-year colleges at higher rates.
Americans so far are seeing smaller average refunds during the first tax-filing season under the new tax law. With about 10% of households filing their returns, the percentage of households getting tax refunds is similar to last year, but average refund size is down 8%, to $1,865, Richard Rubin reports.
DEMOGRAPHICS ARE DESTINY
Chinese leaders in 2016 scrapped the decades-old one-child policy after economists warned it was creating a demographic time bomb, contributing to a shrinking workforce and a rapidly aging population. The reversal isn’t having the anticipated impact. The number of newborns in China dropped to 15.23 million in 2018, two million less than 2017 and 30% below the median official forecast. It was also the lowest level of births since 1961, when millions were struggling to survive during China’s Great Famine.
The demographic outlook is fueling fears China could grow old before it gets rich, leaving it with too few workers to cover the cost of its aging population. That could stoke economic troubles that far outlast turbulence from trade battles this year, Liyan Qi and Fanfan Wang report.
U.K. ECONOMY STUMBLES
The U.K. economy slowed last year as businesses slashed investment in the face of growing uncertainty about the way in which the country will leave the European Union. Gross domestic product was 1.4% higher in 2018 than in 2017, the weakest expansion since 2012. The economy slowed more sharply as the year drew to a close, with GDP rising at an annualized pace of 0.7% in the three months through December, down from 2.5% in the third quarter, Paul Hannon reports.
QUOTE OF THE DAY
The fact that the Fed has put a pause on raising rates is going to provide a lot of support to the economy. —International Monetary Fund Chief Economist Gita Gopinath, speaking with the Financial Times
TWEET OF THE DAY
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WHAT ELSE WE’RE READING
Brexit worries are spreading. “Corporate America is sounding an alarm over mounting Brexit risks, beefing up warnings to investors as boardrooms worry that a disorderly departure threatens international business,” Alistair Gray and James Fontanella-Khan write in the Financial Times.
President Trump shouldn’t settle for just any deal in trade talks with China. “The Trump administration needs to fully understand the leverage it has today—and the increased leverage that it will have after March 1, the end of the 90-day reprieve from the imposition of additional tariffs—is the most the U.S. will ever have. To squander this opportunity would be a catastrophe not only for Trump’s administration but for the West,” Hayman Capital Management’s J. Kyle Bass and Daniel Babich write at Bloomberg Opinion.
UP NEXT: TUESDAY
The National Federation of Independent Business small-business survey is out at 6 a.m. ET.
Bank of England governor Mark Carney speaks in London at 8 a.m. ET.
The U.S. job openings and labor turnover survey for December is out at 10 a.m. ET.
Fed Chairman Jerome Powell speaks about rural poverty and development at 12:45 p.m. ET, the Cleveland Fed’s Loretta Mester speaks on the economic outlook and monetary policy at 6:30 p.m. ET, and the Kansas City Fed’s Esther George speaks about the economy at 7:30 p.m. ET.